After two and a half years of hard-fought litigation, Kroy IP Holdings has been defeated in a patent case brought against grocery retailer Safeway, Inc. In two comprehensive opinions issued May 29 by Judge William C. Bryson—a senior Federal Circuit judge sitting by designation in the Eastern District of Texas—the court granted Safeway’s motions for summary judgment and invalidated Kroy’s U.S. Patent No. 7,054,830 on several grounds. Not only did Judge Bryson find the ‘830 patent to be abstract and ineligible for patent protection, he also found the patent to be anticipated and obvious in view of Safeway’s cited prior art. Judge Bryson entered judgment for Safeway the same day, and ruled that as the prevailing party, Safeway is entitled to its costs.
Kroy (“York” spelled backwards) is the brainchild of York Eggleston, a Harvard-educated businessman with a string of technology companies on his resume. Mr. Eggleston and his colleague Andrey Ukhov are the named inventors of the ‘830 patent. According to the abstract, the ‘830 patent claims a method and system for providing incentive programs over a computer network. An exemplar claim provides, as follows:
1. A system for incentive program participation and automated award fulfillment, comprising:
a host computer coupled to a network;
a first database accessible from said host computer; and
an automated award fulfillment application program executed on said host computer for participation in incentive programs of a plurality of providers in communication with an inventory management system associated with each of said plurality of providers wherein said automated award fulfillment application program provides sponsor-selected fulfillment, said automated award fulfillment application program comprising:
code adapted to provide a sponsor-selected specific award unit item, said sponsor-selected specific award unit item being tailored to demographic and psychographic preferences of a sponsor-selected consumer user, and
code adapted to provide a sponsor-selected geographic location for fulfillment.
Kroy filed its case against Safeway in late 2012, accusing Safeway’s “Just for U” online coupon program of infringing the ‘830 patent. In addition to Safeway, Kroy sued another large grocery retailer, The Kroger Co., and several other high-profile companies, including Starbucks, TGI Friday’s, Hallmark Cards, Mrs. Fields Famous Brands, and The Men’s Wearhouse, among others. All settled with Kroy except for Safeway. Although courts in the Eastern District of Texas often deny leave to file summary judgment motions, Safeway obtained leave to seek summary judgment of invalidity on multiple grounds. First, Safeway obtained leave to seek to invalidate the patent as abstract and ineligible for patent protection under 35 U.S.C. § 101. Second, Safeway obtained leave to seek to invalidate the patent as anticipated by U.S. Patent No. 5,822,735 to DeLapa, and as obvious in light of the combination of DeLapa and U.S. Patent No. 5,970,469 to Scroggie. Judge Bryson agreed with Safeway on all grounds.
Judge Bryson’s ruling that the ‘830 patent is abstract and ineligible for patent protection will likely garnish the most attention, given the avalanche of invalidity decisions on § 101 grounds following the U.S. Supreme Court’s recent decision in Alice Corp. Pty. Ltd. v. CLS Bank International, 134 S. Ct. 2347 (2014). His opinion is noteworthy as one of the most thorough, recent district court decisions on the § 101 issue. It begins with an extensive, 17-page discussion of the law on patentable subject matter, starting with the Supreme Court’s decisions in Bilski v. Kappos, 130 S. Ct. 3218 (2010), Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S. Ct. 1289 (2012), and Alice. Judge Bryson goes on to analyze the Federal Circuit precedents on the issue and recent district court decisions involving § 101 challenges to patents involving computer implementations of methods of doing business.
Finally, Judge Bryson applies the Mayo/Alice two-step analysis to the ‘830 patent. That analysis involves first, determining whether the claims at issue are directed to one of the patent-ineligible concepts—laws of nature, natural phenomena, or abstract ideas. Alice, 134 S. Ct. at 2355. If so, the court next must consider the elements of the claims – both individually and as an ordered combination – to determine whether those additional elements transform the concept into a patent-eligible application. Id. At step one, Judge Bryson concludes that “[t]he core idea of the ‘830 patent – providing a computer-based inventive award program – is plainly an unpatentable abstract idea by itself.” (Opinion, at 25.)
The opinion also states that the use of incentive award programs in marketing “is indistinguishable in principle from the kinds of financial or business operations that were at issue in Bilski and Alice”, as well as those at issue in various Federal Circuit decisions invalidating patents as patent ineligible under section 101. (Opinion, at 26.)
Furthermore, the opinion notes that Kroy did not have “any convincing answer” to Safeway’s argument that using incentive programs in marketing is an abstract idea. Id. Instead, Kroy’s argument was that the various narrowing limitations of the claims distinguished Kroy’s program from the kinds of abstract ideas invalidated by the Supreme Court and the Federal Circuit. However, Judge Bryson observed that, under Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709 (Fed. Cir. 2014), “the addition of novel or non-routine components to an abstract idea do not necessarily ‘turn and abstraction into something concrete.’” (Opinion, at 27.)
Applying the second step of the Mayo/Alice test, Judge Bryson concluded that the claims lack an inventive concept sufficient to transform the claimed abstract idea into a patent eligible application, noting that:
- “[T]he fact that the claimed system and methods employ computers or a network such as the Internet is clearly insufficient to make the claims patent eligible” given that the role of the computer in the claims “is limited to the basic functions of a generic computer, including storing, transmitting, and displaying information.” (Opinion at 27-33.)
- The fact that the claims are directed to a particular type of computerized incentive award program and include specific additional limitations does not render them patent eligible, because the additional limitations “are precisely the kinds of conventional limitations discussed by the Federal Circuit in Ultramercial, and the kinds of ‘conventional steps, specified at a high level of generality’ referred to by the Supreme Court” in Mayo and Alice. (Opinion at 33-41.)
- The lengthy detailed disclosure in the specification does not render the claims patentable, because the claims, which are the focus of a § 101 analysis, “are very generic in character, providing very little by way of detail as to the architecture of the claimed system.” (Opinion at 41-43)
- Kroy’s expert declaration submitted in opposition failed to establish any inventive concept supplied by the claims. (Opinion at 43-47.)
- Kroy’s characterization of the ‘830 patent as claiming “highly sophisticated systems and methods with considerable specificity” and involving a “complex role played by computers” vastly overstates the case; any complexity “resides more in the terminology used in the patent than in the underlying concepts.” (Opinion at 48-51.).
Although Kroy may appeal the rulings, it would have to contend with four separate grounds for invalidity if it did so. And while the rulings have the same precedential value as other district court opinions, certainly no one envies Kroy’s position in deciding whether to appeal a Federal Circuit Judge’s decision to the Federal Circuit.