Coupon Patent Easily Found Invalid under § 101

By Joseph Herndon —

On January 12, 2016, the District Court for the District of Delaware issued an opinion in a case captioned Motivation Innovations, LLC v. Petsmart, Inc.  Plaintiff, Motivation Innovations, LLC, filed a patent infringement action against defendant Petsmart Inc. alleging infringement of U.S. Patent No. 5,612,527, and defendant filed a motion for judgment on the pleadings asserting that the '527 is invalid under 35 U.S.C. § 101 as being directed to an abstract idea without significantly more.

The District Court granted the Defendant's motion for judgment on the pleadings, and found the '527 patent invalid under 35 U.S.C. § 101.

The '527 patent, titled "Discount Offer Redemption System and Method," was filed on March 31, 1995, and issued on March 18, 1997.  An ex parte reexamination of the '527 patent was completed on April 27, 2010 with original claims 1-16 confirmed, original claims 17-20 confirmed with amendment (or depending from an amended claim), and new claims 21-39 allowed.

District Court's thoughts on § 101 Challenges

The District Court followed the two-prong test for distinguishing patents that claim laws of nature, natural phenomena, and abstract ideas from those that claim patent-eligible applications of those concepts.  First, we determine whether the claims at issue are directed to one of those patent-ineligible concepts.  If so, we then ask, "[w]hat else is there in the claims before us?"  The second prong has become known as a search for an "inventive concept" — i.e., an element or combination of elements that is "sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself."

The District Court summarized many Federal Circuit cases covering § 101 law including DDR Holdings, Ultramercial, and the Intellectual Ventures cases.  The District Court expressed its confusion with the current state of the law, and stated that in reviewing post-Alice cases, "the court is struck by the evolution of the § 101 jurisprudence, from the complete rejection of patentability for computer programs to the almost complete acceptance of such, to the current (apparent) requirements that the patent claims in suit (1) disclose a problem 'necessarily rooted in computer technology,' and (2) claim a solution that (a) not only departs from the 'routine and conventional' use of the technology, but (b) is sufficiently specific so as to negate the risk of pre-emption."

The District Court noted that even though most of the patent claims now being challenged under § 101 would have survived such challenges if mounted at the time of issuance, these claims are now in jeopardy under the heightened specificity required by the Federal Circuit post-Alice.

The District Court offered a further opinion that "it is less than clear how a § 101 inquiry that is focused through the lens of specificity can be harmonized with the roles given to other aspects of the patent law (such as enablement under § 112 and non-obviousness under § 103), especially in light of the Federal Circuit's past characterization of § 101 eligibility as a 'coarse' gauge of the suitability of broad subject matter categories for patent protection."

The District Court continued, complaining that:

Given the evolving state of the law, the § 101 analysis should be, and is, a difficult exercise.  At their broadest, the various decisions of the Federal Circuit would likely ring the death-knell for patent protection of computer-implemented inventions, a result not clearly mandated (at least not yet).  On the other hand, to recognize and articulate the requisite degree of specificity — either in the equipment used or the steps claimed — that transforms an abstract idea into patent-eligible subject matter is a challenging task.  In trying to sort through the various iterations of the § 101 standard, the court looks to DDR as a benchmark; i.e., the claims (informed by the specification) must describe a problem and solution rooted in computer technology, and the solution must be (1) specific enough to preclude the risk of pre-emption, and (2) innovative enough to "override the routine and conventional" use of the computer.  DDR, 773 F.3d at 1258-59.  The pre-emption concern is generally amenable to review in the context of a motion to dismiss or for judgment on the pleadings.  The second requirement, which may well involve issues of fact relating to the state of the art in the technological environment involved, is more appropriately addressed after discovery in the context of a motion for summary judgment.

I think a number of practitioners echo the sentiments of the District Court, and find the Federal Circuit's handling of § 101 challenges confusing and inconsistent, at best.

The '527 patent

The '527 patent discloses and claims methods for redeeming discount offers by associating a machine-readable identification code, such as a barcode, with data identifying items to be offered at a discount.  The data is stored in a database in memory, and the discount is provided for those items for which data is listed in the database.  Independent claim 1 recites:

1.  A method for redeeming discount offers comprising:
    providing a circulation medium and providing said medium with indicia which includes a machine readable identification code;
    causing said medium to be distributed to potential users;
    associating said identification code with data identifying items which are to be offered at a discount provided as part of said medium and storing said data in memory in a data base so as to be addressable by said identification code;
    providing means for reading said identification code provided with said circulation medium;
    providing means associated with said code reading means for tabulating sales of items so that any discount corresponding to an item listed in said data is deducted from the price of the item in the tabulation; and
    using said reading means to identify said code provided with said medium and using said means for tabulating items to obtain a price for the involved item and to cause a discount to be debited against the purchased item if the involved item is listed as part of said data identifying an item as qualifying for a discount as called for by the data base data defined by the identification code of the medium.

Independent claim 17 slightly differs from claim 1 and recites "A method of tracking customer purchasing habits," with the differing claim functions including:

    providing means for tabulating items and for recording the items purchased by the bearer of the circulation medium and providing means for calculating the at least one discount on the item offered at discount by said identification code means; and
    tabulating items purchased and storing a record of the tabulated items in said data file identified by the identification code means thereby enabling tracking of purchasing habits of individuals who receive and use the circulation medium.

The '527 specification describes that a point of sale ("POS") machine uses the indicia on the flyers "to identify items which are offered at a discount and then apply an appropriate credit to the purchased items."  Moreover, each point of sale machine is linked to a main computer which includes a controller responsible for managing the data which is input to the system through the point of sale machines as part of the normal transactions of the store.  The point of sale machines are standard readily available machines each having a microcomputer unto themselves which is capable of communicating in real time with the main computer of the network.

§ 101 Analysis

Applying the analytical framework of Alice, the District Court first determined that the claims at issue are directed to an abstract idea of using coupons to provide discounts.  Regardless of the extra limitations related to how the method is used or what it improves, the patent claims are simply directed to the "use and redemption" of coupons.

Turning to step two of the Alice framework, the District Court found that the additional limitations of the asserted claims recite conventional or routine activity or computer technology.  For example, creating and distributing a circulation medium (e.g., brochure) having a UPC bar-code is conventional activity, and associating bar-codes with a data file and using a generic bar-code scanner to scan the bar-code as well as using a generic point-of-sale machine include use of generic/known computer devices.  In fact, the '527 specification explains that the POS machine is a "standard readily available machine," with a microcomputer capable of communicating in real time with the main computer of the network.  No special programming is disclosed.

The Plaintiff describes the '527 patent as disclosing a particular and specific method and system for the use and redemption of "discount offers" (or coupons) that reduced the need for consumers and retailers to handle and process large quantities of coupons, reduced fraud, and allowed retailers to keep track of purchases made by individual consumers.  The Plaintiff's main argument was that the invention is novel because it had not been previously known to use a single coupon with one "indicia" to redeem offers on multiple products, or to create and use a database of individual customer's purchasing history while doing so.

But, the District Court, following its understanding of the application of § 101 law, stated that the inventive concept of using a machine readable identification code to take discount offers and track customer purchasing habits, is not an internet (or computer) centric problem.  The District Court here placed its emphasis on the need for the invention to be necessarily rooted in computer technology so as to survive the § 101 challenge.

Here, the '527 patent had problems from the beginning.  It is not advised to describe aspects or elements recited in the claims as "standard" or "well-known".  This will only lead to courts finding those items to be routine and conventional computer technology.  In addition, clearly by March 31, 1995 (the filing date of the '527 patent), coupons were in use.  The Plaintiff's only assertion of inventive concept was associating one coupon with discounts on multiple items.  This, though, is difficult to find as an inventive concept.  You can imagine prior art coupons offering discounts on multiple items (i.e., $1 off 2 or more boxes of cereal).  Because the "business method" aspects of the claim were not new, and because the computer elements in the claim only covered generic computer functionality, these claims were doomed by Alice.

By Michael Borella —

In February 2015, Advanced Marketing Systems (AMS) sued a number of defendants, alleging infringement of various claims of U.S. Patent Nos. 8,219,445, 8,370,199, and 8,538,805.  The defendants filed a motion for judgment on the pleadings, arguing that the case should be dismissed because the asserted claims are directed to non-statutory subject matter under 35 U.S.C. § 101.

Claim 1 of the '805 patent recites:

A data processing system for tracking and processing a plurality of in-store discounts to potential purchasers of plural products during the checkout process, wherein said discounts are each associated with a specific one of said plural products, said system comprising:
    a discount vehicle, characterized by two or more of said discounts, including descriptive material to provide information at least identifying the products and their associated discounts;
    a customer account associated with a customer identification code, the customer account comprising two or more of said discounts of the discount vehicle selected by a customer to be associated with the customer account, the customer account being associated with a select code that permits tracking of said customer account during checkout, said select code uniquely identifying all the discounts for all of the plural products associated with the customer account;
    wherein the customer identification code is inputted by the customer to access the customer account;
    a checkout processing terminal including computer based tracking of individual purchasers' purchased products and the prices thereof, wherein said processing terminal includes a device for receiving the select code during checkout; and
    a data processor attached to said checkout terminal for receiving information regarding transactions associated with checkout, selected products and the discounts associated with the select code forming a part of the transactions, and processing said discounts in accord with said select code;
    wherein said data processor selectively deactivates the select code for only particular discounts, of the plurality of discounts, associated with the purchased products by redemption of the select code associated with the customer account such that the select code remains active for future use with yet unused ones of the plurality of discounts associated with said plural products, said data processor being further connected to memory for storing data associated with said transaction.

Claim 28 of the '199 patent is similar in terms of structure and content.  Further, claim 9 of the '445 patent and claim 15 of the '199 are similar in content, but differ in structure.  Of note are the preambles of these latter two claims, which recite:

A distributed discount vehicle for use with a data processing system for tracking and processing a plurality of in-store discounts to potential purchasers of plural products during the checkout process, wherein said discounts are each associated with a specific one of said plural products, said discount vehicle comprising . . .

In order to rule on the motion, the Court applied the now-familiar patent-eligibility test from Alice Corp. v. CLS Bank Int'l.  First, one must determine whether the claim at hand is directed to a judicially-excluded law of nature, a natural phenomenon, or an abstract idea.  If so, then one must further determine whether any element, or combination of elements, in the claim is sufficient to ensure that the claim amounts to something more than the judicial exception.  Notably, generic computer implementation of an otherwise abstract process does not qualify as "something more."

The defendants asserted that the claims were directed to the abstract idea of offering, tracking, and processing discounts, a "longstanding commercial practice."  According to the defendants, the claimed features "constitute nothing more than the idea of tracking discounts after they are offered to consumers and processing them once they have been redeemed."  The defendants further contended that "inclusion of elements such as a customer account, a customer identification code, a checkout processing terminal, a data processor, and memory in the claims does not change the basic character of the subject matter of the claims because each function performed by these components is purely conventional."  Thus, in the defendant's view, the claimed invention was merely a mental process that "can be performed by a human using pencil and paper."  To support these positions, defendants alleged that the claimed discount vehicle was "merely an insert in a newspaper or a magazine."

AMS responded by arguing that the "underlying factual disputes concerning the scope of the claim language make a decision on the issue of patentable subject matter inappropriate at this stage in the case."  AMS disagreed that the discount vehicle was limited to printed information, and asserted that the data processor was "a non-generic, specifically programmed system that selectively deactivates certain e-coupons redeemed by a customer at checkout."  Finally, AMS took the position that selectively applying discounts as claimed was an inventive concept that satisfies the second prong of Alice.

The Court considered whether it was appropriate to dismiss this case on the pleadings, and noted that "the issue of patentable subject matter requires a legal analysis that can — and often does — contain underlying factual issues."  Further, "where the parties dispute the scope and meaning of the asserted claims as they do here, application of the principles governing a § 101 analysis is not a straightforward exercise."  Ultimately, the Court found several reasons why the case should not be dismissed at this early stage.

First, the defendants did not establish "an absence of fact and claim construction issues such that the only plausible reading of the asserted claims is one of patent ineligibility."   Instead, for two terms, "discount vehicle" and "selectively activated," there was a material factual dispute between the parties.  Particularly, the defendants' position that the claims were invalid required adopting the defendant's interpretation of these claim terms, which was at odds with the proposed construction offered by AMS.

Second, the Court found that a reading of the claims did not clearly show that they recite a mere abstraction.  Instead, the Court wrote that "discount vehicle claims, for example, include physical structures such as a discount vehicle with information identifying products and their associated discounts, and a select code that can be selectively deactivated as to certain discounts, while remaining active for future use as to others."  Further, "[t]he data processing system claims recite, in part, a checkout processing terminal with computer based tracking of purchased products and a device for receiving the select code during checkout."  The presence of such physical structures resulted in the Court concluding that "it is impossible to make a final determination before claim construction that the claims are simply a drafting effort designed to monopolize an abstract idea, rather than a patent-eligible application of the idea."

Third, the parties' dispute over whether the hardware recited by the claims was conventional and generic or specifically programmed, and whether the features associated with the claimed selective deactivation improved upon the prior art, also weighed against a decision on the pleadings.  As a result, the Court concluded that it would deny the defendants' motion without prejudice, thus leaving the defendants open to filing a similar motion after claim construction.

Standing alone, this case is yet another illustration of how the Alice test could go either way for a given set of claims.  When viewed in light of claims found patent-ineligible by the Federal Circuit and other district courts, AMS's patents could have been easily invalidated on the pleadings.  Particularly, other courts have found financially-oriented transactions to incorporate abstract ideas, and hardware components similar to those at issue here to be merely generic.

But, this decision takes on a special character when viewed along with Voxathon LLC v. Alpine Electronics of America, Inc., decided by the same judge just a few days earlier.  In Voxathon, the Court held that claim construction was unnecessary before dismissal on the pleadings.  The rub is that AMS's claims appear to be at least as abstract as those in Voxathon, and recite no more specialized hardware components.  Thus, one could argue that either this case, Voxathon, or both were wrongly decided.  At the very least, the outcomes appear to be inconsistent.

Having said that, the rationale for this apparent discrepancy may be as simple as AMS's arguments being more compelling than those of Voxathon, or that in this case the judge adopted the recommendation of a magistrate, whereas in Voxathon the judge wrote the substantive opinion.  Nonetheless, when viewed on their faces, the two outcomes further illustrate the lack of predictability that pervades the patent system post-Alice.

By Michael Borella —

Voxathon sued Alpine, and a number of defendants that manufacture automobiles, for infringement of U.S. Patent No. 6,442,261.  According to the Court, the patent "relates to computer-implemented systems and methods for transferring information efficiently."  Specifically, claim 1 recites:

A method for recovering calls using an attendant telephone set having a predetermined number of call appearance buttons comprising:
    receiving a plurality of incoming telephone calls from calling parties;
    identifying a telephone number of the calling party of each incoming telephone call;
    assigning each incoming telephone call to a next available call appearance button of said predetermined number of call appearance buttons;
    storing the identified telephone number associated with each incoming telephone call in a memory device; and
    automatically redialing, in response to the attendant's  selection of one of the call appearance buttons, the stored telephone number of the calling party of the incoming call assigned to the selected call appearance button.

The defendants filed multiple 12(b)(6) motions to dismiss the case on the grounds that the claims of the '261 patent lack subject matter eligibility under 35 U.S.C. § 101.  The Court found that there were no material factual disputes that prevented it from evaluating these motions on the pleadings.  Despite Voxathon arguing that the defendants had misconstrued or disregarded several claim terms, the Court stated that construction of these terms would not change the substantive § 101 analysis.  Citing to the precedential Federal Circuit case of Bancorp Servs., L.L.C. v. Sun Life. Assur. Co. of Canada, the Court stated that it was not required to wait until after claim construction to make a § 101 determination.

That out of the way, the Court reviewed the two-prong test for patent-eligibility under § 101 set forth in Alice Corp. v. CLS Bank Int'l.  First, one must determine whether the claim at hand is directed to a judicially-excluded law of nature, a natural phenomenon, or an abstract idea.  If so, then one must further determine whether any element, or combination of elements, in the claim is sufficient to ensure that the claim amounts to something more than the judicial exception.  Notably, generic computer implementation of an otherwise abstract process does not qualify as "something more."

Applying the first prong, the Court characterized the claim as "directed to the abstract idea of responding to a sender of a message."  Despite explicit recitation of "a telephone set" and "call appearance buttons," the Court made an analogy between the claimed invention and a manual procedure that could be carried out by a human.  Particularly, the Court wrote that "[w]hether a message is received through a telephone or a letter, the steps of receiving a message, identifying the sender of the message, remembering the address or phone number of the sender of the message, and responding to the sender of a message remain the same."

Voxathon argued that the claims disclosed an improved telephone set that solved problems in the prior art related to telephone calls going unanswered.  The Court rejected this notion, stating that any such new device "merely performs the abstract idea of responding to the sender of a message."  Looking to the claims found ineligible in Planet Bingo, LLC v. VKGS LLC and Content Extraction and Transmission LLC v. Wells Fargo Bank, National Ass'n, the Court concluded that the '261 patent similarly included steps of "1) collecting data, 2) recognizing certain data within the collected data set, and 3) storing that recognized data in a memory," and that the recalling step did not make a significant difference.

Turning to the second prong, Voxathon used an expert declaration in an attempt to establish that the claim contains "several material, non-generic limitations."  The Court, however, rejected the declaration as being "inadequate" without explaining why.  (Apparently, this declaration did not raise a material issue of fact that prevented the Court from ruling on the 12(b)(6) motion.)  Instead, the Court stated that "the '261 patent simply automates an abstract idea — responding to the sender of a message — albeit through the use of a 'telephone set,'" and that "[a] generic computer can perform the same conventional and routine steps as the 'telephone set.'"

Voxathon further argued that the claimed invention "eliminates errors associated with the process of receiving and redialing a phone number."  But the Court found this notion unavailing, because even "[t]hough a computer may be more efficient or less error-prone than a human, mere automation through a generic computer is not enough to render a patent eligible under § 101."  Finally, Voxathon noted that the claim's preemption is "narrow and not absolute."  Once again, the Court was unconvinced, and noted that the absence of compete preemption does not demonstrate patent-eligibility, and that the claim is effectively a monopoly over the aforementioned abstract idea.

Consequently, the '261 patent was held to be invalid under § 101, and the case was dismissed.

This is yet another example that tracks a familiar trend in § 101 jurisprudence: (1) a claim is viewed at a 10,000 foot level to remove from it all devices and machines, (2) this gist of the claim is declared abstract, and (3) when the devices and machines are examined separately from this gist of the claim, they are determined to be no more than routine and conventional, adding no patentable weight.  Following such a formula, virtually any software or business method claim can be rendered invalid.

And therein lays the fundamental problem with the Alice test — its subjectivity.  While many claims that fail to meet the requirements of § 101 are more clearly abstract than claim 1 of the '261 patent, a reasonable application of the test to this claim — one that considered the claim as a whole or involved defining claim terms — might have come to the opposite conclusion.