On March 6th, the Court of Appeals for the Federal Circuit upheld an earlier ruling handed out by the Northern District of Illinois which found that American fast food giant McDonald’s (NYSE:MCD) did not infringe on a pair of patents covering digital rights management technologies. The Federal Circuit agreed with the lower court that tokenization systems used by McDonald’s for processing payments from Visa cards did not infringe the patents because the accused system components were controlled by Visa (NYSE:V).
The case, filed against McDonald’s by solo inventor William Grecia, involves two patents:
- U.S. Patent No. 8402555, titled Personalized Digital Media Access System (PDMAS). Issued in March 2013, it discloses a method for monitoring access to an encrypted digital media which facilitates interoperability between a plurality of data processing devices in a way that address shortcomings of prior art digital rights management (DRM) schemes which can occur when DRM servers are discontinued or server hardware fails.
- U.S. Patent No. 8533860, titled Personalized Digital Media Access System – PDMAS Part II. Issued in September 2013, it covers a method for authorizing access to digital content using cloud systems which is designed to unlimited interoperability of digital media between unlimited machines with management of end-user access to the digital media.
Grecia first filed a complaint for patent infringement in the Northern Illinois district court in February 2014 which alleged that aspects of the Visa tokenization system used by McDonald’s infringed on claims of the asserted patents. This system involves the use of a VisaNet server which receives a customer’s primary account number from McDonald’s when the customer presents a Visa card to purchase food. When the primary account number is received by the server, it creates a request to write a token associated with the account number to the Visa token vault. This token is then used to authenticate the purchase through the Visa card. Grecia’s original complaint against McDonald’s also included similar allegations of patent infringement for McDonald’s use of similar payment systems made available through American Express, MasterCard and Discover.
McDonald’s had moved to dismiss Grecia’s case for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), claiming that its actions in using the accused tokenization systems did not constitute use of the patented invention under 35 U.S.C. § 271(a), the statute governing infringing actions which can be challenged in a patent suit. In August 2016, U.S. District Judge Sharon Johnson Coleman granted McDonald’s motion to dismiss. In an opinion filed by Judge Coleman, the district court sided with McDonald’s in finding that the users of the claimed inventions are the credit companies themselves, not McDonald’s.
To reach her decision, Judge Coleman applied case law precedents stemming from two cases decided in 2011 by the Federal Circuit: Centillion Data Systems v. Qwest Communications; and Uniloc USA v. Microsoft Corporation. In Centillion, the Federal Circuit found that an alleged infringer did not need physical or direct control over each individual element of a system to constitute an infringing use of the system under Section 271(a). McDonald’s had argued that Centillion is only applicable to divided systems and, in this case, the claimed systems are not divided because the credit card companies control all of the system’s components. Grecia had argued that McDonald’s did control at least one element of the claimed systems: the data processing device that sends a personal account number to the first receipt module. However, the district court found that this argument failed because data processing devices are not a component of the systems claimed in the asserted patents. Thus the processing devices owned by McDonald’s were akin to the situation in Uniloc where the Federal Circuit held that the computers of Microsoft customers, where the alleged infringement of Uniloc’s patent claims occurred, were not components of the claimed invention and were rather merely a necessary part of the environment in which the claimed invention functioned.
Grecia appealed to the Federal Circuit after the district court denied a motion for reconsideration which he filed after the Rule 12(b)(6) dismissal. In the discussion of the arguments presented before them, the Federal Circuit panel of Circuit Judges Timothy Dyk, Jimmie Reyna and Richard Taranto noted that “the matter at hand reveals a gap in our jurisprudence on what constitutes ‘use’ under § 271(a).” The Federal Circuit found no controlling precedent on the definition of “use” of a claimed system when the accused infringer must act to put the claimed system into service but does not appear to possess any element of the claimed system. Further, the panel felt that McDonald’s had overstated the Federal Circuit’s holding in Uniloc as the appellate court concluded that a single party can still use a system and directly infringe a patent even when that system requires multiple parties to function. “Therefore, Uniloc only broadened the scope of potential direct infringers under § 271(a),” the Federal Circuit found.
However, the Federal Circuit also found that Grecia’s complaint fails to plausibly allege that McDonald’s “benefits from each element of the claimed system necessary to allege ‘use’ under § 271.” To support this, the Federal Circuit cited to its 2017 decision in Intellectual Ventures I v. Motorola Mobility, a case in which rejected the notion that an accused infringer only needs to benefit from the system as a whole by deriving benefit from any claimed element of the system in order to prove direct infringement. In light of that case, the Federal Circuit found that Grecia only identified a vague benefit to McDonald’s: the use of a token stored in metadata associated with a Visa account for subsequent food purchases at the McDonald’s where the first purchase was made.
“As alleged in Grecia’s complaint, the branding module permits Visa to ‘write the token to the token vault, associating the token to the [primary account number] for later cross-referencing upon subsequent hamburger purchases at McDonalds.’ But McDonald’s does not receive or store the token. Rather it is a potential tool employed by Visa to facilitate future Visa transactions. Any benefit from the branding element rests solely with Visa. Grecia’s assertion that McDonald’s somehow benefits by Visa’s cross-referencing the token upon subsequent hamburger requests is speculative, conclusory, and ultimately insufficient to state a plausible claim for relief for an infringing use of a claimed system under § 271(a).”
Grecia did file a patent infringement suit against Visa in the Southern District of New York back in November 2015. That case was dismissed with prejudice in November 2017 with both parties stipulating to the dismissal of claims. Grecia’s ‘555 patent has been challenged in four inter partes review (IPR) proceedings at the Patent Trial and Appeal Board (PTAB); two of those petitions have been denied and one was settled pre-institution. The ‘860 patent has been challenged five times at PTAB leading to two pre-institution settlements and one post-institution disclaim.