Wednesday, February 09, 2011

Patent on "Collateralized Loans" Survives Bilski, Despite Failing the MOT Test

H&R Block Tax Services, Inc. v. Jackson Hewitt Tax Service, Inc., 6-08-cv-00037 (E.D. Tex., February 2, 2011)

During litiation, Jackson Hewitt (JH) challenged numerous patents asserted by H&R Block, alleging that they were directed to non-statutory subject matter, and thus unpatentable under 35 U.S.C. § 101.  One of the patents is directed to "a system and method for distributing payments to individuals and, more particularly, to a system and method for allocating a portion or all of an individual’s payment into a spending vehicle.”

Specifically, claim 1 of the disputed patent (the '862 patent) recites:

A computerized system for distributing spending vehicles comprising:

a payment due from a governmental entity;

an assignable right to receive said payment from said governmental entity, said assignable right held by an individual;

a spending vehicle offered by a third party sponsor to said individual in exchange for at least a portion of said individual’s right to receive said payment due;

an assignment of at least a portion of said individual’s right to receive said payment to said third party sponsor in exchange for said spending vehicle;

wherein information associating said payment with said spending vehicle from said third party sponsor is stored in and retrieved from a computer to facilitate processing of said spending vehicle and said spending vehicle is issued to said individual in an amount for spending by said individual of said at least a portion of said payment, said governmental entity is electronically notified to transfer said at least a portion of said payment to said third party sponsor, and said at least a portion of said payment is received by said third party sponsor.
JH argued that the claims in the patent are very similar to the invalidated claims in Bilski, since they are directed to financial relationships, which are abstract ideas.  Also, the "computer" claimed in the patent merely stores and retrieves data, thereby making it an insignificant extra-solution component that does not meet the requirements of patentability under Flook.  Finally, JH argued that invention merely limits the invention to the field of “government payments,” which is unacceptable under the Supreme Court’s decision in Bilski.

H&R countered that

(1)  Bilski allows specific applications of business concepts that do not preempt uses of the concept in other fields;

(1)  The claims provide meaningful limits on the exchange of financial products, by limiting the entities eligible to exchange financial products (i.e., “individuals”) and the financial product is limited to a spending vehicle that must be offered by a third party sponsor;

(3)  The patent is limited by the computer disclosed in the disputed claims, and the system must be “capable of notifying a government entity to transfer payment so that [the] third party sponsor may receive the payment;" and

(4)  The claim limitations do not preempt the use of exchanging financial products in other fields of use.

Surprisingly, the district court agreed with H&R:

Although an abstract intellectual concept - collateralized loans - certainly underlies the ‘862 patent, it differs in important ways from the patent at issue in Bilski. Where the Bilksi patent’s independent claims disclosed the abstract idea of hedging, independent Claim 1 of the ‘862 patent describes a particular application of an abstract idea, particularly, the application of collateralized loans to the field of assignable government payments in exchange for something of value. See Diehr, 450 U.S. at 187 (approving the patentability of the application of an abstract idea).

Limiting the concept of collateralized loans to the specific field of assignable government payments in exchange for something of value is not merely a field of use limitation prohibited by Flook. The ‘862 patent imposes a meaningful limit that prevents the preemption of all uses of collateralized loans in the field.  . . . Particularly, the ‘862 patent limits the invention by disclosing a “spending vehicle.”   The ‘862 patent clearly provides that a spending vehicle is an “[a]lternative to cash payments,” thereby limiting the applicability of the ‘862 patent to the use of non-cash collateralized loans in the field of assignable government payments in exchange for something of value.

Contrary to Jackson Hewitt’s arguments, the spending vehicle limitation is not a token or accessory. . . . In Ultramercial, the court analyzed the patentability of an invention that claimed a method for distributing copyrighted products over the internet. . . . After determining the invention failed the machine-or-transformation test, the court determined the patent at issue disclosed an abstract idea.  In rejecting the claims, the court stated that the patent lacked meaningful limits: “That the exchange (advertisement for media) is carried over the Internet, through a facilitator, using passwords and activity logs, does not limit the patent in a meaningful way.”  The court stated that these token limitations did not prevent the preemption of using advertisements as an exchange or currency in other fields.

Unlike the proposed limits in Ultramercial, the disclosed spending vehicle is a meaningful limitation. The spending vehicle limitation leaves the door open for cash-collateralized loans to be applied to all forms of government payments (e.g., Social Security checks, 401(k) distributions, dividend payments, tax refunds, payroll checks or deposits, private payment arrangements, etc.), because the type of loans claimed in the ‘862 patent are limited to the use of spending vehicles rather than cash. . . Thus, the spending vehicle limitation is meaningful because it does not preempt all uses of collateralized loans in the particular field of assignable government payments in exchange for something of value.
Accordingly, the Court finds that the claims of the ‘862 patent imposes a meaningful limit, and therefore, the ‘862 patent is valid under 35 U.S.C. § 101
However, the Court found that one of the patents failed Bilski, since it "[merely describes] the process of advancing money based on an income tax refund. The Court can conceive of no other way to manifest this financial relationship in this particular field. Thus, these purported limits, like the recited computer, do not meaningfully limit the patent."

Read/download a copy of the opinion here (link)

See earlier 271 Blog coverage here (link) - interestingly, the district court previously rejected the '862 patent under 35 U.S.C. § 101 . . .

21 Comentários:

Anonymous said...

Well this will not sit well with the blog entity known as IANAE...

Copyright Attorney said...

Here is a similar story

This document describes techniques for implementing a collateralized loan with periodic draws subject to a triggering event. This loan may be either recourse or non-recourse. To start, a borrower and a loaning party establish a line of credit that enables the borrower to begin drawing off of the line of credit at a predetermined time (e.g., a predetermined date or at an occurrence of a predetermined event). The borrower secures this line of credit by some type of collateral such as financial assets in a fund. The borrower may open up a fund in order to establish the credit line, or the borrower may use an existing traditional fund to establish the credit line. The amount of each draw, meanwhile, may be a percentage of the collateral at a time of the first draw or at a time of the availability of the first draw. For instance, the amount of each draw may be equal to a percentage of the amount of financial assets in a fund at the predetermined time. In some instances, the borrower has the option to draw on this line of credit according to a periodic schedule from the predetermined time until the occurrence of a triggering event (e.g., the borrower's death).

Anonymous said...

Still no comments from IANAE on this - amazing.

Anonymous said...

This site must be a mirage - just as a patent like this could never happen (according to IANAE).

Anonymous said...

DC's get the lawl wrong all the time. This is nothing special. It'll probably go to appeal and then we'll see how their randomly chosen panel feels on the matter.

It seems to me that the court here mischaracterised the abstract idea at play. Indeed, they fell into the same trap that AI did in regarding what Bilski disclosed and claimed. He did not claim the entirety of hedging, he had a specific application of hedging in mind as recited in his claim.

Nevertheless, the USSC saw that the specific application he had in mind was also an abstract idea and the claim he drafted was preemptive of the use of that abstract idea in all fields.

And then you have this guy that comes in and does pretty much the same thing except on a computer. He has a specific application in mind, but that specific application is an abstract idea unto itself. That is, the abstract idea of collateralized loans generally is not the only abstract idea pertinent to the abstract idea inquiry at hand as the court has said it is. Indeed, the abstract idea here extends to encompass the abstract idea of collateralized loans for assignable government payments being paid in some form other than cash.

That, is an abstract idea that very well may be preempt across all fields (biology, chemistry, financelol, all branches of engineering etc etc.). Indeed, it appears as if it is.

At least, that's how it appears to me, and I won't go so far as to comment on the validity of the claims at issue, plainly that is a question for a court.

In any event, this case plainly shows how even the learned judges in EDTex can confuse the abstract idea analysis by inserting facets of a claim which are simply describing more of the actual offending abstract idea as limitations upon a much more narrow abstract idea to which they have limited their analysis.

One must be on the lookout for such shinanigans in arguing your case before a court and nip them in the bud. Rather than argue that the limitations aren't limiting or whatever, simply notify the court that the actual abstract idea at play is larger and more limited than the one they had in mind.


Anonymous said...


Anonymous said...

Still no IANAE? 6 - go fetch - surely IANAE wants to see the impossible.

Anonymous said...

IANAE's silence speaks so loudly.

Business Cash Advance said...

Collateral loan is like doing barter in the past, only that in this age collateral items are given to be sure that you would pay your debt and if not the item would be a rightful property of the lender. It’s more of pawning but with lesser interest rate. But if you do not like to barter your properties, there are business cash advance that lends you money with no collateral, lower interest rates and fast cash in hand with no failure or hassle.

Anonymous said...

IANAE has become like his premise - invisible. vanished.

Anonymous said... a fart in the wind

Anonymous said...

Speaking about farts in the wind vanishing, Patent Hawk has eliminated not only a full comment string where he was getting ripped on, but the ability to post comments altogether.

Anonymous said...

Get a load of the hypocrite at PH:

"My cautions against ad hominem attacks were respected in the breach."

More like Babel Boy caught him with his pants down and asked him some tough ethical questions as to how he has his business set up.

For one who crows that he takes others down, the Hawk was too chicken to have his own neck wrung.

A Queen's rhapsody of another one bits the dust comes to mind.

Trent said...

Going through recent BPAI subject matter 101 decisions, I see a recent refreshing trend to not automatically disqualify patents on the basis of M or T test. I think this trend has RCT v. Microsoft to thank for that, but it will be interesting to see how this develops as a good alternative test has yet to be really established.

Anonymous said...

Perhaps IANAE has tried to make his comments on this subject over at the Patent Hawk's. For someone who was so sure this could never happen, he sure hasn't shown up here.

Anonymous said...

Perhaps IANAE has seen and is now struggling with his faith.

His posts elsewhere show considerable angst, as if his panties have balled up in the most uncomfortable position.

Anonymous said...

Still no comments from IANAE? Still no surprise, really.

Anonymous said...

You would think that by now that that IANAE character could have come up with something to say on this case.

Anonymous said...


Anonymous said...

Where oh where are all the ardent anti-Bilski-ists?

Anonymous said...

IANAE be afraid

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