Patent Law | Expert Legal Commentary

September 26, 2011

Cybersource v. Retail Decisions: Federal Circuit Upholds Use of Machine or Transformation Test; Discusses Internet-related Process Claims

Cybersource Corp., v. Retail Decisions, Inc.

By Jeff Zuber of Zuber Lawler & Del Duca and Sarah S. Brooks of Stradling Yocca Carlson & Rauth

Cybersource v. Retail Decisions: Federal Circuit Upholds Use of Machine or Transformation Test; Discusses Internet-related Process Claims

The Federal Circuit recently expanded the analysis of a patent process claim beyond the “machine or transformation” test. In Cybersource Corp., v. Retail Decisions, Inc., No. 2009-1358, 2011 U.S. App. WL 3584472, (Fed. Cir. Aug. 16, 2011), the Federal Circuit not only upheld the use of the machine or transformation test, but also analyzed the claims under three categorical exceptions to eligibility in light of a recent Supreme Court holding expanding process claim analysis beyond the test.

Background

Cybersource owns the “’154 patent”, which purports to detect credit card fraud on internet sales.  At issue are two claims of the ‘154 patent – claim #3 compares a particular credit card with various internet identities, such as IP addresses, email addresses, and MAC addresses used in association with that card.  Claim #3 does not mention any particular algorithm, method, or criteria of comparison.  Claim #2 generally describes the same process as applied to a computer readable medium.  Id. at *3.

In 2004, Cybersource sued Retail Decisions for alleged infringement of the ‘154 patent.  The court analyzed the case in light of the Federal Circuit’s holding in In re Bilski and after a PTO reexamination of the ‘154 patent.  In summary judgment, the court invalidated claim #3, holding that it was an unpatentable mental process.  Further, the court found claim #2 invalid, as it declared that “appending a computer readable media including program instructions…to an otherwise non-statutory process claim is insufficient to make it statutory.”  Id. at *4.

Discussion

Cybersource appealed and the Federal Circuit heard the case de novo, noting that appeals arising from summary judgment are reviewed as such.  The Court first reviewed the law in light of the Supreme Court’s holding in Bilski.  In that case, the Supreme Court upheld the “machine or transformation” test in analyzing the patentability of process claims.  Under the “machine or transformation” test, a process is patent eligible if (1) it is tied to a particular machine or apparatus; or (2) it transforms a particular article into a different state or thing.  Id.  However, the Supreme Court also expanded the analysis, holding that the “machine or transformation” test is not the only test to determine if a process is patent eligible.  The Supreme Court declined to offer any alternative tests, but noted that in general, there are three categories that cannot be patent eligible under 35 U.S.C. § 101 – (1) laws of nature; (2) physical phenomena; and (3) abstract ideas. Id.

On application, the Court affirmed the district court’s holding to invalidate claim #3.  The Court first found that the process in claim #3 did not pass the machine or transformation test.  Cybersource argued that the internet, as a machine, was an integral part of claim #3, but the Court was not convinced and said that the internet itself could not perform the fraud detection steps.  Further, the Court found that the internet was merely a non-exclusive source of the data needed for the analysis.  Thus, the process failed the machine prong as the Court found the process was not tied to any particular machine, nor did the process require a machine at all to function.  Id. at *6.

Second, the Court also examined claim #3 outside of the machine or transformation test analysis pursuant to the Supreme Court’s holding in Bilski.  The Court held that claim #3 fell into the abstract idea exception and thus was not patent eligible.  For the Court, the process described in claim #3 was so general that the human mind could perform the entire process.  Specifically, the Court pointed to a lack of a particular algorithm in to analyze the data and highlighted that under the described process, a human could use his or her own logical reasoning to make a judgment whether fraudulent credit card behavior existed. Id. at *6-7.

The Court categorized claim #2 as a Beauregard claim, which is a claim involving a computer readable medium containing instructions for a computer to perform a process.  The Court disagreed with Cybersource’s argument that claim #2 described a “machine”, and thus was per se eligible for a patent.  The Court instead analogized to In re Abele in describing claim #2 as a process.  Id. at *8.

Continuing under a process analysis (as was done in claim #3), the Court found that claim #2 also failed the machine or transformation test. Id.  As the process described in claim #2 was generally the same as in claim #3, the Court similarly found that claim #2 did not include a transformation because the process merely manipulated or reorganized the data.  Further, the Court found that the process did not satisfy the machine prong because claim #2 could also be performed entirely in the human mind.  Id. at *9.  The Court cited SiRF Tech in demonstrating that a machine “must play a significant part in permitting the claimed method to be performed.”  Id. at *9, quoting SiRF Tech. Inc. v. Int’l Trade Comm’n, 601 F.3d 1319, 1333 (Fed.  Cir. 2010).  Moreover, the Court noted from Benson that “purely mental processes can be unpatentable, even when performed by computer.”  Id. at *9.

Conclusion

While the machine or transformation test may be the familiar standard used in deciding patent eligibility cases, Cybersource demonstrates that post-Bilski, courts will also seek whether a claim encroaches on one of the three unpatentable categories – (1) laws of nature; (2) physical phenomena; and (3) abstract ideas.  Additionally, as internet-related process claims increase, inventors and practitioners should take notice of the Court’s thoughts on process claims loosely tied to the internet and the use of the internet as a “machine”.  Notice should be taken in light of the Court’s reluctance to uphold overly-broad claims in light of Cybersource, and patent holders and infringement defendants should seek experienced counsel to ensure the viability of patent claims.

About the Authors

Jeff Zuber is a Partner of Zuber Lawler & Del Duca, focusing on intellectual property litigation and arbitration.

Sarah S. Brooks is an Associate of Stradling Yocca Carlson & Rauth, focusing on intellectual property litigation.

Image Credit: ©iStockphoto.com/Horten123

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Jeff Zuber
Sarah S. Brooks

Companies Mentioned

CyberSource Corp.

Retail Decisions, Inc.

Also See:

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Bowman v. Monsanto Co.: Growing Patented Soybeans for Replanting is Infringement

Gunn, et al., v. Minton: Supreme Court Denies Federal Jurisdiction for Patent-Related Malpractice Suit

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Companies Mentioned

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