System to take discounts on prompt invoice payments not eligible for patent protection. FAST 101 v. CITIGROUP

System to take discounts on prompt invoice payments not eligible for patent protection. FAST 101 v. CITIGROUP

A patent is a set of exclusive rights granted to the inventor of a new, useful and not obvious invention.  In the United States an inventor gains a patent by filing a patent application with the United States Patent and Trademark Office.  The patent application is reviewed by a patent examiner at the United States Patent and Trademark Office and if the patent application meets all the requirements, the inventor is granted a patent on the invention.  A patent gives its owner the exclusive right to make, use, sell and import the invention in the United States.

After a patent is granted, it can still be invalidated.  One of the grounds for invalidating a patent is the subject matter to which the invention relates.  A patent can be granted on any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.  This requirement is articulated in  35 U.S.C. § 101 of United States Patent Law.  There are also some judicially created exceptions to patent eligible subject matter, namely, laws of nature, physical phenomena, and abstract ideas.  Patents that have been granted in the past can be deemed invalid if court precedent changes the definition of these judicially created exceptions.

The United States Supreme Court has held that fundamental economic practices are not patent eligible because they are abstract ideas. Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 573 U.S. 208 (2014) articulates the present test to determine whether a patent which involves an abstract idea is eligible for patent protection.  The first step in the Alice test is to determine whether the claims of the patent are directed to a patent-ineligible concept, like an abstract idea.  If the first step is true, then each patent claim is reviewed both individually and ‘as an ordered combination’ to determine whether the additional elements ‘transform the nature of the claim’ into a patent-eligible application.  Understanding how the Alice test is applied can be difficult to grasp, therefore it is helpful to study case precedent.

FAST 101 PTY LTD., v. CITIGROUP INC., 2020-1458 (C.A.F.C. 2020) demonstrates a case where a case was dismissed because the patents involved were found to be ineligible under 35 U.S.C. § 101.

Plaintiff owns five of its patents: U.S. Patent Nos. 8,515,867 (’867 patent), 8,660,947 (’947 patent), 8,762,273 (’273 patent), 9,811,817 (’817 patent), and 10,115,098 (’098 patent) (collectively, the asserted patents). The patents share a common written description and all relate “generally to data processing systems, and more particularly, to electronic trading and settlement systems.” The patents describe an invoiceless trading system that creates incentives for customers to pay suppliers within a predetermined period of time, such as a settlement period. This system enables a customer to obtain a discount on orders placed with suppliers in return for an immediate payment.

Plaintiff brought suit against Defendant alleging infringement of all claims of the patents.  In response to Plaintiff’s complaint, Defendant filed a motion to dismiss under Fed. R. Civ. P. 12(b)(6) for failure to state a claim under which relief can be granted, arguing that all the asserted claims recite patent-ineligible subject matter under 35 U.S.C. § 101.  The district court granted the motion to dismiss because it found that the patents were directed to the abstract idea of a settlement system a discount for early payment.  The district court also denied Plaintiff’s request to amend the complaint because the district court found it to be futile.  Plaintiff then appealed to the Court of Appeals for the Federal Circuit.

The Federal Circuit reviewed the dismissal of the case de novo. Applying Alice step one, the Federal Circuit found the claims are directed to the abstract idea of a settlement system that employs a discount for early payment. The improvements claimed by the Plaintiff, of increased efficiency and less waste, are merely a side effect of applying the abstract idea on a computer system.  Under Alice step two, the Federal Circuit concluded that the claims do not recite any inventive concept to render them patent eligible.  With respect to denying the leave to amend, the Federal Circuit noted that Plaintiff did not present any allegations or facts to demonstrate their case was not futile.  Based on these findings the Federal Circuit affirmed the district court’s ruling.

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