Article

USPO review invalidates 'abstract' check imaging patent

Whether this is great news or just 'sort of good news' to companies paying royalties to DataTreasury might depend on their licensing or settlement terms.

May 14, 2015

On April 29, the Patent Trial and Appeal Board of the United States Patent and Trademark Office issued a decision in Fidelity National Information Services Inc., Petitioner, v. DataTreasury Corp. This decision established that the latter's patents for check imaging systems were based on abstract ideas, and were therefore invalid.

It was a bittersweet victory for the financial services industry. At long last, a legal ruling had definitively established that, where Patent Nos. 5,910,988 and 6,032,137 were concerned, the emperor had no clothes — but not before DataTreasury had raked in a kingly sum — hundreds of millions of dollars — for its pretended cloth of gold.

What follows is a breakdown of the case by Ralph Jocke, a legal expert with years of experience with patent issues affecting the ATM and financial services industries.

Jocke said that the PTAB decisions are "a major victory for the financial industry and providers of check-accepting ATMs and mobile check image capture systems."

The DataTreasury patents

DataTreasury has alleged that every check image-processing system that uses a "three-tier" component architecture, or that transmits check images with an "encrypted subsystem identifier" that can be used to identify the check image capture device, infringes its patents.

DataTreasury has filed at least 24 infringement lawsuits related to these patents, and collected royalties from many entities who agreed to pay for licenses voluntarily to avoid being sued.

In 2012, Congress enacted the America Invents Act. The act allows persons accused of infringing "covered business method" patents to have the patents reviewed for patentability in a new administrative proceeding conducted by the U.S. Patent Office.

One of the reasons that Congress created this new administrative proceeding was to provide a way for accused infringers to challenge patents such as those held by DataTreasury without having to incur the expense of defending a lawsuit.

Several challenges to the DataTreasury patents were filed with the patent office by companies that DataTreasury had accused of infringement. The first challenges to be decided were proceedings filed by Fidelity National Information Services.

Fidelity challenged the patents on the grounds that they covered unpatentable "abstract ideas." Another challenge by Fidelity was that the patents lacked support for claiming systems with an "encrypted subsystem identifier."

The good news

On April 29, the PTAB issued two decisions. The PTAB held that all of the claims in both patents are invalid because they cover unpatentable "abstract ideas." In addition, the PTAB invalidated the claims in both patents that include an "encrypted subsystem identifier," because this feature is not supported by the patent disclosures.

Additional decisions by the PTAB in other pending challenges to the DataTreasury patents on different grounds are expected soon. Those challenges assert that the patents are invalid because they claim features that were previously known or obvious at the time the patents were filed.

DataTreasury has the right to appeal the board's decisions to the Court of Appeals for the Federal Circuit. However, given that the CAFC recently held that check imaging and processing patents owned by another patent troll, Content Extraction and Transmission, are invalid for claiming "abstract ideas," DataTreasury's prospects on appeal seem dim.

The fact that all of the claims of both of these DataTreasury patents were held invalid might also have an impact DataTreasury's rights to collect continuing royalties from companies who previously agreed to license the patents. Whether these companies can be required to continue to pay royalties will depend on their particular license agreement terms.

The not-so-good news

It is possible to have a settlement agreement that requires the continued payment of fees even if the patents are later held invalid. If this is what a settlement contract provides, it is what the party who has agreed to pay fees has to continue to live with even if the patents are held to be invalid. This is not the most common way that license and settlement agreements are drafted, but it is possible.

It is more common to have license or settlement agreement that requires payment of fees until there is a final nonappealable judgment that the patents are invalid.

If terms such as these are included in a contract, a party whose patents have been held invalid would be entitled to receive fees until it had exhausted all possible appeals. In the case of an appeal from the PTAB it could be a couple years or longer before all appeals are exhausted.

As a result, not only will the companies who paid royalties to DataTreasury not be able to get the money that they paid back, some may have to continue to pay for at least some time. It all depends on their particular settlement or license contract with DataTreasury.

Ralph Jocke, is a patent attorney at Walker & Jocke Co. LPA. He has written more than 700 granted U.S. patents related to ATMs, and has been involved in many patent infringement lawsuits.

photo & graphic istock