CAFC Rules Mass Transit Fare System Claims Patent Ineligible

Smart Sys. Innovations, LLC v. Chi. Transit Auth., No. 2016-1233, 2017 (Fed. Cir. Oct. 18, 2017) (Before Reyna, Linn, and Wallach, J.) (Opinion for the court, Wallach, J.) (Dissenting in part and concurring in part, Linn, J.).

The majority of a Federal Circuit panel affirmed a district court’s holding that several claims of four related patents “are directed to an abstract idea and otherwise lack an inventive concept, such that they are patent ineligible under § 101.”

The four patents, owned by SSI, belong to the same patent family and are generally directed to “[a]n open-payment fare system [that] allows riders to conveniently and quickly access mass transit by using existing bankcards,” eliminating the need for dedicated cards, tickets, and tokens. More specifically, the ’003 and ’617 patents provide a system and method for regulating entry in a transit system using information from a bankcard. The ’816 and ’390 patents provide a system and method for processing transfer rides associated with a public transit network, which “preprocess[es] transactions to consolidate or eliminate unnecessary transactions with a financial institution clearing and settlement network.”

“Under Alice step one, ‘claims are considered in their entirety to ascertain whether their character as a whole is directed to excluded subject matter,” such as, in this case, an abstract idea. SSI argued that the patents are not directed to abstract ideas “because the ’003 and ’617 patents disclose inventions that ‘operate in the tangible world’ and satisfy a public demand for more convenient travel that did not exist in the prior art.” The ’390 and ’816 patents “overcome challenges created by the storage limitations that exist with conventional tangible bankcards.”

The majority first noted the district court’s holding. “Stripped of the technical jargon that broadly describes non-inventive elements (e.g., the ‘interfaces’ and ‘processing systems’), and further shorn of the typically obtuse syntax of patents, the patents here really only cover an abstract concept: paying for a subway or bus ride with a credit card.” The majority added to this characterization of the claimed inventions. “Taken together, the…[c]laims are directed to the formation of financial transactions in a particular field (i.e., mass transit) and data collection related to such transactions.” More specifically, “the ’003 and ’617 patents involve acquiring identification data from a bankcard, using the data to verify the validity of the bankcard, and denying access to a transit system if the bankcard is invalid.” Likewise, “the ’816 patent involve[s] acquiring identification data from a bankcard and funding a transit ride from one of multiple balances associated with that bankcard,” and “the ’390 patent involve[s] identifying whether a presented bankcard is associated with a timepass (e.g., a monthly subway card) and, if the timepass is found, charging a different fare.”

The majority thus found that the claims are “directed to the collection, storage, and recognition of data” and likened the claims to those found abstract and patent-ineligible in Electric Power Group, LLC v. Alstom S.A. Despite the claims applying “to a particular, concrete field—namely, mass transit,” the claims merely invoke computers in the collection and arrangement of data. Limiting the field of use to mass transit systems does not permit the claims to escape the abstract idea exception under Alice step one.

The second step of Alice requires the determination of whether the claim elements, when viewed individually and as an ordered combination, contain “an inventive concept sufficient to transform the claimed abstract idea into a patent-eligible application.” The majority found that the claims fail to provide an inventive concept because they merely teach the use of, for example, a “processor,” an “interface,” “memory,” and “data.” SSI’s argument that its claims satisfy the machine-or-transformation test also failed because the claims disclose the use of generic computer components and machinery. Accordingly, the majority held that the claims “are ‘directed to an abstract idea’ and ‘merely requir[e] generic computer implementation,’ [such that] they ‘do[] not move into section 101 eligibility territory.”

Judge Linn concurred in part and dissented in part. Judge Linn emphasized that the non-statutory exceptions to patentability are intended to foreclose only those claims that “preempt and thereby preclude or inhibit human ingenuity with regard to basic building blocks of scientific or technological activating” and thus “are intended to be read narrowly.” Judge Linn “[r]egrettably” concurred with respect to the ’816 and ’390 patents, stating that he is bound by precedent, despite his disagreement “with such a categorical exclusion” of “what [the courts] have generally characterized as a ‘fundamental economic practice long prevalent in our system of commerce.” Regarding the ’003 and ’617 patents, Judge Linn found the majority’s characterization of the claims to be “at such a high level of abstraction as to overlook and misstate what the inventors considered to be their invention” such that several limitations, including those explicitly tying the recited method to a transit system, were ignored. Judge Linn interpreted the ’003 and ’617 patents to not be directed to an abstract financial transaction and would have found the claims of those patents directed to patent eligible subject matter.

In a patent-eligibility analysis under Alice, characterizing what the claims are “directed to” is a key aspect of inquiry for abstract ideas. Overly broad and “categorical” characterizations of the claimed invention may be detrimental to the patentability of claims.

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