June 9, 2020

U.S. District Court Adds to Cases Invalidating Claims with "Do It on a Computer" Limitations

Holland & Knight Section 101 Blog
Leonie W. Huang | Charles A. Weiss
Section 101 Blog

A decision by the U.S. District Court for the Southern District of New York can be added to the list of cases invalidating claims under Section 101 that include "do it on a computer" limitations.

It's well known by now that claims to an abstract idea are not rendered patent eligible by a "do it on a computer" limitation. Anecdotally, we don't seem to be seeing decisions on these kinds of patent claims as often as we used to, but a May 29, 2020, decision from the Southern District of New York shows that invalidity defenses based on this principle are alive and well.

As explained by the applicant during prosecution, the patents at issue in Island Intellectual Property, LLC v. Stonecastle Asset Management LLC, No. 19-CV-4792 (JPO) (S.D.N.Y. May 29, 2020), were directed to:

dealing with a banking problem that arises due to the receipt by a bank of municipal funds and/or state funds that must be collateralized with Federal government securities or must be federally insured. Holding such municipal funds and/or state funds can be unprofitable for local banks, but are brought into the bank for various reasons. See paragraph 4 of applicants' specification. The claimed invention determines banks that already hold amounts of Federal government securities, and provides an exchange to allow a local bank to swap out its municipal and/or state funds to a bank that can more easily collateralize or insure the deposits, and then receive in exchange funds from client transaction accounts held in large aggregated accounts from one or more other banks in the system.

Stripped down and simplified for easier discussion, one of the claims can be summarized (not quoted) as:

A method, comprising:

(A) accessing, using one or more computers, one or more electronic databases, stored on one or more computers-readable media, the one or more databases comprising:

(1) aggregated account information for a plurality of government backed-insured and interest-bearing aggregated deposit accounts held in a plurality of financial institutions;

(2) information for each of a plurality of client accounts held in one or more of the financial institutions, and

(B) obtaining into the computers data comprising an amount of governmental funds of the client accounts from a first financial institutions that are to be deposited in another of the financial institutions;

(C) allocating the amount of funds sourced from the first financial institution, using the one or more computers, to a financial institutions other than the first financial institution, for deposit in accounts held therein; and

(D) allocating, using the one or more computers, to the first financial institution an amount of funds from a second financial institution so that an amount of funds sourced from the second institution and held in the first institution is approximately equal to or greater than the amount of the funds sourced from the first financial institution.

In ruling on the defendants' motion to dismiss on the ground that the claims were drawn to nonstatutory subject matter under 35 U.S.C. § 101, the district court applied the now-familiar two-step Mayo/Alice analysis.

Step One: Are the Claims Directed to an Abstract Idea?

At step one, the court held that the claims were directed to the fundamental economic practice of dividing and transferring funds (in this case through a multibank depository program) to stay within insurance limits, and as such were directed to an abstract idea. The court recognized that the claims applied the idea in a narrow way by using a specific context (government deposits), but found that this narrowness did not satisfy step one because an abstract idea applied in a narrow context is still an abstract idea. The court wrote, "Though the claim is directed at the application of that idea in the specific context of government deposits, 'a claim is not patent eligible merely because it applies an abstract idea in a narrow way. For an application of an abstract idea to satisfy step one, the claim's focus must be something other than the abstract idea itself.' " Island Intellectual Property, LLC, No. 19-CV-4792 (JPO) at 6 (quoting BSG Tech LLC v. Buyseasons, Inc., 899 F.3d 1281, 1287 (Fed. Cir. 2018)).

The claims also were not directed to a method of improving computer functionality. As the court explained, the patents merely described using a computer to carry out long-understood concepts in a general way, and were properly understood as "do it on a computer" claims that brought with them no improvements to the computer's function for the task at hand.

Step Two: Is there an Inventive Concept?

Reaching step two, the court again emphasized that the requirement of an inventive concept cannot be satisfied by an instruction to use a computer to implement an abstract idea, such as the idea of dividing and transferring funds to stay within a limit. The court found that the method disclosed simply articulated known practical steps inherent in the abstract idea and did not offer innovation over prior art. As such, there was no inventive concept.

The plaintiff argued that its claims satisfied step two because they "improve the way computers operate through 'logical structures and processes.'" Id. at 6, 12. The court rejected this argument, criticizing it as "merely a verbose recitation of otherwise quotidian and manually executable bookkeeping practices," id. at 13, and that failed to explain how the claims "'improve the way computers' execute this idea." To the contrary, the court found that those portions of the claims directed to computerization "do nothing more than spell out what it means to 'apply it on a computer'" at a high level of generality. Id. at 7 (internal citations omitted). 

The court also observed that "the problem described by the patent's specification is not a shortcoming in existing computerized methods of executing reciprocal deposits, but rather the problem the reciprocal deposits are themselves intended to solve: regulatory burdens and associated costs on banks." Id. It further noted that the specification "implies that the patent eschews limitation to any particular 'logical structures or processes':

Embodiments of the invention have been described in the general context of method steps which may be implemented in one embodiment by a program product including machine-executable instructions, such as program code ... . The particular sequence of such executable instructions or associated data structures represent examples of corresponding acts for implementing the functions described in such steps.

Id. (quoting '766 Patent, col. 8 ll. 56–61, 67, col. 9 ll. 1–3). Indeed, wrote the court, "[t]he patent on its face belies [plaintiff's] argument that it discloses a specific improvement in 'logical structures and processes.'" Id.

Finding that any amendment to those counts of the complaint for patent infringement would be futile, the court granted the defendants' motion to dismiss the patent infringement claims with prejudice. It also granted the defendants' motion to dismiss plaintiff's claim for misappropriation of trade secrets as inadequate to put the defendants on notice of the trade secrets at issue, observing that even though "courts in this district have accepted relatively general descriptions of alleged secrets at the motion to dismiss stage ... in none of those cases did courts accept pleadings as nebulous as those offered here, which identify only at the highest level of generality the subject matter of the secrets and do not even describe the type of information allegedly misappropriated." Id. at 14. Unlike the claims for patent infringement, however, the court dismissed the trade secret claims with leave to replead, because it could not be determined that they were ultimately futile.

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