H&R Block Tax Servs., Inc. v. Jackson Hewitt Tax Service, Inc., No. 6:08-cv-37 (E.D. Tex. Nov. 10, 2009)
Slip Opinion (hosted by Patently O)

Magistrate Judge Love, sitting in the United States District Court for the Eastern District of Texas, found several of H&R Block’s financial instrument patents invalid, and recommended that Jackson Hewitt’s motion for summary judgment be granted-in-part.

The court applied the machine-or-transformation test from In re Bilski, 545 F.3d 943 (Fed. Cir. 2008), cert. granted 77 U.S.L.W. 3656 (U.S. Jun. 1, 2009) (No. 08-964), to H&R Block’s computerized systems patents as well as to its methods patents. In so doing, the court extended Bilski beyond process patents. Only one of the patents survived the machine-or-transformation test and the remaining patents were held invalid under 35 U.S.C. § 101.

The original complaint is available here. Patent Storm has a helpful explanation of one of the patents. Patently O and the 271 Patent Blog both provide brief summaries of the case.

There were essentially four patent claims at issue in this case, each of which involved using rights to future government payments to acquire present purchasing power. The ‘862 patent concerned a computerized system that assigned an individual’s right to a government payment to a third party sponsor in exchange for a spending vehicle offered by that third party (e.g., a debit card or coupons). The ‘829 patent, a methods claim, involved preparing tax returns and enabling taxpayers to assign a portion of their estimated income tax refund in exchange for a spending vehicle from a third party. The ‘425 patent included both systems claims and method claims, and involved estimating a person’s income tax refund in a future year, providing a loan on the basis of the estimated amount, and assigning the income tax refund to the lender.

H&R Block filed suit against Jackson Hewitt, alleging infringement of its patents. Jackson Hewitt filed a motion for summary judgment, claiming that all asserted patent claims were invalid.

The case is significant for its treatment and use of Bilski. In Bilski, the Federal Circuit held that the machine-or-transformation test is the governing test for determining patent eligibility of a process claim under § 101. That is, the process must either be tied to a particular machine or it must transform an “article.” An “article” can be electronic data so long as the data represents physical and tangible objects. However, the transformation of public or private legal obligations or relationships cannot meet the test because they are neither physical objects nor representative of physical objects. The machine or transformation must impose meaningful limits on the claim’s scope, and must not merely be insignificant extra-solution activity. JOLT Digest further discusses Bilski here and here.

In dealing with the systems claims, the district court was prepared to assume that the claims in fact described systems rather than processes. However, the court nevertheless applied the machine-or-transformation test, warning against pigeonholing subject matter. The court noted that the ‘862 patent “system” consisted of a computer and certain financial relationships between entities. Because financial relationships are abstract intellectual concepts and not patentable, the court found that, without the computer component, the ‘862 claims would certainly be unpatentable. The court held that the computer component was merely an insignificant, extra-solution component of the claimed system. Reasoning by analogy with Bilski, the court concluded that if an extra-solution step is insufficient to render an otherwise unpatentable process claim valid, an extra-solution component is insufficient to render an otherwise unpatentable system claim valid. The court applied essentially the same reasoning to the ‘425 patent system claims.

When it came to the process or method claims, the district court found that none passed the transformation prong of Bilski. The court found that the manipulated data represented legal obligations and relationships, and that money is simply a representation of a legal obligation or abstract concept. The ‘425 patent method claims failed the machine prong because the computer was used only for data-gathering, which Bilski had held was insufficient to make a process patent-eligible. However, H&R Block successfully defended its ‘829 patent on the machine prong. The court held that the use of a computer to execute an agreement between a taxpayer and a third party was not insignificant extra-solution activity, and imposed meaningful limits on the claim. Accordingly, those claims were directed to patentable subject matter.

Although the district court described the machine-or-transformation test as merely “helpful” for “illuminating” issues in systems claims, it applied the test as though it governed the outcome. This case demonstrates the potential reach of Bilski, currently being considered by the Supreme Court (oral argument heard on Nov. 10, 2009; WSJ.com provides commentary on the oral argument). It also illustrates the uncertainty of the Bilski test: given that agreements were involved in all the financial instruments, it is far from obvious that ‘829 should have survived.

Google Sued for Use of Trademarked Terms in Adwords Program

A class action was filed against Google on May 11, 2009 in federal court in Texas challenging its use of trademarked terms in its adwords program. The New York Times covered the case and surrounding issues. Ars Technica analyzes Google’s new AdWords policy.

ACLU Challenges Constitutionality of Gene Patents

The ACLU filed suit in the Southern District of New York challenging the patenting of genes and genetic tests as unconstitutional. The New York Times reported on the suit and the ACLU’s plaintiff. Patently-O provides further analysis and links to the ACLU blog and the complaint.

On Monday, October 14, President Bush signed into law the Prioritizing Resources and Organization for Intellectual Property Act, also known as the PRO-IP Act, S. 3325. The PRO-IP Act steepens penalties for IP infringement and increases resources to the DOJ to coordinate state and federal efforts against counterfeiting and piracy.

Although opposed by the DOJ, the Act also provides for a “U.S. Intellectual Property Enforcement Coordinator” position within the Executive Office of the President, which commentators are referring to as a “Copyright Czar.” However, another controversial provision, which would have authorized the Attorney General to seek civil copyright infringement remedies for private copyright owners, was removed from the final bill.

5th Circuit Ruling May Endanger Patent “Rocket Docket” in the Eastern District of Texas
In Re: Volkswagen of America Inc.
5th Circuit, October 10, 2008, No. 07-40058
Slip opinion

In a 10-7 en banc decision, the Fifth Circuit issued a writ of mandamus ordering the transfer of a product liability case from the U.S. District Court for the Eastern District of Texas to the U.S. District Court for the Northern District of Texas.  The court held that the district court judge John Ward had abused his discretion when he denied a motion to transfer from the Eastern District, which had no connection to the parties, witnesses, or facts of the case, to the Northern District, which had extensive connections to the parties, witnesses, and facts of the case.  The dissent argued that the majority was misusing mandamus in violation of Supreme Court precedent, characterizing the district court judge’s order as nonappealable.

Commentators note the ramification of the court’s order on the common practice of filing patent suits in the notoriously plaintiff-friendly “rocket docket” Eastern District.  Under the majority’s reasoning, it may become easier for defendants to seek changes of venue.

German Courts Rule That Google Image Thumbnails Infringe on Copyright

Google has recently lost two copyright suits in Germany, where the courts have ruled that Google’s use of thumbnails of copyrighted images in its image search engine constitutes infringement.  Google plans to appeal.

These rulings stand in contrast to U.S. precedent, such as the Ninth Circuit’s holding, in Perfect 10 v. Amazon, that Google’s use of image thumbnails was a fair use.  Similarly, eBay has seen divergent international outcomes with respect to trademark infringement claims. The S.D.N.Y. ruling in Tiffany v. eBay held that eBay did not have to increase its efforts to police trademark infringers, while courts in Germany and France instead ruled in favor of luxury brands Rolex and Louis Vuitton.

Doe v. MySpace, Inc.
Fifth Circuit, May 16, 2008, No. 07-50345
Slip Opinion

On May 16, 2008, the Fifth Circuit unanimously upheld the Western District of Texas, finding Section 230(c)(1) of the Communications Decency Act (“CDA 230”) barred a parent’s claims for negligence and gross negligence against the social networking site, MySpace.com. The suit was brought on behalf of Doe’s 13-year-old daughter, who misrepresented her age to create a profile on MySpace, and was subsequently contacted and allegedly sexually assaulted by a 19-year-old MySpace user.

Julie Doe, a 13-year-old minor, represented her age as 18 when creating a MySpace profile. MySpace defaults all 14-year-old and 15-year-old profiles to “private,” which restricts profile access to confirmed “friends” only. But as a result of Doe’s misrepresentation, her profile was made “public” and viewable by the all other MySpace users, including 19-year-old Pete Solis. Solis contacted Doe, the two exchanged phone numbers, and after communicating several times off-line, arranged a meeting at which Solis allegedly sexually assaulted Doe.

Eric Goldman of the Technology and Marketing Law Blog sees this as a victory for proponents of strong CDA 230 immunity. He notes that several cases leading up to the decision, including Fair Housing Council of San Fernando Valley v. Roommates.com, Mazur v. eBay, and Doe v. FriendFinder, Inc., had evinced a trend towards loosening the immunity provided to internet providers under the statute. While Goldman hopes the MySpace decision will discourage plaintiffs from continuing to bring claims against websites for failing to protect or police its users, he remains “flummoxed by the number of cases [he is] seeing involving teens making poor (and, in some cases, life-altering) decisions using MySpace.”

Sam Bayard of the Citizen Media Law Project is more ambivalent about the outcome. While he believes that the CDA 230 is an important protection for internet service providers, he thinks the decision may have gone too far. He paraphrases John Palfrey of the Berkman Center for Internet and Society, who noted in an internal email:

“MySpace is a powerful corporate intermediary that has broad ability to control the networked public space it makes available to minors and adults alike, and it doesn’t necessarily serve any of the congressional objectives behind CDA.”

Full Text of the Communications Decency Act of 1996 at the US Government Printing Office.

Suing on behalf of herself and her daughter, Doe’s mother originally filed claims for fraud, negligent misrepresentation, negligence and gross negligence against MySpace and its parent company, News Corporation, in Texas state court, alleging that MySpace failed to implement adequate safety measures to prevent communications between minors and sexual predators on its website. The Does then withdrew the suit and refiled the case in the Southern District of New York, in which they asserted the same claims against MySpace. The case was transferred to the Western District of Texas, where the Does voluntarily withdrew the claims for fraud and negligent misrepresentation. The district court held that the negligence and gross negligence claims were barred by CDA 230. The Fifth Circuit Court of Appeals upheld the lower court, reaffirming that despite artful pleading, internet service providers will not be held liable for content generated by its users.

CDA 230(c)(1), also known as the “Good Samaritan” provision, provides immunity to providers and users of an “interactive computer service” from civil liability arising out of information that is provided by third-party content providers. Invoking the doctrine of premises liability, the Does argued that their claims were not barred by CDA 230 because they were not suing MySpace in its capacity as a “publisher,” but rather for failing to take adequate steps to protect minors on its site. The Fifth Circuit upheld the district court’s finding that these negligence claims were simply a “disingenuous” attempt to circumvent the CDA 230. Judge Clement, writing for the court, affirmed the district court’s finding that the negligence claims were based on disapproval of how MySpace screened and edited user content, which were essentially directed against MySpace in its publishing capacity and thus barred by CDA 230(c)(1). The Court declined to address the Does’ second argument that MySpace was partially responsible for the content of the site (an argument that proved successful in Fair Housing Council of San Fernando Valley v. Roommates.com) because the issue was not raised prior to the appeal.

Relevant Court Documents (Hosted by Citizen Media Law Project)

Texas State Court Complaint (06-19-2006)
New York State Court Complaint (09-25-2006)
Order on Motion to Dismiss – Western District of Texas (02-13-2007)

Related Links

The Technology & Marketing Law Blog tracks the story in MySpace.com Sued for $30 Million, Doe v. MySpace.com Continued, MySpace Suit for Liability for Sexual Assault Dismissed.

THELEN excerpts Judge Easterbrook, summing up CDA 230

Fenwick hosts Websites’ CDA Immunity: An Ever-Expanding Universe?
1 Privacy & Data Protection Legal Rep., No. 11, at 1 (ALM LJN Dec. 2006)