Article

The ATM industry wins another victory against patent trolls

The court not only found that the patents asserted were invalid, but also left the door open for companies subject to baseless infringement claims to bring counterclaims for damages.

January 9, 2015

by Ralph Jocke, principal, Walker & Jocke Co. LPA

Operators of ATMs and check processing systems won a significant victory over patent trolls on Dec. 23. The Court of Appeals for the Federal Circuit, which decides all appeals in patent infringement cases, not only found that the patents being asserted by the patent troll in this case were invalid, but also left the door open for companies that are subject to baseless infringement claims to bring counterclaims for damages against the patent troll and its individual owners.

"Patent trolls" acquire patents for the sole purpose of bringing lawsuits and extracting royalty payments. A patent holding company called Content Extraction and Transmission LLC alleged that Wells Fargo, PNC, Diebold and others infringed four patents. While the patents contained 242 different patent claims, all the claims were directed to devices and methods that extract data from hard copy documents using a scanner, recognize the extracted data as specific information, and store the information in a computer memory. CET alleged that ATMs that recognize information from scanned checks infringed these patents.

The defendants accused of infringement by CET filed counterclaims contending that the patents were invalid as they covered unpatentable "abstract ideas." In addition, the defendants filed counterclaims against CET alleging that the infringement claims were brought in bad faith and in violation of the Racketeer Influenced Corrupt Organizations statutes. The counterclaims for violations of the RICO statutes were brought not only against CET but also against the individuals who own the CET entity.

The District Court in New Jersey, where the infringement case was filed, held that the patents were invalid as directed to merely "abstract ideas," but did not find that CET and its owners brought the infringement claims in violation of the RICO statutes. Both sides appealed to the CAFC.

The CAFC affirmed that the patents were invalid because they claimed subject matter that was not patent eligible (CAFC Case No. 13-1588). The court based its decision on the fact that the claims were drawn to the "abstract ideas" of collecting data, recognizing certain data within the collected data, and storing the recognized data in a memory. The CAFC stated that this was activity that humans had always routinely performed, and banks in particular had done for many years before the patents were filed with regard to processing the data included on checks. Finding that there was nothing in the claims of the patents directed to anything other than the performance of well understood, routine and conventional activities, CAFC held that the claims were not patent eligible, and therefore, were invalid.

With regard to the RICO claims, the CAFC agreed with the district court's decision that the defendants could not recover against CET for bad faith litigation — but for a different reason. The New Jersey court had found that claims by CET were objectively baseless, but that the defendants had not established that CET brought its claims through abuse of the legal system with intent to harm the parties who were sued.

The CAFC instead indicated that at the time CET brought its lawsuit, the law regarding what was an unpatentable "abstract idea" was unsettled, and therefore it was improper for the District Court to find that CET's claims were objectively baseless.

However, the CAFC's decision leaves the door open in the future for parties accused of patent infringement to defend by bringing claims for RICO violations against "patent trolls" whose claims are objectively baseless and who abuse the legal system by bringing the claims with intent to harm the accused infringer.

CET or the defendants may appeal the CAFC decision to the U.S. Supreme Court. However, it is unlikely the Supreme Court will review the decision.

It should also be noted that CET is a successor entity to Eon-Net, which in 2011 was sanctioned by the CAFC for bringing a frivolous patent infringement lawsuit against Flagstar Bancorp.

In that case, $600,000 in sanctions was awarded against Eon-Net for filing baseless infringement claims and for improper litigation tactics. (Eon-Net LP v. Flagstar Bancorp, CAFC No. 09-1308). It would seem that, given this history, CET was lucky to escape this time without further sanctions.

This decision is another sign that courts are tired of "patent trolls" that bring baseless infringement claims, and are providing companies who face such claims with more ways to hold the patent trolls — and the individuals who control them — accountable for improper conduct.

Ralph Jocke has authored more than 1,100 granted U.S. patents. He also represents companies in the financial industry in dealing with patent infringement claims. Ralph is a principal with the law firm of Walker & Jocke Co. LPA.