Breaking the Trend: Software Patent Survives Challenge

While many post-Alice Corp. decisions regarding patentability of software were grim news for patent owners, a recent case from the U.S. District Court for the Northern District of Illinois goes against this trend. In Card Verification Solutions, LLC. v. Citigroup Inc., the court considered a motion to dismiss a patent infringement lawsuit complaint for failure to state a claim. The motion was based on the patent at issue, U.S. Patent No. 5,826,245, being allegedly directed to an abstract idea and thus being invalid. The claims of the patent cover a method for verification of information in a transaction between two parties, such as between a merchant and a customer.

The court applied a two-pronged test to evaluate patentability of the claims. First, the court asked whether the claims are directed towards an abstract idea, and concluded that verifying transaction information is a fundamental economic practice and indeed an abstract idea. The court then asked whether additional elements transform the nature of the claims into a patent-eligible application of the abstract idea and found that such a transformation is present for several reasons. First, the court reasoned that while the claims do not specifically recite any machinery, a plausible interpretation of the patent suggests that computer hardware would be necessary to use the invention, and invalidating the claims for lack of specific recitation of the hardware would be overly formalistic. The court also noted that while deciding whether the method could be performed by a human with a pen and paper was premature at this stage of the litigation, a reasonable inference could be drawn that a human could not perform the method due to the method including steps of generating pseudorandom numerical tags. Finally, the court applied the machine-or-transformation test and found that the method was transformative due to including steps of adding the pseudorandom tags to other information involved in the transaction. Accordingly, the court upheld the validity of the patent and denied the motion.

While the legal standard based upon which the motion was decided heavily favored the patent owner, the decision nevertheless remains significant for upholding the validity of a software patent in the post-Alice Corp. world. The decision may still eventually be overturned in higher courts, but, for now, software patent owners may take hope that the decision represents a new trend in evaluating software patentability.