Integrated Technological Systems, Inc. v. First Internet Bank of Indiana (E.D. Tex.)

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Business Method / Software Patent Invalidated for Claiming Ineligible Subject Matter

In the U.S. District Court for the Eastern District of Texas, Integrated Technological Systems, Inc. (ITS) sued First Internet Bank of Indiana (FIB) of infringing four patents, U.S. Patent Nos. 7,912,786; 8,131,643; 8,321,347; and 8,620,809.  FIB moved to dismiss the complaint for failure to state a claim, contending that the subject-matter claimed by the patents is not eligible for patenting under 35 U.S.C. § 101.  The Court granted the motion, and found that the claimed automated business process for transferring money funds simply lacked enough detail to survive the challenge.

The Court followed the two-part subject matter eligibility (SME) test in which the Court first determines whether the claims at issue are directed to a patent ineligible concept, and if the claims are directed to an ineligible concept, the court then considers the elements of each claim both individually and as an ordered combination to determine whether the additional elements transform the nature of the claim into a patent eligible application.

Step One

The patents-in-suit share a substantially similar specification.  The summary of the invention in each patent describes the "primary objective" of the invention -- "to provide a method and system for sending money transfers such as cash between a sender and a remotely located recipient without a pre-established relationship, such as an account link, between the parties."  The concept to which the patents are directed is illustrated by an example in which the sender of funds first enters their account information "via an electronic input device . . . such as . . . a touch-tone telephone, a computer modem, an automated teller machine (ATM), and the like."  The sender then authorizes a money transfer, funds are transferred to an "electronic escrow agent," and the funds are then forwarded to the recipient.

Each asserted claim is directed to this same concept.  The claims differ to the extent they recite variations in how to implement the concept.  The '786 patent claims, for example, recite a "computer machine system for transferring money funds."  The computer system recited by the '643 patent claims, by contrast, is "adapted to being accessed by a communication medium device," such as a phone.  Thus, the claims differ in the types of hardware and the means used to transfer the funds.

The Court noted that the patents do not describe the type or configuration of the hardware as inventive.  To the contrary, the specifications state that the invention does not require special hardware since existing ATM terminals can easily be used with the invention.  The specifications also explain that while the preferred embodiment describes using a touch-tone telephone to send the money transfer, other devices can be used, including personal computers connected to modems, the Internet, merchant card swipe machines, live telephone operators, P.O.S. (Point of Sale Terminals), and automated telephone operators.

Because each asserted claim is directed to the same concept, and because the claims only differ in the way in which the concept is implemented, the '786 patent claims were considered sufficiently representative of all the asserted claims for purposes of determining subject-matter eligibility.  Claim 1 of the '786 patent recites:

1.  An automated business process computer machine system for transferring money funds comprising:
    a computer system which receives, processes and transmits account information data in order to effect simultaneous money transfers from sending debit card accounts to receiving debit card accounts; and
    the computer system being adapted to being accessed by a human sender's communication medium device, wherein the computer system receives the account information data and transfer authorization data from the communication medium device, and processes and transmits the data in automated modes with data transmission language through transmission and electronic mediums, so that the computer system processes and effects a money transfer from a sending debit card account to a receiving debit card account without the necessity of a pre-established relationship between the sending debit card account and the receiving debit card account, and
    in which the computer system simultaneously repeats the computer system processes and, by the computer system, effects additional transfers between different sending debit card accounts and different receiving debit card accounts causing simultaneous money transfers from the different sending debit card accounts to the different receiving debit card accounts.

The Court considered the query to be whether the concept to which claim 1 is directed, i.e., the concept of transferring funds between accounts without a pre-established link between the accounts, is an abstract idea.  ITS highlighted that the claims include a particular limitation that is novel -- "without the necessity of a pre-established relationship between the sending debit card account and the receiving debit card account," as recited in claim 1 of the '786 patent.

Although it appears that this feature is novel and was the reason the Examiner allowed the claims over prior art, the Court noted that a novel abstract idea can still be an abstract idea.

While the concept of simultaneously transferring funds without the necessity of a pre-established link between accounts does not seem abstract, the term "abstract" in the context of § 101 law does not mean the same thing as it does in common parlance.  Indeed, there is no definitive rule to determine what constitutes an "abstract idea," but rather, it is sufficient to compare claims at issue to those claims already found to be directed to an abstract idea in previous cases.

The Court found that the patents-in-suit describe transferring funds through an "electronic escrow agent," and whether this concept is "fundamental" or not, it is impossible to distinguish it from other business methods found to be abstract in previous cases.  The Court thus found step one to be satisfied, i.e., the claims are directed to an abstract idea, in a conclusory manner.

Step Two

The Court found that the claims recite nothing more than conventional computer activities or routine data-gathering steps.  Although ITS insisted that claim construction is necessary before making this determination, the Court found that the patents themselves are sufficient to answer the question.  The patents describe conventional media and components, such as personal computers, the Internet, cell phones, and ATMs, and expressly state that specialized hardware is not required.

Without any description in the patents themselves indicating special purpose hardware, or hardware configured in a new way, the patents were not able to survive the step two challenge.  Since the claims broadly recite functions that can be performed by any generic computing device, no new inventive step was identified.  As a result, the claims were found to be invalid under section 101.

Report and Recommendation by Magistrate Judge Roy S. Payne

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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