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IP Alert
IP Alert: Software Patent Survives Preliminary Alice Attack

October 10, 2014

In Card Verification Solutions, LLC v. Citigroup Inc., the U.S. District Court for the Northern District of Illinois denied Citigroup’s attempt to secure dismissal of a patent infringement lawsuit at the pleadings stage. Citigroup based its attack on the recent U.S. Supreme Court case Alice Corporation Pty. Ltd. v. CLS Bank International, but the court rebuffed that attack, holding that the patent eligibility of the claimed technology presented factual issues that required discovery. The Card Verification Solutions case is significant in that it is one of the first cases in which a court has applied the second prong of the two-part Alice test to reach a conclusion in favor of the patentee.

The plaintiff in this case, Card Verification Solutions, asserted a patent that is nominally directed toward a “method for giving verification information for a transaction between an initiating party and a verification-seeking party.” The method claim at issue specified, inter alia, certain processing steps that include generating and exchanging “tokens.” The patent specification states that these tokens may be “four-digit pseudorandom strings of numbers and characters.” 

Citigroup moved to dismiss. In considering Citigroup’s motion, the court reviewed the legal framework specified by the Supreme Court in the Alice case. That framework requires the court to first determine whether the claims at issue are directed toward a patent-ineligible concept, or, more specifically, whether they claim an abstract idea. The court concluded that the claimed concept of verifying a transaction is indeed an abstract idea, reasoning that the concept of transaction verification is “a fundamental economic practice long prevalent in our system of commerce” (following an earlier U.S. Supreme Court case, Bilski v. Kappos). 

Next, the court turned to the second prong of the Alice inquiry, namely whether “the patent claims add enough . . . to allow the processes they describe to qualify as patent-eligible processes that apply natural laws.” Citigroup argued that the ’245 patent was not patent-eligible because it was merely a “mental process” that could be performed by humans. At this initial pleading stage, the court disagreed, finding that “[a] plausible interpretation of the patent is that computing devices, software, keyboards, and credit card readers would be required to use the invention.” 

The court observed that although simply implementing an abstract idea on a computer would not be sufficient to render the idea of patent-eligible, the claims were plausibly limited to the pseudorandom tag generating software. The court then determined that the question of whether a pseudorandom number generator must require a computer was a factual question that was inappropriate for resolution at the initial pleading stage. 

Citigroup also argued that the application of “tokens” was simply a transformation of data. The court again disagreed as a preliminary matter. Specifically, the court observed that the patent was directed toward a protocol for making a communication system more secure, and that the pseudorandom tags therefore did not simply constitute a transformation of information. Furthermore, the court noted that “here, the claimed invention goes beyond manipulating, reorganizing, or collecting data by actually adding a new subset of numbers or characters to the data, thereby fundamentally altering the original confidential information.” The court accordingly denied Citigroup’s motion to dismiss, but left Citigroup free to challenge the validity of the patent at the conclusion of discovery and claim construction. 

The Card Verification Solutions decision is of potential interest to litigants in patent cases that may be affected by the Supreme Court’s Alice decision. For more information, please contact Fitch Even partner Steven G. Parmelee, the author of this alert. 

 

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