Payment Patent Infringement

Payment Patent Infringement

J. Thomas Vitt

Overview

• The Patent System

• The Emergis Case

• Practical Lessons

The Patent System

What Can You Patent?

The Patent System


• Supreme Court: “anything under the sun made by man”

• “Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent . . .”

• But you cannot patent: (1) abstract ideas (2) laws of nature (3) physical phenomena

The Patent System


• To obtain a patent, the claimed invention has to be:• Novel (meaning the invention has at least one difference from

what’s in the art)• Not Obvious (meaning more than ordinary skill is required)• Useful (an easy standard)

• The Practical Reality: The pendulum swings back and forth, but more things are patentable than you might think

The Patent System

Two Areas of Special Interest for Payment Systems

– Business Method Patents

– Software Patents

The Patent System

Business Method Patents

• “A new and useful process” is patentable

• A method of doing business can meet this definition

• Limited by the “abstract idea” limitation (and other requirements for patentability)

The Patent System: The Controversy Over Business Method Patents

• State Street (1998) Broad permission for business methods as long as the method produced a “useful, concrete, tangible result”

– Led to significant increase in “business method” patent filings

– Business method patents are harshly criticized


• Bilski (2010)

– Federal Circuit reversed State Street and created a narrow, bright line test for business methods: “tied to a machine” or “transformation of matter”

– But the Supreme Court rejected that bright line “machine or transformation” test

• Business methods survive (barely) and can still be patented

• But, Supreme Court invalidated the patent in the Bilski case as “abstract idea”


• Continuing battle on what business methods are patentable

• Congress to the rescue?– No, but

– Pending Patent Reform: Singles out business method patents that claim “a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service” for a special post-grant review procedure

– Can use to stop litigation and force Patent Office review

– May apply to business methods in utility payment systems

The Patent System:Software Patents

• Less controversial than business method patents, but still controversial– Mark Cuban: Outlaw all software patents!

– Software patentable as an article of “manufacture”, also as a “process”

• Retail Decisions (August 16, 2011)– Rejected computerized credit card fraud detection

system as “abstract idea”

The Emergis Case

• The Emergis Patent Claims an Electronic Invoicing and Payment System

The Emergis Case

• 99 Claims! But, essentially the patent claims using a computer to pay bills online

• Emergis was a “non-practicing entity” (called a “patent troll” by defendants)

The Emergis Case

• Emergis Patent Claims: Many words obscuring simplicity– (1) invoice presentation electronics adapted to present

customer billing data . . . and to request payment instructions

• Translation: A computer sends you the bill

– (2) remote electronic customer authorization interface . . . to (a) receive customer billing data and request for payment (b) provide customer billing data and request for payment instructions to customer (c) transmit customer payment instructions directly to invoicer

• Translation: You use a computer to pay the bill

The Emergis Case

• Direct Transmission is the key

The Emergis Case

The Emergis Campaign

• Sent (at least) dozens of threat letters to utilities in 2004-2006 time period

• Filed 16 lawsuits in 2005-2006

The Emergis Case

The Response to the Emergis Campaign• Pay, or Fight?

The Emergis Case

Several Companies Chose to Settle

• Different Payment Systems– Non-infringement defense is much cheaper than invalidity

• Home-grown systems/third-party providers

• Emergis Settlement Strategy, and the Costs of Litigation

The Emergis Case

• Fear of Cost of Patent Litigation Is A Powerful Tool for Plaintiffs

• Median Costs To Defend Mid-Sized Patent Case is $1.5 Million (through end of discovery) and $2.5 Million (through trial)

Source: AIPLA Report of the Economic Survey (2011)

The Emergis Case: Emergis v. Otter Tail

Otter Tail’s vendor, Princeton eCom, chose to fight

• Defense Strategy

– Focus just on direct transmission noninfringement defense• Princeton eCom system was the same as Figure 1

– Ignore, as much as possible, all other issues

– Ask Court to dismiss the case as soon as possible

The Emergis Case

• The Strategy Worked• Chronology is Revealing

– April 18, 2005 Otter Tail Letter: “the system used follows the prior art illustrated by Figure 1 of the ‘362 Patent”

– January 26, 2006 Emergis Files Suit

– July 10, 2006 Otter Tail Files Motion for Summary Judgment, re Direct Transmission

– March 9, 2007 Otter Tail Wins in District Court

– January 31, 2008 Federal Circuit Affirms Otter Tail’s Win

The Emergis Case

• Defense Argument: – Direct Transmission means what it says.

– Payment instructions go only to third-party vendor, are not transmitted “directly to the invoicer”, and indeed are never transmitted to the invoicer

• Emergis Argument– “directly to the invoicer” means directly to the invoicer

or to an agent or third party that the invoicer hires or controls

The Emergis Case

• District Court and Federal Circuit Rejected Emergis Argument

• Summary Judgment of No Infringement– Early Motion Saved Money

• Emergis Campaign Ended

Practical Lessons From The Emergis Case

• Pay Attention To Vendor Contracts

• Consider Joint Defense

• Analyze Early, and Don’t Feel Compelled to Cave

Questions?

J. Thomas VittPartner Dorsey & Whitney LLP50 South Sixth StreetSuite 1500Minneapolis, MN 55402-1498(612) [email protected]

Devan V. Padmanabhan Partner Dorsey & Whitney LLP50 South Sixth StreetSuite 1500Minneapolis, MN 55402-1498(612) [email protected]

Payment Patent Infringement

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