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In a closely watched case about business method patentability following the U.S. Supreme Court’s 2010 decision in Bilski v. Kappos, the U.S. Court of Appeals for the Federal Circuit found broad software patent claims invalid because they attempt to capture “unpatentable mental processes.” The Supreme Court in Bilski rejected a business method patent that wasn’t tied to a new machine and didn’t transform anything, but it didn’t rule out method patents, instead stating that it “need not define further what constitutes a patentable process.” On Aug. 16, in CyberSource Corp. v. Retail Decisions Inc., a unanimous panel of the Federal Circuit affirmed a summary judgment finding of invalidity by Northern District of California Judge Marilyn Patel. The court found that two CyberSource patent claims in dispute were invalid “for failure to recite patent-eligible subject matter.” The patent at issue for CyberSource, an Internet payment management company, is for a “method and system for detecting fraud in a credit card transaction between [a] consumer and a merchant over the Internet.” Section 101 of the patent statute states that “whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefore, subject to the conditions and requirements of this title.” In Bilksi, the Supreme Court noted, “The Court’s precedents provide three specific exceptions to § 101′s broad patent-eligibility principles: ‘laws of nature, physical phenomena, and abstract ideas.’” CyberSource sued Retail Decisions, a payment processing and fraud prevention company, in August 2004. The district court stayed the action so that the U.S. Patent and Trademark Office could perform an ex parte re-examination of the patent. The PTO issued a re-examination certification in August 2008. In a March 2009 ruling, Patel found that claim 3 of the patent was for “an unpatentable mental process for collecting data and weighing values,” which did “not become patentable by tossing in references to [I]nternet commerce.” As for claim 2, Patel found that “simply appending ‘A computer readable media including program instructions…’ to an otherwise non-statutory process claim is insufficient to make it statutory.” CyberSource appealed Patel’s judgment in April 2009, and the Federal Circuit later stayed the case after the Supreme Court granted certiorari in Bilski in June 2009. Judge Timothy Dyk wrote the Federal Circuit opinion, joined by judges William Bryson and Sharon Prost. The Federal Circuit noted that the patent’s claims “are broad and essentially purport to encompass any method or system for detecting credit card fraud which utilizes information relating credit card transactions to particular ‘Internet address[es].’ “ The court analyzed each of the two claims separately. It noted that claim 3 “recites a method for verifying the validity of a credit card transaction over the Internet.” Dyk wrote, “The mere collection and organization of data regarding credit card numbers and Internet addresses is insufficient to meet the transformation prong of the test, and the plain language of claim 3 does not require the method to be performed by a particular machine, or even a machine at all.” Aside from failing the machine-or-transformation test, the claim describes an unpatentable mental process, Dyk wrote. “All of claim 3′s methods steps can be performed in the human mind, or by a human using pen and paper….Such a method that can be performed by human thought alone is merely an abstract idea and is not patent-eligible under section 101 [of the Patent Code].” Dyk then analyzed claim 2 of the patent, which he said is a so-called Beauregard claim, named after the Federal Circuit’s 1995 ruling in In re Beauregard, which involves a claim for a computer readable medium, such as a disk or hard drive that has program instructions for a computer to perform a particular process. Dyk wrote that “claim 2 recites nothing more than a computer readable medium containing program instructions for executing the method of claim 3.” He concluded that claim two is ultimately a process claim because “the invention underlying both claims 2 and 3 is a method for detecting credit card fraud, not a manufacture for storing computer-readable information.” “Thus, merely claiming a software implementation of a purely mental process that could otherwise be performed without the use of a computer does not satisfy the machine prong of the machine-or-transformation test,” Dyk wrote. CyberSource’s lawyers at Washington’s Finnegan, Henderson, Farabow, Garrett & Dunner and Morrison & Foerster did not respond to requests for comment. In an e-mailed statement, CyberSource spokesman Bruce Frymire said “CyberSource does not comment on ongoing legal matters.” Retail Decisions’ lawyer, Scott Bornstein, a New York partner at Greenberg Traurig, said the CyberSource ruling “was the first opportunity the Federal Circuit had to comment or rule on a business method or software claim after the Supreme Court ruled in Bilski.” “There’s a whole string of cases [on this issue] that the Federal Circuit will be deciding very soon,” Bornstein said. “Everyone was waiting with baited breath to see how this was going to come out.” The Federal Circuit’s language on the abstractness test concerning claim 3 is going to provide a lot of guidance to practitioners, he said.”This is not a decision that invalidates all software patents; it invalidates a patent that should have been invalidated,” Bornstein said. “There was no real invention.” Bornstein also said “the impact of this case, may be very well felt most strongly in the context of troll litigation,” referring to cases brought by so-called “patent trolls,” nonpracticing entities that use patents to bring lawsuits and demand licenses rather than to develop products. “I think this decision is going to be a troll killer,” Bornstein said. “In many instances, trolls are bringing claims without much substance and frequently we raise issues of patentability.” Sheri Qualters can be contacted at [email protected].

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