Smart Sys. Innovations, LLC v. Chi. Transit Auth., Cubic Corp.

873 F.3d 1364

SMART SYSTEMS INNOVATIONS, LLC, Plaintiff-Appellant

v.CHICAGO TRANSIT AUTHORITY, Cubic Corporation, Cubic Transportation Systems, Inc., Cubic Transportation Systems Chicago, Inc., Defendants-Appellees

2016-1233.

United States Court of Appeals, Federal Circuit.

Decided: October 18, 2017

Marc J. Pernick , Mauriel Kapouytian Woods LLP, San Francisco, CA, argued for plaintiff-appellant. Also represented by Sherman Kahn , New York, NY; William N. Hebert , Calvo Fisher & Jacob LLP, San Francisco, CA.

Kristopher L. Reed , Kilpatrick Townsend & Stockton LLP, Denver, CO, argued for defendants-appellees. Also represented by David E. Sipiora, Jeffrey M. Connor .

Before Reyna, Linn, and Wallach, Circuit Judges.

Opinion dissenting in part and concurring in part filed by Circuit Judge Linn.

Wallach, Circuit Judge.

Appellant Smart Systems Innovations, LLC ("SSI") sued Appellees Chicago Transit Authority et al. (collectively, "Appellees") in the U.S. District Court for the Northern District of Illinois ("District Court"), alleging infringement of U.S. Patent Nos. 7,566,003 ("the '003 patent"), 7,568,617 ("the '617 patent"), 8,505,816 ("the '816 patent"), and 8,662,390 ("the '390 patent") (collectively, "the Patents-in-Suit").¹ Appellees responded by filing a motion for judgment on the pleadings, asserting that various claims of the Patents-in-Suit ("the Asserted Claims")² are patent ineligible under 35 U.S.C. § 101 (2012).³ The District Court granted Appellees' Motion, holding that the Asserted Claims are directed to an abstract idea and otherwise lack an inventive concept, such that they are patent ineligible under § 101. See Smart Sys. Innovations, LLC v. Chi. Transit Auth. , No. 1:14-cv-08053, 2015 WL 4184486, at *7 (N.D. Ill. July 10, 2015). The District Court later entered final judgment as to the Asserted Claims pursuant to Federal Rule of Civil Procedure 54(b).⁴ J.A. 1–2.

SSI appeals. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1) (2012). We affirm.

DISCUSSION

I. Standards of Review

We review a district court's judgment on the pleadings under the law of the regional circuit, here the Seventh Circuit. See RecogniCorp, LLC v. Nintendo Co. , 855 F.3d 1322, 1325–26 (Fed. Cir. 2017). The Seventh Circuit reviews de novo the entry of judgment on the pleadings. See Barr v. Bd. of Trs. of W. Ill. Univ. , 796 F.3d 837, 839 (7th Cir. 2015). In so doing, the Seventh Circuit "tak[es] the facts alleged in the complaint as true and draw[s] all reasonable inferences in favor of the plaintiff." Matrix IV, Inc. v. Am. Nat'l Bank & Tr. Co. , 649 F.3d 539, 547 (7th Cir. 2011) (citation omitted).

We review issues "unique to patent law," including patent eligibility under 35 U.S.C. § 101, consistent with our circuit's precedent. Madey v. Duke Univ. , 307 F.3d 1351, 1358 (Fed. Cir. 2002). A district court's determination of patent eligibility under § 101 is an issue of law that we review de novo. See Intellectual Ventures I LLC v. Erie Indem. Co. , 850 F.3d 1315, 1325 (Fed. Cir. 2017).

II. The Asserted Claims of the Patents-in-Suit Are Patent-Ineligible Under 35 U.S.C. § 101

"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 therefor, subject to the conditions and requirements of" Title 35 of the United States Code. 35 U.S.C. § 101. "The Supreme Court, however, has long interpreted § 101 and its statutory predecessors to contain an implicit exception: laws of nature, natural phenomena, and abstract ideas are not patentable." Content Extraction & Transmission LLC v. Wells Fargo Bank, Nat'l Ass'n , 776 F.3d 1343, 1346 (Fed. Cir. 2014) (internal quotation marks and citation omitted).

The Supreme Court's decision in Alice Corp. Pty Ltd. v. CLS Bank International provides the framework through which we assess patent eligibility under § 101. See ––– U.S. ––––, 134 S.Ct. 2347, 2354–55, 189 L.Ed.2d 296 (2014). A patent

claim falls outside § 101 where (1) it is "directed to" a patent-ineligible concept, i.e. , a law of nature, natural phenomenon, or abstract idea, and (2)[ ] if so, the particular elements of the claim, considered "both individually and ‘as an ordered combination,’ " do not add enough to " ‘transform the nature of the claim’ into a patent-eligible application."

Elec. Power Grp., LLC v. Alstom S.A. , 830 F.3d 1350, 1353 (Fed. Cir. 2016) (quoting

Alice , 134 S.Ct. at 2355 ). It is against this framework that we analyze the Asserted Claims.⁵

A. The Asserted Claims

The Patents-in-Suit "tackle" various "problems that had proven intractable to the [mass] transit sector." Appellant's Br. 17 (discussing the '003 and '617 patents ); see id. at 24 (discussing similarly the '390 and '816 patents ). SSI sought to overcome these problems with inventions designed to implement open-payment fare systems in mass transit networks in the United States. See SSI , 2015 WL 4184486, at *1. "An open-payment fare system allows riders to conveniently and quickly access mass transit by using existing bankcards," such as debit and credit cards, thereby "eliminat[ing] the need for, and added operational cost of, dedicated fare-cards," paper tickets, and tokens. Id . ; see, e.g. , '003 patent, Abstract.

Entitled "Learning Fare Collection System For Mass Transit," the '003 and '617 patents generally relate to "a system and method for regulating entry in a transit system using information from a bankcard, such as a credit card or debit card." '003 patent, Abstract; see '617 patent, Abstract (similar). Entitled "Public Transit System Fare Processor For Multi-Balance Funding," the '816 and '390 patents generally relate to "a system and method for processing transfer rides associated with at least one public transit network," which "preprocess transactions to consolidate or eliminate unnecessary transactions with a financial institution clearing and settlement network." '816 patent, Abstract; '390 patent, Abstract (same).⁶

Consistent with the District Court, we treat the following claims from each of the Patents-in-Suit as representative of their content.⁷ SSI , 2015 WL 4184486, at *4 ; see Elec. Power , 830 F.3d at 1352.

Claim 14 of the '003 patent recites:

A method for validating entry into a first transit system using a bankcard terminal, the method comprising:

downloading, from a processing system associated with a set of transit systems including the first transit system, a set of bankcard records comprising, for each bankcard record in the set, an identifier of a bankcard previously registered with the processing system, and wherein the set of bankcard records identifies bankcards from a plurality of issuers;

receiving, from a bankcard reader, bankcard data comprising data from a bankcard currently presented by a holder of the bankcard, wherein the bankcard comprises one of a credit card and a debit card; determining an identifier based on at least part of the bankcard data from the currently presented bankcard;

determining whether the currently presented bankcard is contained in the set of bankcard records;

verifying the currently presented bankcard with a bankcard verification system, if the bankcard was not contained in the set of bankcard records; and

denying access, if the act of verifying the currently presented bankcard with the bankcard verification system results in a determination of an invalid bankcard.

'003 patent col. 15 l. 50–col. 16 l. 6.

Claim 13 of the '617 patent recites:

A method for validating entry into a first transit system using a bankcard terminal, the method comprising:

downloading, from a processing system associated with a set of transit systems including the first transit system, a list of bankcards comprising, for each bankcard in the list, a hash identifier of a bankcard previously presented, by a respective holder of the bankcard, to the processing system, wherein the bankcard comprises one of a credit card and a debit card;

receiving, from a bankcard reader, bankcard data comprising data from a bankcard currently presented by a holder of the bankcard;

generating a hash identifier based on the bankcard data from the currently presented bankcard, wherein the hash identifier comprises a hash of at least part of the bankcard data;

determining whether the currently presented bankcard is contained in the list of bankcards;

verifying the currently presented bankcard with a bankcard verification system, if the bankcard was not contained in the list of bankcards; and

denying access, if the act of verifying the currently presented bankcard with the bankcard verification system results in a determination of an invalid bankcard.

'617 patent col. 11 l. 62–col. 12 l. 18.

Claim 1 of the '816 patent recites:

A method of funding transit rides associated with at least one public transit network, from a plurality of funding sources, the method comprising:

configuring a processor, associated with the at least one public transit network, wherein configuring the processor comprises:

storing, in memory, a plurality of balance classes;

storing, in the memory, at least one rule for a prioritization of the balance classes;

storing, in the memory, at least one fare rule; and

maintaining, in the memory, a transit account and a respective plurality of balances; and

processing a bankcard presentation record, wherein the bankcard presentation record comprises an identifier to the transit account, and wherein processing the bankcard presentation record comprises:

receiving the bankcard presentation record at the processor;

searching the memory for the transit account identified by the identifier in the bankcard presentation record;

inferring, from at least one of the at least one fare rules, a resultant fare;

selecting a balance from the plurality of balances for the transit account by using at least one of the at least one rule for the prioritization of the balance classes; and

accounting for a fare by applying the fare to the selected balance.

'816...