Train in vain: Patents for mass transit fare systems struck down

April 06, 2018
Patterson Thuente IP

The Federal Circuit Court of Appeals, the court that hears all appeals of patent-related cases, continues to engage in abstract thinking — thinking about the patent-eligibility of abstract ideas, that is. In the wake of Alice Corp. v. CLS Bank Int’l, the Federal Circuit has repeatedly reviewed whether patents are invalid because they covered patent-ineligible inventions. In this case, for example, the plaintiff ended up having four patents wiped out as invalid on this basis.

 

Patents derailed

Smart Systems Innovations, LLC, (SSI) held four patents designed to implement open-payment fare systems in mass transit networks in the United States. An open-payment system allows riders to access mass transit using existing bank cards, such as debit and credit cards, eliminating the need for dedicated fare cards, paper tickets or tokens.

Specifically, two of the patents covered a system and method for regulating entry to a transit system using information from a bank card to verify the card’s validity and deny access to invalid cards. The other patents encompassed a system and method that:

Acquires identification data from a bank card and funds a ride from a balance associated with the card, and
Determines whether a bank card is associated with a time pass (for example, a monthly subway card) and, if so, charges a different fare.
SSI sued the Chicago Transit Authority for infringement of the patents. The trial court dismissed the case, holding the patents covered a patent-ineligible abstract idea. SSI then appealed.

The route to patent eligibility

Under the federal Patent Act, a patent may be obtained for “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” The U.S. Supreme Court has consistently held that abstract ideas aren’t patent-eligible and, in Alice, developed a two-part test for determining whether an invention is a patent-ineligible abstract idea.

First, a court must determine whether the patent covers an abstract idea. If so, it must then consider the elements of the claim and determine whether these additional elements, individually or taken together as an ordered combination, include significantly more than the abstract idea itself. Some courts have phrased this second part of the test as requiring an inventive concept that transforms the claim into a patent-eligible application of the abstract idea. The critical issue is whether the patent claims an abstract idea that’s such a basic building block of scientific or technological activity that it would preempt future innovation (patent ineligible), as opposed to covering only a tangible application that serves a new and useful end (patent eligible).

Patents don’t pass

The Federal Circuit initially found that SSI’s invention was indeed an abstract idea. Taken together, the court said, the patents cover the formation of financial transactions in a particular field (mass transit) and data collection related to such transactions. The patents didn’t relate to a new type of bank card, turnstile or database or provide a method for processing data that improves existing technological processes. Rather, they covered the collection, storage and recognition of data, which the court has previously held amount to an abstract idea.

Moving on to the second step in the test, the court held that SSI’s inventions didn’t contain an inventive concept that would make them a patent-eligible application. A patent with an inventive concept includes additional features that are more than just well-understood, routine, conventional activities.

The Federal Circuit found that the patents incorporated various generic computer hardware elements that didn’t constitute an inventive concept. Ultimately, the patents covered nothing more than an abstract business practice — running a bank card sale — and therefore were invalid.

Not the final stop

Decisions regarding the patent-eligibility of abstract ideas have gone both ways, upholding patents in some cases and invalidating them in others. One trend is clear, though: The court considers the collection, storage and recognition of data an abstract idea that isn’t patent-eligible without an inventive concept that transforms the invention into an application of the idea. •

Smart Systems Innovations, LLC v. Chicago Transit Authority, No. 16-1233, Oct. 18, 2017, Fed. Cir.
Alice Corp. v. CLS Bank Int’l, 573 U.S. __, 134 S.Ct. 2347 (2014)

 

How improvements can preclude the abstract idea bar

The plaintiff in Smart Systems Innovations, LLC v. Chicago Transit Authority argued that its inventions weren’t abstract because they improved prior fare collections systems by expediting the turnstile process. The Federal Circuit Court of Appeals shot down this argument.

The court acknowledged, though, that it has previously found that inventions that improve the functioning of a computer might avoid the abstract idea exception. As the court explained, the fate of a patent on such an invention turns on whether the patent focuses on the asserted improvement or merely invokes computers as a tool. The plaintiff in Smart Systems, however, didn’t argue that its patents covered an improvement in computer technology.

The Federal Circuit also cited an earlier case where it found that a process using a combined order of specific rules wasn’t abstract, because it improved on existing technological processes. But because the plaintiff’s patents weren’t for specific rules that improve a technological process, this argument failed as well.

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