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On Wednesday, October 18th, a judicial panel in the Court of Appeals for the Federal Circuitdecided a case which affirmed a lower court’s holding that a series of four patents covering mass transit technologies are invalid under 35 U.S.C. § 101, the basic statute regarding the patentability of an invention. The case, Smart Systems Innovations, LLC v. Chicago Transit Authority et. al., is proof that the federal judiciary’s interpretation of patent eligibility is still being informed by a U.S. Supreme Court standard which is deleterious to the property of patent owners.
This matter stems from a case filed by New York City-based Smart Systems Innovations against the Chicago Transit Authority in the Northern District of Illinois back in October of 2014. In July 2015, Judge Edmond E. Chang entered a memorandum order and opinion declaring four patents asserted by Smart Systems against the Chicago Transit Authority’s use of the Ventra contactless fare payment system were invalid under Section 101.
Smart Systems’ first amended complaint filed in January 2015 noted that the firm was an early player in the development of open payments technologies for transit systems after seeing the success of such systems in Seoul, South Korea. As the technology became more acceptable among U.S. consumers, various transit agencies, including the Chicago Transit Authority, began issuing requests for proposals to implement such open payment systems. Chicago Transit partnered with San Diego, CA-based transportation systems firm Cubic Corporation in November 2011. Cubic was allegedly informed by Smart Systems of its infringement of the asserted patents starting in 2005 yet Cubic worked with Chicago Transit to implement the Ventra open payment system.
Applying the patentability standard set down by the Supreme Court in Alice Corp. v. CLS Bank International, which was decided in 2014, Judge Chang determined that the asserted patents failed the threshold set by Section 101. “Stripped of the technical jargon that broadly describe non-inventive elements (e.g., the “interfaces” and “processing systems”), and further shorn of the typically obtuse syntax of patents, the patents here really only cover an abstract concept: paying for a subway or bus ride with a credit card,” Judge Chang’s order reads. Although the patents did teach the collection of bankcard data stored in memory to solve a problem in the amount of time required to process transactions, “recent case law has reiterated that whatever bells and whistles may be added, when reduced to their core, ‘claims directed to the performance of certain financial transactions’—and paying a fare is a financial transaction—must be categorized ‘as involving abstract ideas.’” Judge Chang also found that there was no inventive step covered by the patent claims. Smart Systems had argued that the Federal Circuit’s 2014 decision in DDR Holdings, LLC v. Hotels.com but the district court found that DDR Holdings upheld claims covering a solution to a “particular internet-centric problem’”; by contrast, the patents held by Smart Systems covered a methodological, and not a technological, breakthrough.