District Court Applies Bilski Even More Broadly

In an opinion last month, Judge Marilyn Patel of the Northern District of California entered summary judgment of invalidity against two claims of U.S. Patent No. 6,029,154, Cybersource Corp. v. Retail Decisions, Inc., (No. C 04-03268).  The court, applying the Federal Circuit’s opinion in Bilski, held claims 2 and 3 invalid for failure to claim patentable subject matter.

Claim 3 was directed to a method claim for verifying the validity of a credit card transaction over the Internet:

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.

Claim 2 was a Beauregard-type claim directed to a computer readable medium containing program instructions for detecting fraud in a credit card transaction:

2. A computer readable medium containing program instructions for detecting fraud in a credit card transaction between a consumer and a merchant over the Internet, wherein execution of the program instructions by one or more processors of a computer system causes the one or more processors to carry out the steps of:
a) obtaining credit card information relating to transactions from the consumer; and
b) verifying the credit card information based upon values of plurality of parameters, in combination with information that identifies the consumer, and that may provide an indication whether the credit card transaction is fraudulent,
wherein each value among the plurality of parameters is weighted in the verifying step according to an importance, as determined by the merchant, of that value to the credit card transaction, so as to provide the merchant with a quantifiable indication of whether the credit card transaction is fraudulent,
wherein execution of the program instructions by one or more processors of a computer system causes the one or more processors to carry out the further steps of;
obtaining information about other transactions that have utilized an Internet address that is identified with the credit card transaction; constructing a map of credit card numbers based upon the other transactions; and utilizing the map of credit card numbers to determine if the credit card transaction is valid.

Method Claim

Regarding the method claim, the plaintiff argued that the methods met Bilski‘s transformation requirement by manipulating both credit card numbers and IP addresses.  The court, however, disagreed, holding that “the claimed methods simply obtain and compare intangible data pertinent to business risks.”  The court reasoned that “transformation” requires a fundamental change, while “manipulation” does not.  Although credit cards and credit card numbers may be manipulated, they are not transformed.  The court further held that credit card numbers are not physical objects; Bilski requires a transformation of an “‘article’–i.e., any physical object or substance, or an electronic signal representative of any physical object or substance.”  The court also rejected the IP address argument, holding that the IP addresses are not transformed or manipulated in the claim.

The plaintiff also argued that the method meets the machine prong of Bilski‘s test because it is performed over the Internet, a series of general and special purpose computers, routers, hubs, switches, and other specialized hardware.  The court held that the Internet is not “a particular machine” as required by Bilski.  Because the Internet is not essential to the claimed method, the court characterized its inclusion as “insignificant extra-solution activity.”  Thus, method claim 3 was held invalid as failing to meet either prong of the test set forth in Bilski.

Beauregard Claim

The plaintiff in the case argued that Bilski‘s machine-or-transformation test should not apply to claim 2 because it is not a method claim, but rather a Beauregard claim.  Beauregard claims are directed to computer-readable media that contain computer programs for performing patented methods.  As such, they are not considered methods, but rather tangible items such as computer disks, tapes, hard drives, or the like.

The court reviewed the Federal Circuit’s opinion In re Beauregard that created such claims and other cases that cite to it.  The court noted that there is actually no decision on the merits in Beauregard.  Instead, the PTO simply dropped the appeal and agreed with the patent applicant that such claims were patentable.  Thus, Beauregard is not binding precedent.

Like Auntie Mame’s Uncle Beauregard, the footing of the so-called Beauregard doctrine is anything but sure.

Because claim 2 refers to a process implemented through “unspecified program instructions,” Beauregard would not even save the claim in this case.  The court cited the Board of Patent Appeals decision Ex Parte Cornea-Hasegan from earlier this year to support this part of its opinion.

Conclusion

The court concluded its opinion with several interesting quotations:

In analyzing Bilski, one is led to ponder whether the end has arrived for business method patents . . .

Although the majority declined to say so explicitly, Bilski‘s holding suggests a perilous future for most business method patents.

The closing bell may be ringing for business method patents, and their patentees may find they have become bagholders (shareholders left holding worthless stocks).

A reading of the Cybersource court’s opinion does indeed lead one to believe that business method patents are in peril.  The court does provide a bit of hope for such methods, but their value will be much less than previously supposed.  The court noted that the computer programs and methods were “unspecified” and “intangible”.  One option that may still be available to patent applicants would be to include a great deal more detail regarding various implementations of business methods and programs implementing such methods.  This detail could be added to the claims to help meet the machine-or-transformation test.  Of course, more detailed claims leave clever infringers more ways to avoid them.

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One Response to “District Court Applies Bilski Even More Broadly”

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