Inventor Appeal to CAFC Challenges PTAB Authority to Invalidate Claims on Remand

AppealOn December 20th, inventor John D’Agostino filed an appeal with the Court of Appeals for the Federal Circuit to challenge findings of patent invalidity issued by the Patent Trial and Appeal Board (PTAB). D’Agostino’s appeal argues that the PTAB wrongly found two patents invalid after it misconstrued every claim challenged by the petitioner. Should the Federal Circuit agree, it would be the second time in this case that the appellate court found that the PTAB issued findings of invalidity based on the improper construction of claims. But a more important challenge to PTAB authority to invalidate claims after a remand has been raised, which will require the CAFC to consider whether the action of the PTAB was time-barred.

The appeals follow from inter partes review (IPR) proceedings of two patents claiming technologies invented by D’Agostino:

  • U.S. Patent No. 8036988, titled System and Method for Performing Secure Credit Card Transactions. It claims a method of performing secure credit card transactions without requiring the disclosure of a consumer’s specific credit card number or other account information which the consumer may want to keep private.
  • U.S. Patent No. 7840486, same title as the ‘988 patent. It also claims a method of performing secure credit card transactions for remote commercial transactions conducted via telephone or over the Internet.

These patents were asserted in a complaint filed by D’Agostino in the District of Delaware in April 2013. In the suit, D’Agostino alleged that inControl and Controlled Payment Numbers payment solution technologies marketed and sold by American financial services company MasterCard (NYSE:MA) infringe upon both the ‘988 and ‘486 patents. MasterCard’s technologies allegedly involved the use of virtual card numbers for making payments in a way covered by D’Agostino’s patents. D’Agostino also argued that the infringement was willful as MasterCard likely had knowledge of D’Agostino’s patents through an affiliate, perhaps as early as October 2002.

In March 2011, a representative for D’Agostino sent an e-mail to MasterCard executives which offered to license the rights to practice the technologies covered by D’Agostino’s patents. MasterCard pursued ex parte reexamination of the ‘988 patent in September 2012 but the U.S. Patent and Trademark Office denied the reexamination request that December, finding that “no substantial question of patentability” affecting claims of the ‘988 patent was raised by MasterCard. This reexamination request relied on prior art which MasterCard would later submit to the PTAB, leading to invalidity of the challenged patents.

By March 2014, MasterCard had filed a total of four petitions at the PTAB to challenge the validity of both patents asserted by D’Agostino. Two of the petitions were for covered business method (CBM) reviews of the patents, but those two trials were denied institution in early 2014. Weeks after those CBM reviews were denied, MasterCard filed a pair of petitions seeking inter partes review (IPR) proceedings to adjudicate the validity of the ‘486 and ‘988 patents. In August 2015, the PTAB issued final written decisions in both of those IPR proceedings finding invalidity of both patents under 35 U.S.C. § 102 for anticipation and 35 U.S.C. § 103 for obviousness.

On appeal to the Federal Circuit, the appellate court reversed the PTAB’s findings in its final written decisions regarding the ‘486 and ‘988 patents, remanding the proceedings back to the PTAB. As the Federal Circuit’s December 2016 decision in the case notes, the court found that the PTAB’s decisions rested upon unreasonable claim interpretations. The Federal Circuit’s decision addressed only the PTAB’s construction of the “single merchant” claims as the invalidity findings for both patents relied on what the Federal Circuit found was an improper construction.

The Federal Circuit found that the single-merchant limitation required a separation in time between the communication of two pieces of information. The authorization entity used by the secure transaction system first sends an indication that a generated transaction code is to be used by a single merchant. At that time, there is no identification of the particular merchant that the transaction code is to be used for, just that the use of the code should be limited to a single merchant. Identification of the merchant who can use the code occurs when the transaction with the merchant is authorized. In its construction of the “single merchant” claims, the PTAB had concluded that the claim limitation covered a situation in which a customer asks for a transaction code for an identified chain of stores, further selecting a specific store within that chain, a situation which the PTAB found was covered by the prior art submitted by MasterCard in the IPR.

“The decisive problem with the Board’s conclusion is that this scenario necessarily falls outside the single merchant limitation. If Target is more than one merchant, then telling the authorizing entity to limit transactions to Target is not limiting the number of merchants (whose transactions are to be authorized) to one—and the Target scenario is for that reason outside the initial clause of the claim limitation. If Target instead is one merchant, then telling the authorizing entity to limit transactions to Target is not withholding the identity of the particular merchant—and the Target scenario is for that reason outside the second clause of the claim limitation. Either way, the chain store example fails to satisfy a claim requirement.”

The Federal Circuit remanded the reversed claim construction to the PTAB for further proceedings “not inconsistent with [the Court’s] opinion.” The December 2017 appeal by D’Agostino after the PTAB issued two decisions on remand argues that the Board again erred in claim construction to determine invalidity of challenged patent claims. On remand, the PTAB found that claim requirements regarding the use of a transaction code “to make a purchase” indicated that the code was to be used in a single purchase with a single merchant. This led the PTAB to invalidate claims based on the same anticipation argument in light of the same prior art from the previous IPR and reexamination proceedings despite D’Agostino’s contention that this finding of a “single purchase” didn’t harmonize with the use of plural terms including “purchases” and “transactions” found in the claim’s preamble.

On appeal to the Federal Circuit, D’Agostino argued that the PTAB lacked the jurisdiction to entertain unpatentability on remand as no part of the IPR statute found in the America Invents Act (AIA) of 2011 permits Board action more than 18 months after institution, rendering that decision on remand ultra vires. Even if it had jurisdiction, D’Agostino argues that the PTAB erred in all three of its unpatentability rationales, namely that the claims require multiple purchases or transactions; the pre-identification of a certain merchant in the asserted prior art in violation of the Federal Circuit’s law-of-the-case claim construction; and that other disclosures in the prior art do not set a number and also require pre-identification of the merchant. Finally, D’Agostino notes on appeal that changes to PTAB agency policy now reduces the likelihood that IPR proceedings wouldn’t be used to reconsider similar arguments or prior art which was previously utilized by the USPTO in the original prosecution or during reexamination proceedings. D’Agostino’s appeal also notes that the inventor is reserving a constitutional objection in light of the proceedings playing out currently at the U.S. Supreme Court in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC.


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