Smart System Innovations, LLC, v. Chicago Transit Company
873 F.3d 1364 (Fed. Cir. 2017)
Authored by Jamie Huelskamp
Statement of Facts: Smart Systems Innovations, LLC (“SSI”), appellant, brought suit against Chicago Transit Authority et al. (collectively “appellees”) in the United States District Court for the Northern District of Illinois claiming infringement of four patents, United States patent numbers: 7,566,003 (“’003 Patent”), 7,568,617 (“’617 Patent”), 8,505,816 (“’816 Patent”) and 8,662,390 (“’390 Patent”) (collectively the “Asserted Claims”). The Asserted Claims relate to methods for using bankcards, instead of traditional fare cards, in a mass transit system. The ’003 Patent and the ’617 Patent provided a method of entry for mass transit riders by using funds from an existing credit or debit card and, at the same time creating, a time record of the ride on the bankcard. The ’816 Patent and the ’390 Patent provide methods of configuring and processing information related to transit accounts in the mass transit system. Appellees filed a motion for judgment on the pleadings avowing that under 35 U.S.C. § 101 (2012) the Asserted Claims are patent ineligible.
Procedural History: The district court found for appellees Chicago Transit Company et al, granting their motion upon a finding that the claims were patent ineligible under § 101 because they were “[d]rawn to the abstract concept of a fundamental commercial transaction, paying for a fare . . . ”, Smart Systems Innovations, LLC v. Chicago Transit Authority, 2015 U.S. Dist. LEXIS 89628, at *16 (N.D. Ill. July 2015), and didn’t have a level of inventiveness necessary to overcome that, see id. at *22. Pursuant to Federal Rule of Civil Procedure 54(b), the district court entered a final judgment on the claims. SSI appeals the district court’s granting of appellees motion on the pleadings.
Question Presented: Whether the ’003 Patent, the ’617 Patent, the ’816 Patent and the ’390 Patent, the Asserted Claims, are patent ineligible under 35 U.S.C. § 101.
Holding: Yes. The Asserted Claims are patent ineligible under 35 U.S.C. § 101 because under the two-step framework provided in Alice Corp. Pty Ltd. v. CLS Bank International, 134 S. Ct. 2347 (2014), the Asserted Claims were directed to an abstract idea and did not include enough transformational elements to make them patent-eligible.
Reasoning: Judge Wallach, joined by Judge Reyna, writing for the majority of the court, affirmed the district court’s finding for Chicago Transit Authority. The court looked to the two-step framework for patent eligibility set out in Alice, 134 S. Ct. at 2347, which first considers whether the claim falls outside of patent eligibility by being a “law of nature, natural phenomenon, [or] abstract idea”, and then considers when looking at the totality of the elements, whether they transform the nature of the claim enough to make the claim patent eligible. See Smart Systems Innovations, LLC v. Chicago. Transit Authority, 873 F.3d at 1367 (Fed. Cir. Oct. 18, 2017) (quoting 134 S. Ct. at 2354–55). Considering Alice step one, the court concluded, “the claims are directed to the collection, storage, and recognition of data.” Id. at 1372. And as such, don’t meet the abstract idea exception for claims that improve a technological process. Considering Alice step two, the court agreed with the district court’s conclusion that the Asserted Claims failed to amount to an inventive concept because they simply utilized common computer parts. The court focuses on precedent that an improvement is not an abstract idea. The majority dismissed SSI’s other arguments (the patents don’t preempt another abstract idea and the claims are connected to a machine). Preemption of another abstract idea is only one aspect in the second step of the Alice framework and the machine the Asserted Claims are tied to involve generic computer parts, and so not transformational.
Dissenting in Part and Concurring in Part: Judge Linn dissented in part and concurred in part from the majority’s opinion. Judge Linn separated the Asserted Claims into two groups: (1) the ’003 Patent and the ’617 Patent, and (2) the ’817 Patent and the ’390 Patent. In the dissenting part of the opinion, Judge Linn disagreed with the majority that the ’003 and ’617 Patents were directed to abstract ideas. In so finding, Judge Linn underscored Congress’s intention for patent laws to be interpreted broadly, stating that nearly every patent contains an underlying abstract idea. As such, the abstract idea exception should be applied narrowly, looking at the specific language of the claims and the specification. These two patents, Judge Linn states, do more than relate to financial transactions in mass transit because they don’t just process payments. The claims provide for the manipulation of financial data that provide for access to a mass transit system in a novel way. “The claims recite more than a function and instead cover a specifically stated means to accomplish the function of transit system access by comparing bankcard data to a locally stored white list of approved bankcards.” Id. at 1382. As such, Judge Linn dissented from the majority’s finding that the ’003 Patent and the ’617 Patent are patent ineligible.
In the concurring part of the opinion, Judge Linn reluctantly states that the ’816 Patent and the ’390 Patent claims utilized more general language regarding collecting information for mass transit rides using a bankcard, which as a “fundamental economic practice”, see Alice, 134 S. Ct. at 2356, is an abstract idea. Judge Linn, however, cautions that these types of patent limitations “risk[] foreclosing innovation and inhibiting human ingenuity.” Smart Systems, 873 F.3d at 1377. The Judge states that almost every claim has an underlying abstract idea and disagrees with the exclusion of such a large class of claims, but nonetheless, is bound by precedent to place them within this category of exceptions. As such, Judge Linn concurred with the majority on the patent ineligibility of these two claims.