IP Law Daily, PATENT—N.D. Cal.: Dismissal granted in internet payment dispute, (Jan 29, 2026)

By Kevin M. Finson, J.D.

Claims relating to the use of intermediary servers in electronic transactions were dismissed because the claims were directed to the abstract idea of an intermediary in a financial transaction.

A patentee failed to plausibly allege that its claimed method of conducting transactions was properly patentable, the U.S. District Court in San Jose has held. The specification and claim language were broad and functional, using generic computer components to carry out the existing business practice of acting as an intermediary (Internet Payments Patents Ltd. v. PayPal, Inc., No. 5:25-cv-00380-SVK (N.D. Cal. Jan. 27, 2026)).

0Internet Payments Patents Ltd. (IPPL) was the owner of U.S. Patent No. 7,483,858 (the ’858 patent), which claimed a method of conducting transactions over a network. The patent acknowledged the availability of many prior art systems and claimed to overcome problems in the prior art relating to fraud and abuse by acting as an intermediary such that the customers are not identified to the merchants and the merchants are assured payment will be made. IPPL brought suit for infringement against PayPal, Inc. (PayPal). PayPal moved to dismiss on the ground that the asserted claims were invalid for being directed at an unpatentable abstract idea. The court applied the two-step Alice test.

Abstract idea. PayPal argued that the “clear focus” of the ’858 patent was “the abstract idea of facilitating purchases using an intermediary.” IPPL argued that this was an oversimplification and ignored specific technological improvements, including algorithms and specific architecture for carrying out those algorithms. The court found that the claims described the invention using broad, generic, functional terms and failed to identify how the ends were achieved with any technical specificity. Drawing all reasonable inferences in IPPL’s favor, the asserted claims were directed to an abstract idea.

Inventive concept. IPPL argued that, even if the claims were directed at an abstract idea, the claim elements contained an inventive concept which saved their patentability because the steps of the patent eliminated the exchange of card numbers which was used in the prior art. The court held that the described steps were simply the same ordered combination of steps traditionally practiced by intermediaries manually, which could not supply the inventive concept. There was nothing in the complaint or specification to support IPPL’s argument that the claims involved specific technological improvements.

Finding that amendment would be futile, the court granted the motion to dismiss without leave to amend.

The Case is No. 5:25-cv-00380-SVK.

Judge: Van Keulen, S.

Attorneys: David L. Hecht (Hecht Partners LLP) for Internet Payments Patents Ltd. Barry Kenneth Shelton (Shelton Coburn LLP) for PayPal Inc.

Companies: Internet Payments Patents Ltd.; PayPal Inc.

Cases: Patent CaliforniaNews