Smart Systems Innovations v. Chicago Transit Authority: Federal Circuit Affirms Patent Ineligibility of Open Payment Technology for Mass Transit Systems

Digest Reports Patent

Smart Systems Innovations v. Chicago Transit Authority, 873 F.3d 1364 (Fed. Cir. 2017)

Last month, in Smart Systems Innovations v. Chicago Transit Authority, 873 F.3d 1364 (Fed. Cir. 2017), the Federal Circuit affirmed a district court ruling that claims from four patents for mass transit open payment technologies were patent ineligible under 35 U.S.C. § 101 (”Section 101”). Since 2014, the Chicago Transit Authority (“CTA”) has allowed commuters to use Ventra cards, which are essentially “contactless,” bank account-linked debit cards that commuters can use to tap into subways and buses. In January 2015, Smart Systems Innovations (“SSI”) filed a complaint in the U.S. District Court for the Northern District of Illinois alleging that CTA’s Ventra system infringed SSI’s open payment patents.

As described by the district court, the invention at issue is “[a]n open-payment fare system [that] allows riders to conveniently and quickly access mass transit by using existing bankcards.” Four of SSI’s patents were allegedly infringed. The first two patents (the ’003 and ’617 patents) generally relate to a system of regulating entry into mass transit systems using bank cards. The other two patents (the ’816 and ’390 patents) relate to processes that allow these bankcard terminals to recognize multiple balances on an individual card and to regulate entry based on timestamps (i.e. weekly and monthly passes). In July 2015, District Judge Edmond E. Chang ruled that these four patents were patent ineligible under Section 101. The Federal Circuit reviewed the district court’s determination de novo and affirmed.

In 2014, the Supreme Court articulated a two-part test for evaluating patent eligibility under Section 101 in Alice Corp. Pty. Ltd. v. CLS Bank International, 134 S. Ct. 2347 (2014). Under the Alice test, a claim is patent ineligible if 1) it is directed at a patent-ineligible concept such as an abstract idea and 2) the elements of the claim, considered both individually and as an ordered combination, do not “contain[] an inventive concept sufficient to transform the claimed abstract idea into a patent-eligible application” (internal quotation marks omitted).

In an opinion written by Judge Evan J. Wallach, the Federal Circuit held that under Alice step one, SSI’s four patents were essentially directed to the “collection, storage, and recognition of data,” which the court had previously deemed an abstract idea that is patent ineligible. Under Alice step two, the court found that SSI’s claims lack an inventive concept necessary to render them patent eligible because they merely “recite the abstract idea of collecting financial data using generic computer components.” The court rejected SSI’s argument that their technology improved fare collection systems by speeding up the turnstile process because SSI did not argue the claims were “directed to an improvement in computer technology” and the claims were “not directed to specific rules that improve a technological process.” Instead, the court determined that SSI merely “invoke[d] computers in the collection and arrangement of data.” The court also found it irrelevant that SSI’s claims were directed to the particular, concrete field of mass transit because limiting abstract ideas to a particular field of use does not make the claims any less abstract.

Judge Richard Linn concurred in part and dissented in part, criticizing the majority’s opinion for being “reductionist” and for applying the abstract idea exception too broadly. Judge Linn argued that the ’003 and ’617 claims dealing with bank card access to mass transit turnstiles were not directed to abstract ideas and hence were patent eligible. However, he reluctantly agreed with the majority in deeming the ’816 and ’390 claims dealing with multiple balances and timestamps patent ineligible based on binding precedent.

Steve Brachmann and Gene Quinn of IP Watchdog argue that the Federal Circuit’s ruling in this case “is a microcosm of the tremendous ills currently plaguing a patent system which once was an international gold standard.” Michael Borella of PatentDocs argue that this case exemplifies the inherent ambiguity of the Alice test. Matthew Bultman in Law360 analyzes trends in patent rejections in the three years after the Supreme Court promulgated the Alice test. Bultman quotes Robert Sachs of Fenwick & West LLP as saying in reference to Smart Systems that the “Federal Circuit continues to consolidate its position that collecting, aggregating and displaying information is an abstract idea.”

 

Tianhao He is a 1L at Harvard Law School.