Payment Patent Infringement

1
Payment Patent Infringement

• J. Thomas Vitt

2
Overview

• The Patent System
• The Emergis Case
• Practical Lessons

3
The Patent System

• What Can You Patent?

4
The Patent System

• What Can You Patent?
• Supreme Court anything under the sun made by
  man
• Whoever invents or discovers any new and useful
  process, machine, manufacture, or composition of
  matter, or any new and useful improvement
  thereof, may obtain a patent . . .
• But you cannot patent (1) abstract ideas (2)
  laws of nature (3) physical phenomena

5
The Patent System

• What Can You Patent?
• To obtain a patent, the claimed invention has to
  be
• Novel (meaning the invention has at least one
  difference from whats in the art)
• Not Obvious (meaning more than ordinary skill is
  required)
• Useful (an easy standard)
• The Practical Reality The pendulum swings back
  and forth, but more things are patentable than
  you might think

6
The Patent System

• Two Areas of Special Interest for Payment Systems
• Business Method Patents
• Software Patents

7
The Patent System

• Business Method Patents
• A new and useful process is patentable
• A method of doing business can meet this
  definition
• Limited by the abstract idea limitation (and
  other requirements for patentability)

8
The Patent System The Controversy Over Business
Method Patents

• State Street (1998) Broad permission for
  business methods as long as the method produced a
  useful, concrete, tangible result
• Led to significant increase in business method
  patent filings
• Business method patents are harshly criticized

9
The Patent System The Controversy Over Business
Method Patents

• Bilski (2010)
• Federal Circuit reversed State Street and created
  a narrow, bright line test for business methods
  tied to a machine or transformation of matter
• But the Supreme Court rejected that bright line
  machine or transformation test
• Business methods survive (barely) and can still
  be patented
• But, Supreme Court invalidated the patent in the
  Bilski case as abstract idea

10
The Patent System The Controversy Over Business
Method Patents

• Continuing battle on what business methods are
  patentable
• Congress to the rescue?
• No, but
• Pending Patent Reform Singles out business
  method patents that claim a method or
  corresponding apparatus for performing data
  processing or other operations used in the
  practice, administration, or management of a
  financial product or service for a special
  post-grant review procedure
• Can use to stop litigation and force Patent
  Office review
• May apply to business methods in utility payment
  systems

11
The Patent SystemSoftware Patents

• Less controversial than business method patents,
  but still controversial
• Mark Cuban Outlaw all software patents!
• Software patentable as an article of
  manufacture, also as a process
• Retail Decisions (August 16, 2011)
• Rejected computerized credit card fraud detection
  system as abstract idea

12
The Emergis Case

• The Emergis Patent Claims an Electronic Invoicing
  and Payment System

13
The Emergis Case

• 99 Claims! But, essentially the patent claims
  using a computer to pay bills online
• Emergis was a non-practicing entity (called a
  patent troll by defendants)

14
The Emergis Case

• Emergis Patent Claims Many words obscuring
  simplicity
• (1) invoice presentation electronics adapted to
  present customer billing data . . . and to
  request payment instructions
• Translation A computer sends you the bill
• (2) remote electronic customer authorization
  interface . . . to (a) receive customer billing
  data and request for payment (b) provide customer
  billing data and request for payment instructions
  to customer (c) transmit customer payment
  instructions directly to invoicer
• Translation You use a computer to pay the bill

15
The Emergis Case

• Direct Transmission is the key

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The Emergis Case

• The Emergis Campaign
• Sent (at least) dozens of threat letters to
  utilities in 2004-2006 time period
• Filed 16 lawsuits in 2005-2006

17
The Emergis Case

• The Response to the Emergis Campaign
• Pay, or Fight?

18
The Emergis Case

• Several Companies Chose to Settle
• Different Payment Systems
• Non-infringement defense is much cheaper than
  invalidity
• Home-grown systems/third-party providers
• Emergis Settlement Strategy, and the Costs of
  Litigation

19
The Emergis Case

• Fear of Cost of Patent Litigation Is A Powerful
  Tool for Plaintiffs
• Median Costs To Defend Mid-Sized Patent Case is
  1.5 Million (through end of discovery) and 2.5
  Million (through trial)
• Source AIPLA Report of the Economic Survey
  (2011)

20
The Emergis Case Emergis v. Otter Tail

• Otter Tails vendor, Princeton eCom, chose to
  fight
• Defense Strategy
• Focus just on direct transmission noninfringement
  defense
• Princeton eCom system was the same as Figure 1
• Ignore, as much as possible, all other issues
• Ask Court to dismiss the case as soon as possible

21
The Emergis Case

• The Strategy Worked
• Chronology is Revealing
• April 18, 2005 Otter Tail Letter the system
  used follows the prior art illustrated by Figure
  1 of the 362 Patent
• January 26, 2006 Emergis Files Suit
• July 10, 2006 Otter Tail Files Motion for
  Summary Judgment, re Direct Transmission
• March 9, 2007 Otter Tail Wins in District Court
• January 31, 2008 Federal Circuit Affirms Otter
  Tails Win

22
The Emergis Case

• Defense Argument
• Direct Transmission means what it says.
• Payment instructions go only to third-party
  vendor, are not transmitted directly to the
  invoicer, and indeed are never transmitted to
  the invoicer
• Emergis Argument
• directly to the invoicer means directly to the
  invoicer or to an agent or third party that the
  invoicer hires or controls

23
The Emergis Case

• District Court and Federal Circuit Rejected
  Emergis Argument
• Summary Judgment of No Infringement
• Early Motion Saved Money
• Emergis Campaign Ended

24
Practical Lessons From The Emergis Case

• Pay Attention To Vendor Contracts
• Consider Joint Defense
• Analyze Early, and Dont Feel Compelled to Cave

25
Questions?

26

• J. Thomas Vitt
• Partner Dorsey Whitney LLP
• 50 South Sixth StreetSuite 1500Minneapolis, MN
  55402-1498(612) 340-5675
• vitt.thomas_at_dorsey.com

Devan V. Padmanabhan Partner Dorsey Whitney
LLP 50 South Sixth StreetSuite 1500Minneapolis,
MN 55402-1498(612) 343-7990 padmanabhan.devan_at_do
rsey.com