Federal Circuit: ‘Physicality’ of Processing Paper Checks Does Not Save Solutran’s Claims from 101 Challenge

“[W]e have previously explained that merely reciting an abstract idea by itself in a claim—even if the idea is novel and non-obvious—is not enough to save it from ineligibility.” – Judge Chen, Federal Circuit

Judge Raymond Chen, U.S. Court of Appeals for the Federal Circuit.

The Federal Circuit recently reversed the District of Minnesota’s denial of summary judgment and held claims related to paper check processing invalid under 35 U.S.C. § 101. Despite the claims being directed to processing “physical” checks, the Court held that “the abstract idea exception does not turn solely on whether the claimed invention comprises physical versus mental steps.”  The Court also reasserted that novelty and/or non-obviousness does not obviate ineligibility under Section 101. See Solutran, Inc. v. Elavon, Inc., Nos. 2019-1345, 2019-1460, 2019 U.S. App. LEXIS 22516 (Fed. Cir. July 30, 2019) (Before Chen, Hughes, and Stoll, Circuit Judges) (Opinion for the Court, Chen, Circuit Judge).

The ‘945 Patent

Solutran, Inc. (Solutran) is the assignee of U.S. Patent No. 8,311,945, (the ’945 Patent), which is related to “a system and method for processing paper checks.”  According to the ’945 Patent, previous methods for processing checks involved the payee’s bank receiving the check for processing before transporting the check to the payor’s bank for finalizing the transfer. The ’945 Patent touted an improved method to process the checks, where the checks were turned into a digital file by passing the check through a point-of-sale terminal at the merchant’s location. The terminal could include a magnetic ink character recognition (MICR) reader to capture the account number, routing number, and the check number. This digital file could then be sent electronically to the payor’s bank for immediate transfer. The’945 Patent also described scanning the checks in the “back office,” where an image of the check could be stored with the MICR data. In general, the patent is related to:

A system and method of electronically processing checks in which (1) “data from the checks is captured at the point of purchase,” (2) “this data is used to promptly process a deposit to the merchant’s account,” (3) the paper checks are moved elsewhere “for scanning and image capture,” and (4) “the image of the check is matched up to the data file.”

Solutran sued U.S. Bancorp and affiliate Elavon, Inc. (collectively, U.S. Bank) in the U.S. District Court for the District of Minnesota, alleging infringement of certain claims of the ’945 Patent. U.S. Bank filed a motion for summary judgment asserting the claims did not recite patent-eligible subject matter under Section 101 because they were directed to the “abstract idea of delaying and outsourcing the scanning of paper checks.”

The district court disagreed and, relying on a previous covered business method (CBM) review by the Patent Trial and Appeal Board (PTAB), found the claims to be patent eligible. The district court relied on the PTAB’s finding that the claims were not “directed to” an abstract idea. The PTAB’s decision, which was released only two months after Alice Corp. Pty. Ltd. v. CLS Bank International, 573 U.S. 208 (2014) was decided, concluded that “the basic, core concept of independent claim 1 is a method of processing paper checks, which is more akin to a physical process than an abstract idea.” Because the process improved upon the techniques for processing “physical checks,” it was not an abstract idea. In the alternative, reasoned the district court, the claims “describe a new combination of steps, in an ordered sequence, that was never found before in the prior art and has been found to be a non-obvious improvement over the prior art by both the USPTO examiner and the PTAB’s three-judge panel,” and therefore pass step two of Alice. U.S. Bank appealed the Section 101 decision, and Solutran appealed on an issue of willful infringement.

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Ultramercial v. Hulu

The Federal Circuit proceeded to analyze the eligibility of the ’945 Patent claims under the two-step framework defined in Alice Corp. For step one, the Court found that the claims were “directed to the abstract idea of crediting a merchant’s account as early as possible while electronically processing a check.”  The Court compared a series of recent cases finding claims to be “directed to” abstract ideas. Similar to Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709 (Fed. Cir. 2014), the combination of steps here recite “an abstraction—an idea, having no particular concrete or tangible form.”

Outside of the timing similarities of Ultramercial, the elements of the claims recite “[t]he concept of data collection, recognition, and storage[, which is] is undisputedly well-known.”  “[T]he claims recite basic steps of electronic check processing. In its background, the ’945 patent explains that ‘there has been an industry transition to the electronic processing of checks, including the recordation of the data… presented by the check into a digital format which can then be transferred electronically.’” (internal punctuation omitted). It was common to capture the MICR data at a point-of-sale device and storing the images of the checks was well known. The Court also analogized the present claims to those in Alice and Bilski v. Kappos, 561 U.S. 593 (2010), holding “[t]he desire to credit a merchant’s account as soon as possible is an equally long-standing commercial practice.”

Solutran argued that the patent articulated two benefits: “(1) ‘improved funds availability’ because the merchant’s account is credited before the check is scanned or verified; and (2) relieving merchants of the task, cost, and risk of scanning and destroying paper checks by outsourcing those tasks.”  The Court noted, however, that the claims did not improve upon the technical nature of the computing elements completing the processes. Indeed, the claims were written at a “high level of generality,” and the specification conceded that the steps “are conventional processes for processing checks electronically.”

Physicality is Not Enough

Finally, Solutran adopted the district court’s view that the “physicality” of the claims took them beyond an abstract idea. In other words, because the claims were directed to improvement for processing paper checks, this was not an abstract idea. The Court reemphasized the fact that “‘the abstract idea exception does not turn solely on whether the claimed invention comprises physical versus mental steps.’ In fact, ‘[t]he claimed methods in Bilski and Alice also recited actions that occurred in the physical world.”  Quoting In re Marco Guldenaar Holding B.V., 911 F.3d 1157, 1161 (Fed. Cir. 2018). The physical nature of processing checks does not “improve upon any underlying technology.”

As for step two of Alice, the Court held that the claims “‘do not, for example, purport to improve the functioning of the computer itself’ or ‘effect an improvement in any other technology or technical field,’” and thus do not recite a transformative, inventive concept. The Court disagreed with the district court’s assertion that novelty or non-obviousness obviates patent ineligibility. “[W]e have previously explained that merely reciting an abstract idea by itself in a claim—even if the idea is novel and non-obvious—is not enough to save it from ineligibility.”

Finally, the Court quickly considered Solutran’s machine-or-transformation test argument and stated that, although the test is a “useful clue” to the second step of Alice, the claims of the ’945 Patent did not pass the test as they merely use a generic computer to perform conventional activities. In so holding, the Court reversed the district court, finding the claims of the’945 Patent to be patent-ineligible under Section 101.

 

 

The Author

Majda Muhic

Majda Muhic is an Associate at Troutman Sanders. She helps clients navigate a wide range of intellectual property issues under both federal and state law. Her practice focuses primarily on intellectual property litigation and related strategic counseling. She has counseled clients in proceedings in federal district and appellate courts as well as before the Patent Trial and Appeal Board and the Trademark Trial and Appeal Board (TTAB). Majda’s experience covers a variety of industries and technologies, including pharmaceuticals, consumer products and electronics, and motorized winches. In addition to patent litigation, she has successfully counseled clients in trademark, trade dress, trade secret and copyright infringement matters.

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Brandon Reed is an Associate at Troutman Sanders. His practice focuses on all areas of patent prosecution and litigation, spanning a variety of technology fields.

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Robert Schaffer is an intellectual property partner at Troutman Sanders. Bob applies more than 30 years of experience to IP counseling and litigation. His work includes patent procurement, strategic planning and transactional advice, due diligence investigations, district court patent cases, and Federal Circuit appeals. He regularly handles complex and high-profile domestic and international patent portfolios, intellectual property agreements and licensing, IP evaluations for collaborations, mergers, and acquisitions. In disputed court cases Bob’s work includes representing and counseling client in ANDA litigations, complex patent infringement cases and appeals, and multidistrict and international cases. In disputed Patent Office matters his work includes representing and counseling clients in interferences, reexaminations, reissues, post-grant proceedings, and in European Oppositions. For more information and to contact Bob please visit his profile page at the Troutman Sanders website.

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Dustin Weeks is a Partner in the intellectual property practice group at Troutman Sanders. His practice spans all areas of intellectual property law, including patent prosecution, patent litigation (including Hatch-Waxman litigation), and client counseling. He represents clients ranging from start-ups and solo inventors to Fortune 500 companies. Dustin works closely with his clients to learn their business objectives so that he can tailor strategies to procure, protect, and enforce their intellectual property. Dustin specializes in post-grant proceedings (e.g. Inter Partes Reviews) before the Patent Trial and Appeal Board (PTAB) where he has extensive experience representing both patent owners and petitioners across a wide range of technologies, including wireless networking, pharmaceuticals, MEMs devices, medical devices, and electro-mechanical consumer devices. Dustin's broad experience in patent prosecution, counseling, and patent litigation uniquely positions him to navigate the blended practice of post-grant proceedings.

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Majda Muhic

Joseph Robinson has over 20 years of experience in all aspects of intellectual property law. He focuses his practice in the pharmaceutical, life sciences, biotechnology, and medical device fields. His practice encompasses litigation, including Hatch-Waxman litigation; licensing; counseling; due diligence; and patent and trademark prosecution. He has served as litigation counsel in a variety of patent and trademark disputes in many different jurisdictions, and has also served as appellate counsel before the Court of Appeals for the Federal Circuit. Joe also focuses on complex inter partes matters before the U.S Patent and Trademark Office, inventorship disputes, reexaminations and reissues. His experience includes numerous interferences, a particular advantage in new U.S. Patent and Trademark Office post-grant proceedings. He also counsels on patent–related U.S. Food and Drug Administration issues, including citizen petitions, Orange Book listing, and trademark issues. For more information and to contact Joe please visit his profile page at the Troutman Sanders website.

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Discuss this

There are currently 21 Comments comments. Join the discussion.

  1. Night Writer August 16, 2019 8:11 am

    >>the Court found that the claims were “directed to the abstract idea of crediting a merchant’s account as early as possible while electronically processing a check.”

    That notoriously well-known abstract idea. 🙂

    > The Court noted, however, that the claims did not improve upon the technical nature of the computing elements completing the processes.

    >the combination of steps here recite “an abstraction—an idea, having no particular concrete or tangible form.”

    To one skilled in the art, the claims recite a set of concrete solutions. Real machines that require energy, time, and space to perform the functions recited in the claims.

    Something more in Alice is not a technical test.

    > Because the process improved upon the techniques for processing “physical checks,” it was not an abstract idea.

    Processing information is a physical process. All information processing is a physical process. (Unbelievable ignorance.)

    >>The Court also analogized the present claims to those in Alice and Bilski v. Kappos, 561 U.S. 593 (2010), holding “[t]he desire to credit a merchant’s account as soon as possible is an equally long-standing commercial practice.”

    So now desires count and not solutions.

    >As for step two of Alice, the Court held that the claims “‘do not, for example, purport to improve the functioning of the computer itself’ or ‘effect an improvement in any other technology or technical field,’” and thus do not recite a transformative, inventive concept.

    Information processing is a technical field. The computer can’t process the checks without implementing the invention.

    Plus there is lots of talk the “judges” talk at a high level of processing information as if all processing is the same. Tell you what “judges”, ponder why you are paid so much more than your secretaries. You are both just processing information. You are paid to just process information so why are you paid more than a person answering phones? You both are doing the same job according to the you.

    I think the actions of these judges rises to the level where they should be impeached. There reasoning is counter factual to scientific reality and does not apply the law. I would also investigate the manner in which these judges were appointed by Obama.

  2. Concerned August 16, 2019 10:34 am

    W]e have previously explained that merely reciting an abstract idea by itself in a claim—even if the idea is novel and non-obvious—is not enough to save it from ineligibility.” – Judge Chen, Federal Circuit

    That statement swallows all of patent law.

    Any kind of travel invention is non-patentable as man has been traveling from day one. even if it was the cave man running from the dinosaur.

    Any kind of shipping invention. Suppose I could ship a thousand items 500 miles by twitching my nose like Samantha on Bewitched. Ineligible as people have been shipping items since day one. Cave man dragging a deer home for dinner.

    Crazy, just crazy. Word games instead of focusing on what was created or invented.

    Challenge to judge: Name one invention, even one that has not been invented, that I could not reject by your judicially created exceptions.

  3. Anon August 16, 2019 12:33 pm

    Another data point for Mr. Cole’s consideration (as if the recent exchange at PatentDocs was not enough — vis a vis stipulations in the Alice case)…

    Still looking forward to seeing how Mr. Cole is going to amend his views pertaining to what an exception means, how ANY first look at something falling squarely within one of the statutory categories has ANY weight to the Supreme Court machinations, and his attempts at somehow still holding that Court at an elevated reverence level…

  4. Ternary August 16, 2019 1:31 pm

    “… the Court held that “the abstract idea exception does not turn solely on whether the claimed invention comprises physical versus mental steps.”

    This is such nutty language. It completely undermines any confidence in justice as an attempt to rationally and objectively settle issues according to stated rules.
    Judges who write this down and re-read it must conclude, even in a hidden part of their prejudiced mind, that something is not right. The whole situation reminds me of the famous movie line: “You keep using that word(“abstract”). But I don’t think it means what you think it means.” The word “abstract” in the legal profession has become like snake oil, you can use it for any purpose. Just shake it before use. It is really a shameful and continuing embarrassment.

  5. anonymous August 16, 2019 4:12 pm

    Congress, where are you with your fix to 101? It cannot come fast enough. How much more time, money, and effort must innovators waste before you fix the problem?

    It is time to act with urgency, as if it was YOUR property and livelihood being stolen by the efficient infringers. Enough is enough.

  6. Night Writer August 16, 2019 4:22 pm

    @4 Ternary

    Could not agree more. It is simply shameful and no ethical person could ever write such a sentence without being coerced to do so.

  7. Anon August 16, 2019 4:34 pm

    Physicality is not enough…

    Contrast with McRO:

    While the result may not be tangible, there is nothing that requires a method “be tied to a machine or transform an article” to be patentable. Bilski, 561 U.S. at 603, 130 S.Ct. 3218 (discussing 35 U.S.C. § 100(b)). The concern underlying the exceptions to § 101 is not tangibility, but preemption. Mayo, 132 S.Ct. at 1301.” –

  8. Pro Say August 16, 2019 5:52 pm

    … and yet another in a long line of the-ends-justify-the-means, the facts-and-the-law be d.a.m.b.e.d. decisions.

    What’s next, ruling that great inventions like advanced electric charging stations are aren’t patentable?

    Thankfully, that shocking could never happen here in America.

    Or could it:

    https://thehill.com/blogs/congress-blog/technology/457476-the-united-states-broken-patent-system-is-getting-worse

    http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/18-1739.Opinion.3-28-2019.pdf

    Congress: Where are you?

    How much more of this innovation-killing can our Country stand?

  9. Curious August 17, 2019 9:48 am

    The word “abstract” in the legal profession has become like snake oil, you can use it for any purpose. Just shake it before use. It is really a shameful and continuing embarrassment.
    Yup.

    While it may had its detractors, the machine-or-transformation test was SO MUCH better than this mess.

  10. Paul Cole August 17, 2019 2:07 pm

    @ Anon 3

    Only time to give this the briefest of scans.

    Claim 1 appears to have two branches, the electronic crediting branch and the optical scanning branch. True both branches use MICR data, but the claim does not specify enough to tie the two branches together, there being a mere “comparison” but no more. It looks much like a collocation of two known steps without a new function flowing from the specified features. Claim 2 is perhaps a little better. But there are detailed block diagrams of the system proposed, and probably there is a worthwhile invention in there. Unfortunately it did not get as far as the claims.

    On the other hand, Judge Chen’s abstract idea line of reasoning does not appear credible. Given his lengthy involvement with the patent system, something more solid might have been expected.

    There was probably a perfectly wonderful invention somewhere in the specification. But claim 1 was not it (apologies to the ghost of Groucho Marx for the use of his wonderful gag!).

  11. Anon August 17, 2019 2:39 pm

    Curious,

    Count me among the detractors, as the “test” simply did not accord with the law as written by Congress (as evidenced in how Stevens would have wielded that “test” to directly contradict the words of Congress in his seminal “career bookend” case (the one in which he was slated to write the majority position, but LOST that position because he would have put his own philosophy first and so blatantly legislated from the bench so as to cause EVEN MORE of a mess than the Broken Scoreboard that we have now.

  12. Curious August 18, 2019 1:16 am

    Count me among the detractors, as the “test” simply did not accord with the law as written by Congress
    I didn’t say it was perfect. But it was a whole lot better than the current mess we have. At least that test was easily passed with minor amendments. Under today’s make it up as you go along 101 jurisprudence, there is no way of knowing whether your claims pass muster unless they go to the Federal Circuit.

    as evidenced in how Stevens would have wielded that “test” to directly contradict the words of Congress in his seminal “career bookend” case
    I’m not sure what you are getting at. Both the majority and concurrence agreed that MoT was not the exclusive test. Stevens would have gone a step further by holding that “although a process is not patent-ineligible simply because it is useful for conducting business, a claim that merely describes a method of doing business does not qualify as a ‘process’ under §101.” Not sure how the MoT test impacts that holding.

  13. Anon August 18, 2019 9:45 am

    Fair points (as to clarity and consistency), Curious.

    My counter was that regime was no more statutorily connected than is the current mess.

    And to that was MORE the point of my earlier post to Mr. Cole, as Mr. Cole had endeavored to provide a statutory basis with his analysis of the Supreme Court writings – an analysis that was deeply flawed at the core of his lack of recognizing what the word “exception” entailed.

    Rather, his desire to justify (to a certain extent) the writings of the Court — trying to have had them say something “close but different” — is contrasted with the US Sovereign Separation of Powers that (and especially for patent law) makes any such legislating from the bench (the acts of the Supreme Court in their own confounded scrvinings) the bans and root cause of ALL of the mess in patent eligibility.

    Front and center, the sum total of ALL of what the Court has attempted to do in regards to patent eligibility (since BEFORE the Act of 1952, but expressly since that Act) has been ultra vires NONSENSE.

    The Court is the problem here.

    Leastwise, the main problem (as I do concede that there is plenty of collateral blame to go around to all three branches, and the efforts as reflected in the Tillis and Coon congressional hearings could have — and likely should have — happened a long time ago. I would even daresay that the patent bar (in a Royal “You” sense shares some culpability, given that even now there are “patent” attorneys (true USPTO registered patent attorneys, and “pseudo” patent-attorneys who litigate without being registered) who only too happily enjoin the muckery of what the Court has been attempting to do in painting what they want patent law to say.

  14. Anon August 18, 2019 9:54 am

    As for Justice Stevens, I have long pointed out (going back to the that very case) that the reasoning held by Justice Stevens violated the law written by Congress, and in part, by making entirely void and senseless a LIMITED post grant review process set up by Congress for certain types of business method patents.

    Such a mechanism simply put makes what Justice Stevens wanted to do – a full and de facto ban on ALL business method patents – impossible to do from the bench.

    Had he succeeded, not even MoT would have been enough to salvage the wrecked words of Congress, and we most likely would have seen a different advance by the Court (against those damm patent bar scriviners). Quite in fact, the Court would likely have been emboldened by such a direct assault of (improper) Common Law law writing. One of the problems in confronting the Court has been what may be viewed as a slow-boil frog in a beaker syndrome. Put a frog in a beaker and put a very slow heat on, and the gradualness of the water boiling eaves a frog placed in the water so complacent that he will be boiled alive (contrast with trying to place a frog in already boiling water, and the frog instantly recognizes the danger and leaps out).

    After the Act of 1952, the Court took tiny steps and whittled away at the Congressional slapdown. From a student of history, it simply amazes me how little most people can recognize the long term picture in the current morass of eligibility. FAR too many sleepy frogs out there in a slow-heat beaker situation. I fear that even you may be susceptible to such with your penchant for the “good, that is the enemy of great” desire for MoT.

  15. Jam August 19, 2019 10:27 am

    101 is supposed to be super simple, e.g., “is it a machine or process?” If yes, then 101 is passed.

    Judge Chen makes for a fantastic example for why section 101 should be amended to compel judges to draft eligible claims after rejecting novel claims under 101.

  16. Curious August 19, 2019 11:07 am

    I fear that even you may be susceptible to such with your penchant for the “good, that is the enemy of great” desire for MoT.
    I’ll still take the “good, that is still better than the bad.”

    Almost 10 years of Bilski and its only gotten worse. I fear my career will be over before I see things even return to the “good” and well short of the “great” that you yearn for. I have no time for the long game that idealism requires. Pragmatism is what I’m working with.

  17. Mark Nowotarski August 19, 2019 11:31 am

    Another class 705 patent bites the dust. Has there been any class 705 patent (i.e. computer implemented business method) that has been held valid by any court since Alice?

  18. Concerned August 19, 2019 1:32 pm

    Mark @16:

    I’m going to find out soon on my 705. The difference on mine is we proved every possible end user does not use any of my claims, individually or in combination. Therefore it cannot be routine, conventional and well understood.

    In addition we argued that mere collecting and analyzing data cannot solve the problem, it is self evident. The Social Security administration has the best possible Social Security data in the world and they have not been able to solve the problem since the inception of the SSDI program in 1956.

    It takes my inventive steps, which one is tracking the parent of an adult. Nobody tracks the parent of any adult in my field or any other field. And we do it for life at a cost efficient price.

  19. Mark Nowotarski August 20, 2019 3:56 pm

    concerned@18,

    All the best on you appeal.

  20. Night Writer August 22, 2019 9:05 am

    It is just bizarre that people think they can ignore simple scientific truths. They just jump over them and then yap out with ridiculous arguments. The whole thing is just ridiculous.
    (1) Information processing is necessarily a physical process.
    (2) Machines cannot provide new functions without new structure.
    (3) The structure is the set of solutions that perform the functions described by the claims. Anyone (POSITA) skilled in this art knows the set of solutions. Textbooks used at MIT for graduate computer science classes say exactly this. Anyone of those solutions is definite structure. The entire notion of “Abstract” is absurd.

  21. Night Writer August 22, 2019 9:32 am

    Fairly, (3) is an axiom of patent law. Patent law is supposed to work where the claims are interpreted in view of the specification by a person of ordinary skill in the art or anyone skilled in the art.

    Still, those three simple points destroy ever anti-information processing argument that has been made by these group of anti-patent judicial activists that constantly generate arguments right out of medieval Europe.

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