Troutman Sanders LLP: Patented Internet Fraud Detection Method Found Unpatentably Abstract by Federal Circuit

Troutman Sanders LLP: Patented Internet Fraud Detection Method Found Unpatentably Abstract by Federal Circuit

By Douglas "Doug" D. Salyers, James Moore Bollinger and Suraj K. Balusu

With the recent decision by the Federal Circuit in CyberSource Corp. v. Retail Decisions, Inc., the cloudy world of business method patents became slightly clearer. 

In an important refinement of the patentable subject matter debate, the Court rejected and invalidated CyberSource's asserted patent claims as an unpatentably abstract idea. This determination was made notwithstanding the fact that one of the invalidated claims utilized a special claiming format - known as a Beauregard claim - which had been previously accepted as proper for computer-based innovations. This ruling further erodes the ability to patent (and protect) certain alleged innovations in the business world and potentially opens a new avenue for those accused of infringement to challenge a Beauregard claim. 

The case involves a dispute that started in 2004 when CyberSource sued Retail Decision for patent infringement, based on a patent directed to a technique for detecting fraudulent credit card transactions on the Internet. The District Court ruled on summary judgment that claims 2 and 3, directed to different statutory classes, both comprised unpatentable subject matter. CyberSource appealed the decision. After delay caused by the ups and downs of the business method/Bilski debate, the Federal Circuit affirmed.

Claim 3 recites a process for verifying the validity of credit card transactions over the Internet. Claim 3 was found unpatentable as nothing more than a method claim on an abstract idea, and in particular, as falling within the unpatentable subcategory of "abstract ideas" known as "mental processes." In particular, the Court noted that claim 3 covered any method of detecting fraudulent credit card transactions on the Internet - even those that can be entirely performed by the human mind, or by a human using a pen and paper.   

Claim 2, however, was a different animal, as the claim was not a process but directed to a "computer readable medium" for storing programming for controlling a computer to execute the process recited in claim 3. These claims (called "Beauregard claims") were thought to avoid the subject matter issues associated with process claims, since they fell under a different statutory class - "manufacture" (the article of manufacture being the computer readable medium). 
In what could turn out to be a controversial decision, the Federal Circuit ruled that with regards to patent eligibility the style of claiming is irrelevant because the focus is on what the invention is, not how it was claimed. The Court found that the invention underlying both claims was a method for detecting credit card fraud - not an article of manufacture for storing computer readable information. 

Accordingly, notwithstanding its Beauregard format, the Court analyzed claim 2 as a process claim for patent eligibility purposes. Because the process claimed in both claims 2 and 3 of CyberSource's patent were the same, (i.e., both sought to cover any method of detecting Internet fraud by reviewing credit card transactions), both were inventions directed to unpatentable "abstract ideas" and, thus, invalid. 

One of the big debates before the Supreme Court released its Bilski [enhanced version available to subscribers / unenhanced version available from lexisONE Free Case Law] ruling last year was the role computers may play in determining whether a new procedure or technique claimed as a novel computer system or process was patentable. In its Bilski decision, the Supreme Court largely left the issue unresolved, allowing the Federal Circuit to refine the law in the field of computers. 

The Federal Circuit has now issued two decisions - last December's Research Corp Techs v. Microsoft Corp. [enhanced version / unenhanced version], and, now, the CyberSource ruling. These two rulings offer several insights in procuring computer-based patents and defending computer-based infringement claims: If the invention is business and/or finance related, don't rely too much on the computer framework to establish patentable subject matter; and if confronted with a Beauregard claim, closely consider a challenge based on patent eligibility.

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  • 01-10-2012

Due to the onslaught of fraudsters, consumers are becoming hesitant in investing or having transactions with companies because they fear that their personal information cannot be protected. As responsible citizens, we need to beware of the ways by which we can also safeguard our private information and learn to discern which people to entrust it with.