IP Law Daily, PATENT—N.D. Ill.: Transaction verification method recited plausibly patent-eligible subject matter, (Oct 2, 2014)

By Thomas Long, J.D.

A patented method for providing verification information for a transaction between an initiating party—such as a consumer—and a verification-seeking party—such as a merchant—could be patent-eligible, the federal district court in Chicago has decided (Card Verification Solutions, LLC v. Citigroup Inc., September 29, 2014, Kendall, V.). In a patent infringement action brought against Citigroup Inc. by patent-holder Card Verification Solutions, the court denied Citigroup’s motion to dismiss on the ground that the patent was directed to an ineligible abstract idea.

Patent-in-suit. Card Verification accused Citigroup of infringing U.S. Patent No. 5,826,245 (“the ’245 patent”). The ’245 patent claimed an invention for securely providing verification information for a transaction. It disclosed methods for passing confidential information over an unsecured network with reduced risk of it being captured by an untrusted party.

Claim 1—which was representative of the ’245 patent’s six independent claims—disclosed a method in which two “tokens” for some, but not all, of the confidential information in the initiating party’s possession were generated; the first token was sent electronically from the initiating party to the verification-seeking party; the second token was sent from the initiating party to a verifying party; and the first token was sent from the verification-seeking party to the verifying party. The confidential information was then verified at the verifying party based on the first and second tokens, and the verification information was sent electronically from the verifying party to the verification-seeking party.

Dependent claims 4 through 6 required the addition of randomly generated, identical tags to the first and second pieces of confidential information in order to complete the creation of the tokens. The verifying party authenticated the transaction by associating the first and second tokens with each other based on the identical tags added to each token. The tags were four-digit pseudorandom strings of numbers and characters.

The claimed process reduced the chance that someone monitoring the output of the device being used—for example, a computer—will be able to predict what tag will be used. In addition, the process prevented the verification-seeking party from ever receiving the entirety of the confidential information. The confidential information is never available as a whole except at the initiating party’s computer and the verifying party’s portal.

Abstract idea. Citigroup contended that the ’245 Patent was invalid because it was directed to patent-ineligible subject matter—specifically an abstract idea. According to Citigroup, the claims did not recite the application of an abstract idea in a concrete setting, but instead merely recited an idea that could be performed as a mental process. Specifically, Citigroup argued that the method was invalid because it (1) could be performed by a human using pen and paper; (2) was not tied to a particular machine or apparatus; and (3) did not require or result in the transformation of one article into another.

In the court’s view, the ’245 patent plausibly set forth a process instituting the application of an abstract idea and, therefore, contained patentable subject matter for purposes of 35 U.S.C. §101. Citigroup’s motion to dismiss was, therefore, denied.

First, the court determined that the ’245 patent was directed toward an abstract idea—the idea of verifying a transaction. Card Verifications claimed involved a method of passing along confidential information through a trusted, third-party intermediary to ensure both that a consumer could complete a transaction and that the necessary confidential information remained secure. The concept of transaction verification was a fundamental and prevalent economic practice, the court said.

Second, the court examined whether additional elements of the ’245 patent plausibly transformed the nature of the claims into a patent-eligible application. The court held that there were such elements. Although the ’245 patent was silent regarding machinery, the patent’s diagrams demonstrated incorporation of a computer, a nonsecure network, and pseudorandom tag-generating software. A plausible interpretation of the patent was that computing devices, software, keyboards, and credit card readers would be required to use the invention, the court said.

Although simply implementing an abstract idea on a computer was not a patentable application of the idea, the pseudorandom tag-generating software was a plausibly narrowing limitation. The question of whether a pseudorandom number and character generator could be based on an algorithm capable of being performed by a human with nothing more than pen and paper posed a factual question that was inappropriate at the motion to dismiss stage, in the court’s view.

The court also rejected Citigroup’s contention that the ’245 patent could not survive the “machine or transformation” test. Under the test, a process is patent-eligible if it is “tied to a particular machine or apparatus” or “transforms a particular article into a different state or thing.” The ’245 patent’s claims were not tied to a particular machine, but they could be sufficiently limited by the plausible transformation that occurred when the randomly generated tag was added to the piece of confidential information. The claimed invention went 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.

Accordingly, when viewed in the light most favorable to Card Verification, the plausibly recited a patent-eligible application of the abstract idea of verifying a transaction, the court concluded. Citigroup’s motion to dismiss was denied without prejudice. Citigroup could challenge the validity of the ‘245 patent after the completion of discovery and claim construction.

The case is No. 13 C 6339.

Attorneys: Joseph Paul Oldaker (InovaLaw, PC) for Card Verification Solutions, LLC. Eric J. Andalman (Dentons U.S. LLP) for Citigroup Inc.

Companies: Card Verification Solutions, LLC; Citigroup Inc.

Cases: Patent IllinoisNews