18 Aug, 2011

Greenberg Traurig Wins Landmark Patent Decision, Invalidating Broad Business Method Claims As Unpatentable

NEW YORK – The Federal Circuit issued a landmark patent decision yesterday, affirming the Northern District of California’s grant of Greenberg Traurig client Retail Decisions, Inc.’s (“ReD”) motion for summary judgment in its long-standing litigation with CyberSource Corp. The patent relates to processes for detecting fraud in credit card transactions. CyberSource had alleged that the innovative ReD Shield fraud detection product offered by ReD infringed the ‘154 patent.

On March 27, 2009, Chief Judge Marilyn Patel of the Northern District of California granted ReD’s motion for summary judgment of patent invalidity of all asserted claims of CyberSource’s U.S. Patent No. 6,029,154, based on the patentability standard articulated by the Federal Circuit in In re Bilski.

The Federal Circuit affirmed the district court’s ruling, finding both asserted claims 2 and 3 invalid under 35 U.S.C. § 101. Specifically, the Court concluded that claim 3, directed to a method for detecting fraud in credit card transactions over the Internet, failed both prongs of the “machine-or-transformation” test enunciated by the Federal Circuit in In re Bilski. Further, after recognizing that the Supreme Court held that the “machine-or-transformation” test was not the sole test for determining patentability under § 101, it likewise concluded that “claim 3 of the ‘154 patent fails to recite patent-eligible subject matter because it is drawn to an unpatentable mental process—a subcategory of unpatentable abstract ideas.” In so finding, the Court expressly found that the claimed method could be performed in a human mind or by a human with a pen and paper.

Similarly, the Federal Circuit found claim 2 — a so-called “Beauregard claim” — unpatentable as well. As explained by the Court, “claim 2 recites nothing more than a computer readable medium containing program instructions for executing the method of claim 3.” The Court then rejected CyberSource’s argument that storing claim 3’s unpatentable mental process on a computer-readable medium somehow renders it patent-eligible. To the contrary, the Court concluded that the alleged invention underlying claim 2, like claim 3, “is a method for detecting credit card fraud, not a manufacture for storing computer-readable information.” Accordingly, the Court applied the identical § 101 analysis, concluding that claim 2, like claim 3, failed the “machine-or-transformation” test and claimed an unpatentable mental process.

In short, the Federal Circuit found claims 2 and 3 to be “[m]ethods which can be performed entirely in the human mind [and thus] unpatentable not because there is anything wrong with claiming mental method steps as part of a process containing non-mental steps, but rather because computational methods which can be performed entirely in the human mind are the types of methods that embody the ‘basic tools of scientific and technological work’ that are free to all men and reserved exclusively to none.” Accordingly, the Court affirmed the district court: “Because claims 2 and 3 attempt to capture unpatentable mental processes (i.e., abstract ideas), they are invalid under § 101.”

The Greenberg Traurig Team included Scott Bornstein, Chair of the New York Intellectual Property Practice and lead counsel for Retail Decisions; Allan Kassenoff, a shareholder in the New York office; and Julie Bookbinder, an associate in the New York.


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