PPS Data, LLC v. Jack Henry & Assocs., Inc.

404 F.Supp.3d 1021

PPS DATA, LLC, Plaintiff,

v.JACK HENRY & ASSOCIATES, INC., Defendant.

CIVIL ACTION NO. 2:18-CV-00007-JRG

United States District Court, E.D. Texas, Marshall Division.

Signed September 6, 2019

Jon Bentley Hyland, Victor D. Vital, Barnes & Thornburg LLP, Dallas, TX, Anthony H. Son, Jeremy J. Edwards, Kaveh Saba, Matthew C. Ruedy, Steven A. Maddox, Maddox Edwards PLLC, Washington, DC, for Plaintiff.

Jay E. Heidrick, Russell Scarritt Jones, Jr., Polsinelli PC, Kansas City, MO, Adam P. Daniels, Polsinelli LLP, Los Angeles, CA, Jason Dwain Mazingo, The Mazingo Firm, PC, Tyler, TX, Jason Aaron Wietjes, Polsinelli PC, Dallas, TX, Randal S. Alexander, Polsinelli PC, Chicago, IL, for Defendant.

MEMORANDUM OPINION AND ORDER

RODNEY GILSTRAP, UNITED STATES DISTRICT JUDGE

Before the Court is the Motion for Summary Judgment of Invalidity Under 35 U.S.C. § 101 ("the Motion") filed by Defendant Jack Henry & Associates, Inc. ("JHA"). (Dkt. No. 81). Having considered the Motion, and for the reasons set forth herein, the Court finds the Motion should be and hereby is DENIED .

I. Factual and Procedural Background

Plaintiff PPS Data, LLC ("PPS Data") alleges direct infringement of Claims 1, 7, 19, and 25 of U.S. Patent No. 7,181,430 ("the '430 Patent"), Claims 1–6 and 9 of U.S. Patent No. 7,216,106 ("the '106 Patent"), Claims 1, 12, and 14 of U.S. Patent No. 7,440,924 ("the '924 Patent"), and Claims 1 and 12 of U.S. Patent No. 7,624,071 ("the '071 Patent") (collectively, the "Asserted Claims" and "Asserted Patents"). The Asserted Patents are all part of the same patent family and share a common specification. The ‘430 Patent claims priority to an application filed on April 28, 2000. The ‘106 Patent is a continuation-in-part of the application that resulted in the ‘430 patent. The '071 Patent and '924 Patent are divisionals of the '430 Patent.

The Asserted Claims are system and method claims directed towards a technological architecture for electronic check deposit processing. Prior art systems for check processing required a customer to come to a traditional bank or bank branch facility. '430 Patent at 1:14–27. At the bank of first deposit—the financial institution where the check is initially dropped off—the bank would perform "Magnetic Ink Character Recognition" or "MICR" capture to gather deposit information such as a "maker bank number, the account number, a check serial number," the deposit amount, and other information related to processing the check. Id. at 6:4–7. Then, unless the check was an "on us"¹ check, the bank of first deposit would then physically transmit the paper check to the "maker bank" or the Federal Reserve Bank for post-deposit processing and ultimately clearance. Id. at 1:14–27. Upon receipt of these checks, these latter banks would again process the checks and perform MICR capture, re-gathering the same information that was initially gathered by the bank of first deposit. Id. 1:15–37.

These prior art systems had a number of substantial drawbacks for customers and for banks. Customers had to physically travel to banks or bank branches in order to process their checks. Id. Customers also faced substantial uncertainty about whether a check would actually clear, since the prior art systems offered no way to verify that a check—even once deposited—was drawn on an account holding sufficient funds to cover that debit. Id. at 1:47–50. Similarly, banks themselves had limited means of determining whether the check draw on an account at another bank had sufficient funds to pay the check, or whether the account was closed or otherwise frozen. Id. at 2:4–11. Banks also had limited tools to enforce deposit limits, since a customer could ostensibly deposit different checks at different branches in order to evade deposit limits. Id. at 2:50 –54.

Additionally, banks had to incur the physical infrastructure costs of being tethered to paper-based financial instruments. Id. at 1:28–61. Both the risk of damage to physical copies of financial instruments and the difficulty of secured storage for such instruments were burdens on banks. Id. Similarly, banks who received the check after the bank of first deposit had to maintain the technological infrastructure to perform MICR capture in order to re-process the check once it physically arrived, in order to re-capture and re-catalogue the information embodied in the paper check. Id. In practice, this process was inefficient as it required significant physical, financial, and human resources. Id.

The Asserted Patents are directed towards a "new process" that "involves inventive computer-based software that can be used at financial institution locations and locations remote from financial institution offices for capturing deposits." Id. at 2:12–15. Claim 1 of the '430 Patent, which JHA contends is representative of the Asserted Claims,² recites:

1. A method for deposit processing at a central system a plurality of checks deposited at a remote site with accompanying deposit information, comprising:

the central system receiving deposit information for a plurality of different deposit transactions, with the deposit information including for each of the different deposit transactions a deposit account designation, electronic check data and check image data for at least one check to be deposited, wherein the central system is separate from MICR capture, deposit accounting, cash management, and float processing systems for a bank of first deposit and wherein the deposit account designation for each of at least a subset of the plurality of the deposit transactions is to a different bank of first deposit;

the central system transmitting the electronic deposit data and optionally the check image data for each different deposit transaction of the subset of the plurality of the deposit transactions to a respective different one of the banks of first deposit;

the central system performing at least one of sorting the received deposit information and error checking the received deposit information before transmission to any of the MICR capture, deposit accounting, cash management, and float processing systems of each of the different banks of first deposit designated in the respective deposit account designations in the deposit information; and

the central system transmitting electronic check data and the check image data directly or indirectly to a maker bank or a Federal Reserve Bank or a correspondent bank in a transmission having a transmission path that bypasses the MICR capture, deposit accounting, cash management, and float processing systems of the bank of first deposit for that deposit transaction.

Id. at 18:17–51. The Asserted Patents indicate that using a digital rather than paper version of the check was inventive and advantageous relative to the state of the prior art in April 2000, which is the undisputed priority date for the Asserted Patents. The specification explains:

The present invention has been designed to reduce the issues associated with the physical handling of paper items by financial institutions and to improve the collections of associated funds by processing electronic images of checks as opposed to the slower method of sending paper checks through the traditional check clearing routes. Not withstanding [sic ] the premise for the inventive processes to use electronic images of items to facilitate processing and clearing of items, it would also be desirable for the present invention to accommodate the current use of paper items and all other commonly accepted methods for clearing checks until such time as the use of electronic images becomes a common accepted practice for clearing checks.

Id. at 1:66–2:11. The Asserted Patents offer a number of innovations that eliminate known drawbacks in prior art systems. With respect to customers, at the time of patenting, the Asserted Patents offered "a bearer of a check the convenience to ‘deposit’ a check at a facility, such as a home or office, that is not a traditional bank or bank branch facility." Id. at 1:39–42. The preponderance of benefits, however, benefitted banks. Distinct from the prior art systems at the time, the Asserted Patents facilitate "remote depositing and processing a check" in a manner "that does not require the physical routing of the actual check in order to accomplish the various post-deposit processing of a check." Id. at 1:43–47. This technological innovation in the form of "post-deposit processing" is captured by the "MICR" bypass limitations, which limit the Asserted Patents to scenarios where the follow-on banks are freed from—and may "bypass"—repetition of the initial check deposit process conducted at the "remote site." Id. at 7:9 –11.

The invention embodied in the Asserted Patents also "improv[es] the collection time involved with the funds represented by the check ...." Id. at 1:47–50. The Asserted Patents also confer a variety of logistical benefits, including "reducing expenses associated with the transportation costs involved in sending the checks" "reducing the check storage expenses incurred by the bank of first deposit" "reduce the staffing, facilities (i.e., physical buildings), and equipment required to accept and process physical checks." Id. at 1:51–61.

JHA filed the instant Motion seeking summary judgment that the claims are invalid under 35 U.S.C. § 101 for claiming patent-ineligible subject matter. While the Motion was pending, the Federal Circuit decided Solutran, Inc. v. Elavon, Inc. , 931 F.3d 1161 (Fed. Cir. 2019), which held that a patent directed towards "crediting a merchant's account as early as possible while electronically processing a check" was invalid under § 101. Id. at 1166. This Court ordered targeted supplemental briefing to address how best to implement Solutran .

In response to JHA's Motion, PPS Data contends that its patents are valid under § 101 and that, in any case, summary judgment should be denied because JHA has not demonstrated that Claim 1 of the '430...