Judge Mayer Just Doesn’t Like Business Method Patents

By Jon Muskin
June 11, 2013

Alexsam, Inc. v. IDT Corporation is a non-remarkable patent infringement decision with a remarkable dissent.  Plaintiff Alexsam sued IDT for infringement of its U.S. Patent No. 6,000,608, which covers a system of activating a gift card using existing terminals at retail establishments.  IDT controls different gift card activation systems which were grouped into three separate systems.  The Federal Circuit affirmed the lower court’s ruling that the patent was valid under 35 U.S.C. § 103, reversed the finding of infringement with regard to two of the systems and affirmed the lower court’s finding of infringement with respect to one of the systems as a discovery sanction.

What is noteworthy about the case is not the majority opinion, but the dissent by Judge Haldane Robert Mayer.  Mayer’s dissent discusses why the patent is invalid under 35 U.S.C. § 101, which is curious because the 101 issue was not raised by the defendants during the appeal nor even mentioned during oral arguments.  While Mayer’s dissent is not a binding opinion, if another judge on the panel signed on to Mayer’s reasoning then the patent would have been held invalid based on an issue not raised during the appeal.

Raising issues sua sponte can invoke due process considerations because the party on the losing side of such an issue never had the opportunity to present its side of the issue to the court.   While disfavored by many academics, lawyers, and judges, the raising of issues sua sponte by a federal appellate court is not prohibited and in fact it happens from time to time.   However, there are Supreme Court rulings which seem to restrict the power of appellate courts to raise sua sponte issues and thus there is no “blank check” for appellate courts to raise issues sua sponte whenever they feel like it.  In National Bank of Oregon v. Independent Insurance Agents of America, Inc., 508 U.S. 439, 447 (1993) and Dickerson v. United States 530 U.S. 428 (2000), sua sponte rulings by the appellate court were affirmed but the Supreme Court noted in both cases that the parties were given an opportunity to address the issue raised sua sponte during the appellate proceedings.  See also Wood v. Milyard 132 S. Ct. 1826 (2012) and Greenlaw v. United States, 554 U.S. 237 (2008) for other Supreme Court cases in which the ability for an appellate court to raise sua sponte issues was restricted.  With regard to Alexsam v. IDT, the fact that Alexsam had no notice and opportunity to argue the 101 issue before the Federal Circuit yet Mayer took it upon himself to state that the claims were invalid under section 101 anyway is clearly an extreme measure (Mayer attempts to justify this by stating that section 101 is a threshold question which must be decided first).

Mayer’s dissent then gets more egregious as Mayer applies flawed logic to conclude that the ‘608 patent is invalid for failure to claim statutory subject matter.

Claim 1 of the ‘608 patent recites:

A multifunction card system comprising:

a. at least one card having a unique identification number encoded on it, said identification

number comprising a bank identification number approved by the American Banking Association for use in a banking network;

b. a transaction processor receiving card activation data from an unmodified existing standard

retail point-of-sale device, said card activation data including said unique identification number;

c. a processing hub receiving directly or indirectly said activation data from said transaction

processor; and

d. said processing hub activating an account corresponding to the unique identification number, thereby permitting later access to said account.

Claim 1 covers a system which allows a retail establishment to activate gift cards using their existing point of sale equipment without requiring the retail establishment to invest in additional equipment to be able to offer gift cards.  Mayer appears to apply a three step analysis to conclude that the ‘608 patent is invalid under section 101.

First, Mayer concludes that the invention requires no new technology.  This is dubious because the USPTO (during prosecution and also during a number of reexamination proceedings) as well as the majority opinion of this case found the invention to be nonobvious over the prior art.

Second, Mayer identifies the essential abstract idea that the patent claims.  Mayer states, “In essence, the ’608 patent discloses nothing more than the ‘abstract idea’ that it is less expensive and more efficient to activate pre-paid cards on the point-of-sale devices used to process credit cards.” Mayer uses preemption as support that that idea is abstract and states, “Alexsam’s broad claims—which cover not only gift cards and prepaid telephone cards, but also customer ’loyalty’ cards and ‘medical information’ cards—threaten to preempt some of the ‘basic tools’ of modern commerce.”

Finally, Mayer concludes that the asserted claims simply append the conventional technology to the otherwise abstract idea, and thus the invention is not statutory under section 101.

At first glance, some (especially those in favor of abolishing business method and software patents altogether) may find this analysis to be sound.  However, Mayer’s analysis uses conclusory reasoning and applying his analytical method to other patents can produce outlandish results.  As an example, see historical U.S. Patent No. 775,134 entitled “Razor”, issued on November 15, 1904 to King Gillette.  Claim 1 of the patent covers disposable razor blades and recites in its entirety, “1.  As a new article of manufacture, a flexible and detachable blade for safety-razors.” Now let’s apply Mayer’s analysis to this claim.

First, we note that when Gillette filed his patent, detachable technology was not new.  See, for example, U.S. patent no 475,072, patented in 1892 entitled “Detachable Umbrella-Cover” which describes a detachable umbrella cover so that when the cover wears out the umbrella assembly can still be re-used. Razor blades were also not new at the time Gillette’s application was filed.  So according to the first step of Mayer’s analysis, we conclude that claim 1 does not really recite any type of “new technology.”  Next, we identify the abstract idea which is the motivation for claim 1, which is that it is easier and less expensive for users to throw away razors than to have to continuously expend time and money to sharpen them.  The nature of the abstract idea is further confirmed because to grant such a broad patent would preempt all companies who want to manufacture and/or sell disposable razors.  Finally, we note that claim 1 merely applies the abstract idea of saving money and time using razors to the known technology of disposable/re-usable parts.  Therefore, Gillette’s claim 1 should (according to Mayer’s analysis) be rejected under 35 U.S.C. § 101.

Ludicrous?  Of course!  Claim 1 of Gillette’s patent may very well be obvious under today’s standards, but applying Mayer’s analysis renders 103 irrelevant because the claim would not even be statutory!  Mayer and his supporters might argue that the above application of Mayer’s analysis to Gillette’s patent is inapplicable because the flexible and detachable blade in claim 1 resulted in a new technology.  Well, all claims in the ‘608 patent were found (during prosecution, in several reexaminations, and by the majority opinion itself) to be non-obvious.  Therefore, the claims in the ‘608 patent clearly must recite some new technology.

So it’s clear that Mayer’s analysis has a number of flaws.  First, it appears to be confusing a 101 analysis with a 103 analysis.  For example, Mayer states that the ‘608 patent “describes an idea for making business run more efficiently, but it does not disclose any technological advance sufficient to confer patent eligibility.”  If an invention does not disclose a significant technological advance, then the invention may be obvious and Mayer’s dissent should have followed this path.  Mayer also did not discuss the other more detailed claims in the patent which add many more features.

In addition, Mayer’s dissent overemphasizes the preemption issue.  Patents are by nature preemptive.  Mayer states that the asserted claims “have the potential to wield enormous preemptive power… Alexsam’s broad claims—which cover not only gift cards and pre-paid telephone cards, but also customer ‘loyalty’ cards and ‘medical information’ cards—threaten to preempt some of the ‘basic tools’ of modern commerce.”  This statement is erroneous considering the fact that the majority opinion reversed the finding of infringement against all systems except for the system in which infringement was imputed as a discovery sanction.  Thus, it seems that any party can easily avoid infringing the ‘608 patent by mimicking what the non-infringing systems did (which simply requires some reprogramming of the terminals).  Thus, in reality the ‘608 patent has very little preemptive effect and Mayer is flatly wrong on this point.

It can be appreciated that in some cases, preemptive effect should be an important part of a 101 analysis.  For example, if in 1905 Einstein applied for a patent with a claim reciting, “a computer programmed to compute energy by multiplying mass times the speed of light squared,” this claim would likely be considered nonobvious at the time (since there would be no prior art in this field).  But of course, this would be tantamount to a patent on a law of nature and thus should be invalid under section 101 because it could preempt all electronic applications of mass-energy equivalence.  However, in this day and age it is rare that a law of nature or an abstract idea would not already be in the prior art, and thus any pre-emptive effect is already restricted via the 103 analysis.  When the ‘608 patent was filed there was already a large amount of prior art related to card activation technology.  During prosecution of the ‘608 patent, limitations were inserted into the claims to overcome the prior art, and it was these same limitations which were used by the Federal Circuit to reverse the lower court’s finding of infringement.  Thus, the current system works.  The prior art required Alexsam to narrow its claims, thereby preventing the patentee from preempting “basic tools of modern commerce” as Mayer puts it.  Thus, Mayer gives too much weight to preemptive effect in his 101 analysis.

So basically, Mayer’s analytical method can be used to invalidate virtually any patent under section 101.  Any invention can be reduced to its abstract concept of why it is needed (or what it generally does), and then concluding that the invention does not contain a significant technical advance (even though the very same invention has already been found to be non-obvious).

So what is really going on here?  Based on Mayer raising the 101 issue sua sponte in his dissent and his overly aggressive (and flawed) 101 analysis (see also his dissent in Myspace, Inc. v. GraphOn Corp.), one conclusion can be drawn.  That is, that Judge Mayer is clearly an opponent of patents involving business methods and in pursuit of that ideal he misapplies the current law.  While many patents involving business methods may very well be overbroad and of dubious quality, the proper avenue to invalidate most of these patents is section 103, not section 101.  Otherwise, a flawed and over-aggressive 101 doctrine can swallow up legitimate patents on good technology.

The Author

Jon Muskin

Jon Muskin

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 11 Comments comments.

  1. Paul Cole June 11, 2013 3:11 pm

    It is noteworthy that this is not a dissent from a newly-appointed judge but from a judge with senior status.

  2. Daniel Cole June 12, 2013 1:34 pm

    I am going to have to disagree on this, the blade example you use doesn’t work as there is a new technology here made by combining technology all ready present. The business method patent here doesn’t combine things to make a new technology but only uses all ready existing technology in a particular way. There is no created product here. It is also my understanding that 101 is a threshold inquiry that is done first. But then business method patents are something that has always seemed ridiculous to me. Business methods are not really science (yes I know the founding fathers used that word really to mean what we today call art) or useful arts.

  3. EG June 12, 2013 3:02 pm

    Jon,

    Your article on Judge Mayer’s views on this sort of subject matter are absolutely on target. I wondered if I was the only one who saw such sua sponte raising of 101 questions as being problematical. Frankly, Mayer needs to keep his views on patent-eligibility under 35 USC 101 to himself unless raised by one of the parties to the suit.

  4. Jon Muskin June 12, 2013 5:23 pm

    @Daniel, Thanks for the comment. I addressed that very argument in the paragraph that begins with “Ludicrous.” I note that the original examiner, the reexamination unit, the trial court, and the Federal circuit all found the patent to be novel and non-obvious, therefore it must recite some “new technology.” The ‘608 patent does recite a new product, that is a flexible terminal that can accomplish point of sales as well as activating gift cards.

    Now I personally think the patent is questionably obvious and I could take it or leave it, but I respect all the prior triers of fact on the obviousness issue. It is a very simple product just like the very simple disposable razor example. If Mayer’s dissent claimed it was obvious (not invalid under 101), I wouldn’t have any issue with it.

    And here lies the problem, it is a huge mistake to mix up 103 with 101 in the manner as written in the dissent. If someone applies for a patent which closely resembles the original Apple computer released in 1976, but simply rearranges some of the parts, they should get a 102 or a 103 rejection, but certainly not a 101 rejection.

    Gene identified one of the patents on “Watson” http://www.ipwatchdog.com/2013/05/13/is-ibms-watson-still-patent-eligible/id=40264/ which some would consider a “business method patent” (I read the owners may license the technology to call centers to automatically field calls). This same patent (8,275,803) could also be subject to a 101 challenge based on Meyer’s analysis. In my opinion, this is good technology that the inventors worked hard on and should enjoy the rewards of having a patent.

    So I agree the patent in question is questionable, but disagree on Meyer’s method to attack it. If Meyer’s reasoning were law, then lots of good patents (probably hundreds of thousands) would now face invalidity.

  5. Anon June 12, 2013 6:11 pm

    Daniel,

    It is more than a bit presumptuous of you to say that business methods, in essence, are not a part of the useful arts.

    It is also more than a bit historically incorrect. Patents for business methods have been granted by the USPTO throughout its history.

    Wrong in fact.
    Wrong in law.
    Wrong in philosophy.

  6. John Smith June 12, 2013 8:58 pm

    “First, we note that when Gillette filed his patent, detachable technology was not new. See, for example, U.S. patent no 475,072, patented in 1892 entitled “Detachable Umbrella-Cover” which describes a detachable umbrella cover so that when the cover wears out the umbrella assembly can still be re-used. Razor blades were also not new at the time Gillette’s application was filed. So according to the first step of Mayer’s analysis, we conclude that claim 1 does not really recite any type of “new technology.” ”

    Um, I think that the claim says the blade is to be flexible. Right? So that would be what is new so far as I can see. A flexible razor (new), which is also detachable (a nice limititation to toss in, just so there’s no 103 problems).

    Why you’re having trouble finding statutory subject matter in this patent is puzzling, except to note that you appear to not understand, in the least, the supreme court’s inquiry that it has been announcing. It really isn’t that difficult Jon.

  7. John Smith June 12, 2013 9:02 pm

    “However, in this day and age it is rare that a law of nature or an abstract idea would not already be in the prior art,”

    Your assertion is not born out in my everyday experience. Sorry Jon.

  8. Daniel Cole June 13, 2013 11:52 am

    Using your analysis however Jon 101 would never be looked at. Watson should be patented as a technology and then any use of that technology would infringe on the patent. If we are serious that abstract ideas, and products of nature are not patentable than that should be the first thing we look at.

    I simply disagree that because it is found nonobvious and novel it immediately is a new technology that should be patented. Selling items on the internet through an auction was a novel, and nonobvious idea but the IDEA should not be able to be patented. Software that makes it possible, if you meet all the other requirements maybe (I don’t know enough to have an opinion here). A new method of teaching without a new technological product I would also say should be unpatentable.

    If the patent has a new product patent that product the terminal. Of course then someone could engineer around the terminal or the terminal would not be novel, as it is likely very similar to the terminal that went before.

    Using the history of the PTO is also not very persuasive. Unfortunately the PTO grants patents it should not grant quite often, which is why we have quite a bit of patent litigation. See Myriad Genetics.

  9. bundy June 13, 2013 7:29 pm

    I think Mayer should retire, although there are other judges that would uphold this kind of logic as well. It seems that this sort of mixing of 101 and 103 can render any patent nonstatutory, and there is no defined standard as to what technological advance is needed to pass 101 in this analysis. Basically any patent that involves a business method is treated differently, even though there is no authority to do so. The claimed invention in this patent is a physical system. If it has no technological advance, it should be rejected under 103,not 101.

  10. Jon Muskin June 14, 2013 12:16 am

    “Um, I think that the claim says the blade is to be flexible. Right? So that would be what is new so far as I can see”

    Sorry, John. I thought it was implied by the article that flexible blades were also not new. Flexible blades were well known in the prior art long before Gillette’s patent was filed. Just search the historical patents. So I stand by my analysis above.

  11. Anon June 14, 2013 7:11 am

    Trying to frame 101 issues in the language of prior art (102/103) can only lead to confusion. They are different sections of patent law for a reason.