Preventing Identity Theft—A Tale as Old as Time According to Judge Palermo When She Invalidated Patent Claims for Identity Theft Prevention Software Under § 101

Order Granting Summary Judgment in favor of Defendants, Mantissa Corp. v Ondot Systems, Inc., et al, S.D. Tex. (August 10, 2017) (Magistrate Judge Dena Palermo)

Litigants continue to use Alice and its progeny as a powerful tool to invalidate business method and software patents.  That’s what happened recently in Mantissa Corp. v. Ondot Systems, Inc., et al, when Magistrate Judge Palermo of the Southern District of Texas invalidated fifty-two claims asserted by a software company from two of its patents (U.S. Patent Nos. 7,779,456 and 8,353,027) covering a “method of protecting use of an entity’s identity, the method being executed on electronic computer hardware in combination with software,” i.e., identity protection software for banking cards.  In invalidating the claims under § 101, Judge Palermo relied heavily on comparisons to claims invalidated as abstract ideas in previous cases, including Alice, and ultimately found that the patent claims at issue covered merely a computer-implemented method of preventing identity theft—an idea that has “existed since the dawn of civilization.”

As a preliminary matter, Judge Palermo found that whether a patent’s subject matter is eligible for protection under § 101 is a question of law, and that because there were no underlying factual issues, she could resolve the § 101 inquiry on a motion for summary judgment.  She did not, however, determine what burden of proof is applicable to a § 101 challenge, noting the absence of a clear mandate from the Supreme Court or the Federal Circuit, and a split in the lower courts—some requiring “clear and convincing evidence” and others applying the less demanding “preponderance of the evidence” standard.  She decided she need not resolve the issue because the “clear and convincing” standard applies only to questions of fact, which were absent from the present case.

Turning to the first part of the two-part Alice analysis, Judge Palermo found that the “focus,” “basic thrust,” or “character as a whole” of the asserted claims of both patents were directed to an abstract idea—identity theft protection.  She articulated that “character as a whole” as “determining whether a given use of an identity is permitted based on: (i) information that is, in itself, insufficient to permit use of the identity; and (ii) a [] set of conditions that define when the identity may or may not be used.”  Judge Palermo then likened the asserted claims to patent claims from several leading Federal Circuit and Supreme Court decisions, including the “method for hedging against the financial risk of price fluctuations” from Bilksi and the “computerized scheme for mitigating ‘settlement risk’” from Alice, both of which the Supreme Court found to be “fundamental economic practice[s] long prevalent in our system of commerce.”  Like these methods, Judge Palermo noted that methods of preventing identify theft are so fundamental and long prevalent that “they have existed since the dawn of civilization.”  As evidence, she gave two examples of longstanding economic practices with the same “character as a whole” as the claims at issue: (1) the more-than-a-century-old practice of bank tellers verifying an individual’s identity by comparing his or her signature to a pre-existing signature kept in a “signature book” by the bank, and (2) paper identification cards (pre-cursors to the present-day credit card) issued to valued customers by U.S. hotels and department stores in the 1900s, that when presented, instantly established the customers’ creditworthiness.  Judge Palermo found that the asserted claims employed the same idea as the above examples; namely, “requir[ing] the service provider to collect information, analyze that information in conjunction with certain conditions, make a determination based on that analysis, and notify the user of the determination.”  Consequently, pursuant to Bilksi and Alice, Judge Palermo found the asserted claims constituted no more than a computer implementation of a longstanding, fundamental economic practice, and as such, were directed to an unpatentable abstract idea.

Turning to the second part of the Alice analysis, Judge Palermo found there was no “‘inventive concept’ sufficient to ‘transform’ the abstract idea into a patent-eligible application”—the standard from Alice.  She examined the claim limitations individually (an analysis too in-depth for this article) and as an ordered combination, and found them insufficient under both analyses.  Mantissa attempted to proffer additional limitations from the patent specifications to strengthen its inventive concept argument, but Judge Palermo was not swayed.  Instead, she properly stuck to the claims themselves and noted that many of Mantissa’s proffered limitations weren’t even in the claims, let alone would they render the claims patentable.  One factor that played a large role in her decision, and that should be familiar to patent attorneys post-Alice, was that the use of a computer network to implement the identify theft prevention method did not add a sufficiently inventive concept.  She found that identity theft and the solution provided by the asserted claims were “decidedly technology-independent” and that the claims “[d]id not require doing something to computer networks, they require[d] doing something with computer networks.”  Consequently, Judge Palermo concluded that the asserted claims failed to recite an inventive concept under step two of the Alice analysis, and so were not eligible for patent protection under § 101.

Business method software patents are dropping like flies.  As a result of Alice, entities looking to patent this type of software must now be careful to ensure that either the function of the software, or the manner in which it utilizes computers, are sufficiently inventive.  As Judge Palermo noted in her conclusion, her invalidation of the patents does not mean that the methods described therein have not advanced identity protection, but under current law, “even a brilliant discovery does not by itself satisfy the § 101 inquiry.”  Post-Alice, even groundbreaking software may not be patentable if it uses standard computer and Internet technologies to implement a longstanding economic idea.  In order to avoid this fate, plaintiffs asserting software patents should consider proffering narrowing claim constructions that define the invention in a specific and specialized way—not as a method employing generic computers.