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District Court Applies Bilski to Deny Validity of Business Method Patent Claims
By Evan Kubota – Edited by Caitlyn Ross

Cybersource Corp. v. Retail Decisions, Inc.
N.D. Cal., March 26, 2009, No. C. 04-03268 MHP
Opinion

On March 26, 2009, the United States District Court for the Northern District of California granted defendant Retail Decisions’ motion for summary judgment on the invalidity of two business method patent claims. The ruling invalidated the claims asserted in CyberSource Corp. U.S. Patent No. 6,029,154, titled “Method and system for detecting fraud in a credit card transaction over the Internet.”

California-based CyberSource sued U.K.-based Retail Decisions in 2004, claiming that Retail Decisions’ fraud prevention software products infringed the patent owned by CyberSource.  Retail Decision moved for summary judgment, arguing that CyberSource’s patent failed the Bilski test.

In last year’s In re Bilski decision (covered here by Digest), the Federal Circuit articulated a patentability test requiring that a process either be tied to a machine or apparatus or involve a transformation.  Applying the Bilski test, Judge Marilyn Hall Patel held that plaintiff CyberSource’s claims, both describing processes for detecting credit card fraud in Internet transactions, failed to meet either prong of the “machine-or-transformation” test.

The 271 Patent Blog and patentability analyze the decision in greater detail. Payment Industry Insights has commentary from Retail Decisions’ CEO and its lead counsel. 

CyberSource argued that manipulation of “data representing physical objects” was a sufficient transformation, and that its process manipulated either credit card numbers (which were used to create a “map” of numbers for verification) or IP addresses (which were used to connect other transactions to the one being verified).  The court rejected this argument, noting that “‘transformation’ suggests a fundamental change,” and that CyberSource’s process did not actually alter the numbers, the corresponding credit cards, or the IP addresses.

Additionally, CyberSource argued that its claims satisfied the “machine” prong because fraud verification “over the Internet” sufficiently tied the claims to a particular machine (essentially the plaintiff argued that “the Internet” is a tangible array of hardware, and that the global network is a “machine”).  The court rejected this analysis as well, reasoning that the “internet is an abstraction” and therefore not a “particular machine.”

Alternatively, CyberSource contended that the disputed claims were Beauregard claims, and therefore not subject to the machine-or-transformation test.  Judge Patel disagreed with this line of reasoning, stating that even if the patent contained Beauregard claims, “it would not provide a basis for plaintiff to avoid summary judgment.”

After rejecting this argument, the court offered some observations on business method patents after Bilski.  Such patents “swelled” in number following the Federal Circuit’s 1998 State Street Bank & Trust Co. decision, but Bilski “suggests a perilous future for most business method patents.”  Judge Patel also noted that the Supreme Court may soon consider the issue, citing Justice Kennedy’s concurring opinion in eBay Inc. v. MercExchange, LLC asserting the “suspect validity” of some such patents.  Judge Patel ends with a warning that “the closing bell may be ringing for business method patents.”

Posted On Apr - 5 - 2009 Comments Off

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