The world of patent lawyers (and tax lawyers concerned about tax strategy patents) had been eagerly awaiting the Federal Circuit's CyberSource decision handed down August 16. CyberSource Corporation vs. Retail Systems, Inc. (in a suit for patent infringement, whether a patent for a method of detecting online credit card fraud was valid). The case provides a first glimpse of how the Supreme Court's Bilski decision on eligible subject matter for patents might affect future patentability of legal and software processes tied to machines one way or another.
The claims at stake are claims 2 and 3, as follows:
2. A computer readable medium containing program instructions for detecting fraud in a credit card transaction between a consumer and a merchant over the Internet, wherein execution of the program instructions by one or more processors of a computer system causes the one or more processors to carry out the steps of:
a) obtaining credit card information relating to the transactions from the consumer; and
b) verifying the credit card information based upon values of plurality of parameters, in combination with information that identifies the consumer, and that may provide an indication whether the credit card transaction is fraudulent,
wherein each value among the plurality of parameters is weighted in the verifying step according to an importance, as determined by the merchant, of that value to the credit card transaction, so as to provide the merchant with a quantifiable indication of whether the credit card transaction is fraudulent,
wherein execution of the program instructions by one or more processors of a computer system causes that one or more processors to carry out the further steps of;
[a] obtaining information about other transactions that have utilized an Internet address that is identified with the credit card transaction;
[b] constructing a map of credit card numbers based upon the other transactions; and
[c] utilizing the map of credit card numbers to determine if the credit card transaction is valid.
3. A method for verifying the validity of a credit card transaction over the Internet comprising the steps of:
a) obtaining information about other transactions that have utilized an Internet address that is identified with the credit card transaction;
b) constructing a map of credit card numbers based upon the other transactions and;
c) utilizing the map of credit card numbers to determine if the credit card transaction is valid
Writing for the three-judge panel (Dyk, Bryson, and Prost), Judge Dyk commenced with an analysis of claim 3 under the ‘machine or transformation’ test that the Bilski Court had accepted as useful but rejected as an exclusive test for patentability. Claim 3 fails the test, since it is merely the "collection and organization of data" that does not even require machine intervention. It probably didn't help that CyberSource's CEO admitted that 'we could see just by looking that more than half our orders were fraudulent'. Id. at 14. (emphasis added). Taking the Supreme Court's admonition that the machine or transformation test, while useful, is not the exclusive test for process patentability, the Federal Circuit found that the claim came within the 'abstract idea' exception, since it was merely a mental process that could be performed by a human with pen or pencil. "Computational methods that can be performed entirely in the human mind are the kinds of methods that embody the 'basic tools of scientific and technological work'." Id. It relied on (among other authorities) the Supreme Court's decision in Benson, a case finding subject matter ineligibility for a general computer algorithm converting binary to decimal numbers.
The more interesting analysis, of course, is the consideration of the Beauregard claim 2, based on In re Beauregard, 53 F.3d 1583 (1995). A Beauregard claim "is a claim to a computer readable medium . . . containing programming instructions for a computer to perform a particular process." Id.
The court states that the method in claim 2 is the same method found unpatentable in claim 3. CyberSource argued that claim 2 was nonetheless patentable, because it was a "manufacture" claim rather than a process claim, to which the abstract idea exception cannot apply.
This is important for those of us who object to the idea of patenting tax strategies, since the patent bar generally claims that any tax strategy patent can be rewritten as a machine-based claim (a method carried out by means of a computer) and thus avoid whatever process hurdles may be thrown its way.
Dyk argued that this kind of drafting leger-de-main can't work. "Regardless of what statutory category ... a claim's language is crafted to literally invoke, we look to the underlying invention for patent eligibility purposes." In both claim 2 and claim 3, Dyk states, what is at issue is a particular method for detecting fraud and not a manufacture. Relying on In re Abele, 684 F.2d 902 (1982), in which an apparatus claim (claim 7) was treated as a method claim for the section 101 analysis, Dyk invokes Abele's form over substance language regarding claims that are "really to the method" rather than to the apparatus: in other words, Dyk argues that unless there is a specific machine necessarily involved, the claim reduces to the underlying method. Id. at 17. Dyk has more trouble distinguishing (or limiting) the Federal Circuit's holding in In re Alappat, 33 F.3d 1526 (1994), where software was treated as converting a general purpose computer into a specific computer and thus patentable, as CyberSource argued its patent should be, as the creation of a new machine. Dyk's effort here seems to fall short--unable to reject all software patents, he attempts to draw a distintion that rejects claims where the result is merely "reciting the use of a computer to execute an algorithm that can be performed entirely in the human mind." Id. at 18. Thus, claim 2 is also analyzed as a process claim and consequently predictably also fails the machine or transformation test. The use of a machine doesn't save it, since it is merely incidental. "Purely mental processes can be unpatentable, even when performed by a computer."
These last few paragraphs, where Dyk struggles to distinguish among software cases, are troubling.
For those who think any innovative idea should be patentable--whether a tax strategy or computer software--this will be unconvincing. With innovation as the key word, patent lawyers will argue that software and other intangibles should be just as patentable as 'iron age' manufacturing technology and that Dyk hasn't adequately distinguished one from the other. See, e.g., comments on the Patently-O blog post noting the CyberSource decision, suggesting that we've gone from "Bizarre Bilski to Crazy CyberSource". If the software method is not patentable, then neither is the computer readable medium, Patently-O, Aug. 16, 2011.
For those (like myself) who think that tax strategy patents and similar methods based on law or logic shouldn't be patentable, it would appear that software generally should not be patentable under the same logic that applies to tax strategies. It's not clear that Dyk has found a workable divide between patentable and non-patentable. It seems to rest entirely on the difference between the kind of calulations that humans can do (though computers do them better and faster) versus the kind of complex calculations that generally represent too large a data storage and processing time for humans to undertake but are easily doable by computer.
Will the Supreme Court likely take cert in CyberSource (assuming that a petition for certiorari is filed)? I'd speculate that it would not. If it were to do so, would it likely add more fuzziness, as it did by refusing to draw a clear line in Bilski? I tend to think that a likely result. While it would be refreshing to have the Court acknowledge the problem of allowing patents on nature (genes!) and legal processes (tax strategy patents!) and logical processes (software), the IT industry pressure and the status quo ante pressure of existing patents will cast a heavy weight on the Court.
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