Bilski Beatdown: Holders of Business Method Patents May Be Holding "Worthless Stock"

Cybersource Corp. v. Retail Decisions, Inc., N.D. Ca. (04-03268) March 26, 2009 (from Docket Navigator)

Cybersource asserted U.S. Patent 6,029,154 directed to a system and method for detecting fraud in a credit card transaction between a consumer and a merchant over the Internet. After undergoing reexamination, the USPTO issued a (pre-Bilski) certificate and the litigation resumed. Defendant subsequently moved for summary judgment of invalidity under 35 U.S.C. 101. An exemplary claim reads as follows:

3. A method for verifying the validity of a credit card transaction over the Internet comprising the steps of:

a) obtaining information about other transactions that have utilized an Internet address that is identified with the credit card transaction;

b) constructing a map of credit card numbers based upon the other transactions; and

c) utilizing the map of credit card numbers to determine if the credit card transaction is valid.

Relying on Bilski, the court looked to see if the claim "transformed an article into a different state or thing." The patentee argued that a claim need only manipulate data representing physical objects to mee the "transformation" prong. The court disagreed:

There is no indication that the Federal Circuit, having reaffirmed the machine-or-transformation test, intended to weaken the key term “transformation” by equating it with mere "manipulation.” The processes claimed in the ‘154 patent unquestionably “manipulate” credit card numbers by using them to build a “map.” But it is equally clear that neither credit card numbers nor credit cards are “transformed.”

Even if the court were to hold that “manipulation” suffices to effect a "transformation,” the question would remain whether either claim transforms an “article”—i.e., any physical object or substance, or an electronic signal representative of any physical object or substance . . . A credit card number is not a physical object or substance, and plaintiff does not argue to the contrary.

There is no dispute that credit cards are physical objects and that their particular physical characteristics have significance in various contexts. Yet a credit card number no more represents a physical credit card than a card represents a number. Both the number and the card represent a common underlying abstraction—a credit card account, which is a series of rights and obligations existing between an account holder or account holders and a card issuer.

[Regarding the recitation of an IP address,] the claimed method does not transform or even manipulate the IP address itself . . . The IP address itself is not an object of transformation; indeed, it would make no sense to change the IP address, since its purpose is to serve as an identifier. Furthermore, an IP address is not a “visual depiction” of a computer in the sense required by the Bilski court’s reading of Abele. See Bilski, 545 F.3d at 963. The claims do not, as a matter of law, meet the transformation prong.

Next came the issue of whether the claim was "tied to a particular machine or apparatus." The patentee argued that tying the claim features to "the Internet" was sufficient. Judge Patel felt otherwise:

Former vice-president Al Gore did not actually take credit for inventing the internet, and neither does plaintiff; however, plaintiff does contend that the entire internet is the machine implementation of its method.

Ouch.

This court is now presented with the question of whether recitation of “over the Internet” suffices to tie a process claim to a particular machine. There are at least three reasons why it does not. First, the test requires that a claimed process be tied to “a particular machine.” . . . The internet is a network of millions of individual machines. Indeed, the internet was initially conceptualized as a network robust enough to withstand the loss of a large number of particular machines . . . The internet continues to exist despite the addition or subtraction of any particular piece of hardware . . . One can touch a computer or a network cable, but one cannot touch “the internet.”

Even if the “over the Internet” limitation could otherwise be considered a machine implementation, the involvement of the internet will not qualify as such where it merely constitutes “insignificant extra-solution activity.” See Bilski, 545 F.3d at 962. A different rule would eviscerate section 101, because any “competent draftsman could attach some form of [extra]-solution activity to almost any mathematical formula,” or, for that matter, mental process.

Finally, the use of the internet does not impose meaningful limits on the scope of the claims. See Bilski, 545 F.3d at 961 (holding machine implementation or transformation must impose meaningful limits on claim scope) . . . Otherwise non-statutory subject matter cannot be made patentable simply by limiting it to a particular technological field . . . The instant claims broadly preempt the fundamental mental process of fraud detection using associations between credit card numbers. A limitation to “only” the vast area of online credit card transactions is not meaningful.

But wait. There's more. The patentee also asserted a "Beauregard" claim and argued that such a recitation was "on base" and thus exempt from Bilski. Again, Judge Patel was not buying:

Having reviewed the above tangle of references to “Beauregard” claims and the facts of this case, the court reaches two conclusions. First, there is at present no legal doctrine creating a special “Beauregard claim” that would exempt claim 2 of the ‘154 patent from the analysis of Bilski. The USPTO has referred to “Beauregard claims” when assessing computer programs embedded in tangible media, but there is no legal support for the view that Beauregard extends the holding of Lowry. Like Auntie Mame’s Uncle Beauregard, the footing of the so-called Beauregard doctrine is anything but sure.

Second, even if Beauregard and the USPTO decisions referring to it could be considered to set out a legal doctrine, and even if such doctrine survives Bilski, it would not provide a basis for plaintiff to avoid summary judgment. If a “Beauregard claim” is anything, it is an exception to the traditional printed matter rule for computer programs embodied in a tangible medium.

Finally, Judge Patel left us with these parting words in ruling all asserted claims invalid:

In analyzing Bilski, one is led to ponder whether the end has arrived for business method patents, whose numbers swelled following the decision in State Street. Without expressly overruling State Street, the Bilski majority struck down its underpinnings. This caused one dissenter, Judge Newman, to write that State Street “is left hanging,” while another dissenter, Judge Meyer, registered “an emphatic ‘yes’” to rejecting State Street, and a third, Judge Rader, queried whether the court was willing to decide that the entire field of business patents is “undeserving of incentives for invention.” 545 F.3d at 995, 998, 1014. Although the majority declined say so explicitly, Bilski’s holding suggests a perilous future for most business method patents.

The observations of several Justices suggest that this issue may be expected to receive serious consideration by the Supreme Court . . . The closing bell may be ringing for business method patents, and their patentees may find they have become bagholders.

(“Bagholder” denotes a shareholder left holding shares of worthless stocks).

Read/download a copy of the opinioin here (link).