Safeway defeats Kroy IP Holdings on summary judgment in EDTX patent case

Christine Morgan & William Overend

Christine Morgan & William Overend

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.

The Author

Christine Morgan And William Overend

Christine Morgan And William Overend are the intellectual property litigators with Reed Smith, LLP, who represented Safeway in this matter. Bill’s patent litigation experience includes representing both plaintiffs and defendants in cases involving a wide range of technologies, including computer software and hardware, semiconductors, wired and wireless networks, 3-D graphics and television broadcast technology, and medical devices. Chris’ patent litigation experience also includes representing both plaintiffs and defendants in cases involving both design and utility patents involving a wide range of technologies and products, including semiconductors, software, wireless, LED, printer cartridges and promotional programs.

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 4 Comments comments.

  1. Curious June 12, 2015 11:05 am

    providing a computer-based inventive award program – is plainly an unpatentable abstract idea by itself
    Yes, because computers are so abstract. /sarcasm off

    the role of the computer in the claims “is limited to the basic functions of a generic computer, including storing, transmitting, and displaying information
    Does Bryson realize that this is what computers do? Generic as well as special purpose.

    while the rulings have the same precedential value as other district court opinions
    Yes … nothing.

  2. Jim June 14, 2015 1:06 am

    Curious, computers are very abstract. The patent did not have any concrete computer code, just an idea. You can’t patent “I want to use a computer to do this”.

  3. Anon June 14, 2015 7:40 am

    Jim June,

    If I may,let me inject a seemingly unrelated hypothetical conversation…

    Person1: I want my toaster to do this.
    Person2: That’s odd. A toaster does not do that.
    Person1: It can, if I add some components.
    Person2: If you add components, is it still a toaster?
    Person1: Does it still make toast?
    Person2: yes
    Person1: Then it is still a toaster and the new components and new capability does not deserve protection.

    This hypothetical exchange shows some of the limitations of the exchange here in the medium of blogging.

    In the rather large gap of understanding patent law between those who are technical, but do not understand how patent law works, to those that are both technical and do understand how patent law works, there are certain concepts (called doctrines) that would be make the hypothetical conversation take on an entirely different meaning in context.

    One such doctrine is the doctrine of inherency.

    To be quick and rough, the doctrine can be thought of as prohibiting a patent on an item if the item already has some feature which has just been newly discovered to be useful. The feature being necessarily present all along, is what makes the feature inherent in the already known item.

    Along with this doctrine comes the rather common confusion of what it means to “use” a computer.

    As to inherency, the question to ask yourself is that when you turn on a brand new computer, is there present (without more) the very capability that is being claimed? Is that capability present and inherent in the machine as it is, without adding any components, without any change?

    Too often people, especially technical people of a certain profession, forget that the creation and addition to the computer of software is a change to the first machine. Too often people confuse this “use” as the more mundane “merely use” the pre-exisiting machine, not giving credit to the change that takes place, that must take place to add – and not merely discover existing – capability.

    There is far too much gloss on words like “computer” and “use” in patent law conversations, and this gloss is not helpful.

    We have moved the discussion of patent eligibility surreptitiously to include – and ignore – the very activity of creating and inventing by lumping into the notion of “use” of some existing product, the ability to change the machine easily (by way of software), forgetting that the nature of a software change is still a change to the machine.

    Building into the base machine the ability to be changed should not be confused from a reality aspect and a patent law aspect that change indeed still occurs when the capability of the machine is in fact augmented when new components are added, be those components of a nature of hardware or of software.

    Perhaps a better way, a way with clarity, is to consider this patent concept of inherency as a gauge of present capability and not as a view of what could be done if some additional component was added, or some additional creative “use” results in new present capabilities.

    Instead of your statement of “I want to use a computer to do this” (which intimates that the computer could already do that, with no changes to the computer), say to yourself: “I want to change the computer so that I make it capable of doing this.” By this nuanced change in statement, it becomes clear that the proper patent law aspect of the word “use” does not conflate the inventive and creative “use” with the mere “use” of a changed machine.

    This is the clarity that is absent. The word “computer” and the word “use” are being too broadly “used” and the recognition of invention and changed capability that simply is not already inherently present in a machine is being lost. That recognition is an appreciation that the base machine does not inherently have the capabilities present, and that some change is necessary to have the capabilities that are then merely used.

  4. Anon June 14, 2015 7:46 am

    …and to your comment of “The patent did not have any concrete computer code,” you should be aware that such is not – and never has been a requirement for a patent application.

    A patent is not and engineering document. It is a legal document. The difference in context is critical.