IP Law Daily, PATENT—Fed. Cl.: Two-factor authentication lawsuit succumbs to government’s dismissal challenge, (Jun 26, 2026)

By Saurabh Kashyap, B.A., M.A., LL.B., LL.M.

Asserted patents presented the same patent-eligibility issues as a related patent previously invalidated, precluding relitigation under collateral estoppel principles.

A family of patents covering two-factor authentication technology could not be asserted against the United States because the patent owner was barred from relitigating patent-eligibility issues already resolved in an earlier litigation involving a related patent, the U.S. Court of Federal Claims has found. It determined that the asserted patents were materially indistinguishable from a patent previously invalidated under Section 101 of the Patent Act and dismissed the infringement action with prejudice (Factor2 Multimedia Systems, LLC v. U.S., No. 1:24-cv-00475-RMM (Fed. Cl. Jun. 25, 2026)).

Dispute. The plaintiff, Factor2 Multimedia Systems, LLC, owns a portfolio of patents relating to two-factor authentication technology. The United States was accused of infringing the asserted patents.

The asserted patents included U.S. Patent Nos. 8,281,129 (the ’129 patent), 9,703,938 (the ’938 patent), 9,727,864 (the ’864 patent), 9,870,453 (the ’453 patent), 10,083,285 (the ’285 patent), and 10,769,297 (the ’297 patent). These patents cover systems and methods for authenticating users by generating a temporary authentication code via a trusted third party, transmitting it to a user, and verifying it before permitting an electronic transaction. Several of the asserted patents are continuations or continuations-in-part of U.S. Patent No. 8,266,432 (the ’432 patent), from the same patent family.

Factor2 alleged that the federal government infringed the asserted patents by using two-factor authentication technology across multiple government-operated websites and applications. The government moved to dismiss the amended complaint, arguing that the action was barred by collateral estoppel because the claims presented the same patent-eligibility issues previously resolved against the ’432 patent in litigation involving United Services Automobile Association (USAA). In that earlier case, the Eastern District of Virginia found the ’432 patent invalid under Section 101, the Federal Circuit summarily affirmed, and the Supreme Court denied review. Factor2 argued that the asserted patents contained materially different claims and therefore raised different eligibility questions.

Identity of issues. The court concluded that collateral estoppel applied because the asserted patents and the previously invalidated ’432 patent raised identical issues of patent eligibility. Comparing representative claims, the court found that each patent followed the same basic process: a trusted third party generated a temporary authentication code, transmitted it to a user, received it back from a merchant or service provider, and authenticated the user before allowing the transaction to proceed. Although the patents used different terminology—such as "trusted-authenticator," "authentication system," "central-entity," and "online computer system"—the court found those variations to be drafting differences rather than meaningful technological distinctions.

Relying on Google LLC v. Hammond Development International, Inc., 54 F.4th 1377 (Fed. Cir. 2022), the court explained that collateral estoppel does not require identical patent claims. Rather, the relevant inquiry is whether the later patents present materially identical patentability issues. The court also cited Ohio Willow Wood Co. v. Alps South, LLC, 735 F.3d 1333 (Fed. Cir. 2013), which held that a patentee cannot avoid issue preclusion by using slightly different claim language to describe substantially the same invention.

Computer implementation. Factor2 argued that the asserted patents included additional limitations involving computer networks, authentication systems, and specialized algorithms that distinguished them from the ’432 patent.

The court rejected that contention, observing that the earlier Virginia litigation had already considered similar computer-implemented features when concluding that the underlying concept remained the abstract idea of using a trusted intermediary and a temporary authentication code to verify identity during an electronic transaction. According to the court, the asserted patents continued to rely on generic computer functions for generating, transmitting, receiving, and comparing authentication information. Merely implementing the same authentication process on conventional computer systems did not create a materially different patent-eligibility issue.

Remaining elements of collateral estoppel. The court also found that the remaining requirements for collateral estoppel were satisfied. Factor2 was in privity with the plaintiffs in the earlier litigation because one of the original inventors wholly owned the company and had assigned the patents to it. The patent-eligibility issue had been fully litigated, actually decided, affirmed on appeal, and was essential to the prior judgment. Accordingly, Factor2 could not relitigate the same issue through continuation patents from the same family.

Because collateral estoppel independently disposed of the case, the court declined to address the government's alternative argument that the asserted patents were themselves invalid under Section 101. Finding that amendment would be futile, the court dismissed the complaint with prejudice.

Earlier litigation. The court noted that earlier litigation had fully resolved the patent-eligibility issue. The Eastern District of Virginia concluded that the ’432 patent merely claimed the abstract idea of using a trusted third party and a temporary code to authenticate users during electronic transactions and lacked an inventive concept sufficient to transform that idea into patent-eligible subject matter. The Federal Circuit summarily affirmed that judgment, and the Supreme Court denied certiorari. Because the asserted patents did not materially differ from the ’432 patent, the court held that the earlier determination foreclosed further litigation over patent eligibility.

The Case is No. 1:24-cv-00475-RMM.

Judge: Meriweather, R.

Attorneys: Joseph J. Zito (DNL Zito) for Factor2 Multimedia Systems, LLC. Jhaniel James, U.S. Department of Justice for the U.S.

Companies: Factor2 Multimedia Systems, LLC

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