May 20, 2022

Patent Directed to Method of Payment Processing in Sales Transactions Found Abstract

Holland & Knight Section 101 Blog
Allison M. Lucier
Section 101 Blog

AuthWallet asserted a patent directed to methods and systems for processing financial transaction data against Block. Specifically, the claims outline a method for processing financial transaction data using authorization requests and conferring discounts and benefits to the consumer for use with future purchases with the retailer.

Block moved to dismiss. In finding that the claims were drawn to nonstatutory subject matter under 35 U.S.C. § 101, the U.S. District Court for the Southern District of New York applied the now-familiar two-step Mayo/Alice analysis.

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

At Alice step one, the court found that the claims were directed to the abstract idea of "processing payments during a sales transaction where a benefit, such as a discounted payment, is given to the purchaser for use in future transactions." The court found the patent was merely describing conventional business practices, noting that "[f]or years, retailers have provided coupons and other financial incentives to customers during purchase." The court further found that the fact that the claims require these conventional business practices to be performed on a computer did not make the idea a patentable one.

The court compared this case to others where patent claims were found to be directed to an abstract idea. Specifically, the court found that this case was comparable to In re Elbaum, 2021 WL 3923280 (Fed. Cir. Sept. 2, 2021), Universal Secure Registry LLC v. Apple Inc., 10 F.4th 1342 (Fed. Cir. 2021), and RDPA, LLC v. Geopath, Inc., 543 F. Supp. 3d 4, 16 (S.D.N.Y. 2021).

In In re Elbaum, the Federal Circuit found that a patent directed to storing, receiving, analyzing and processing data was directed to an abstract idea as it was a process "ordinarily performed in the stream of commerce." The court found this similar to the patent in this case, as both patents "describe[d] sales transaction activity that is 'ordinarily performed' in the stream of commerce."

AuthWallet argued that the claims were directed to more than conventional methods performed on a computer because the claims provided a solution to problems unique to online transactions, such as the credit cards not being physically present for the transaction and that the lack of a physical card led to higher transaction fees. AuthWallet further argued that the claimed methods and systems allowed access to discounts that otherwise would have been reserved for brick-and-mortar shops. In rejecting these arguments, the court relied on Universal Secure Registry and RDPA.

In Universal Secure Registry, the Federal Circuit found that a patent directed to securely purchasing products without providing credit card information to the merchant was directed to an abstract idea as "the claims recite conventional actions in a generic way – e.g., authenticating a user using conventional tools and generating and transmitting that authentication – without improv[ing] any underlying technology." The court found this analogous to the patent in this case, as both patents "mitigate the online credit card transactional security concerns by having the intermediary manage and transmit authentication requests," which the Federal Circuit has found to be conventional. Further, the court noted that the patent in this case, like the one in Universal Secure Registry, "does not speak to specific or technical problems and solutions but rather recites generic steps and results."

In RDPA, the Southern District of New York found that patents "for tracking exposure and reaction to public media displays were directed to the abstract idea of collecting and analyzing data, despite the fact that the patents claimed to solve data collection issues specifically in out-of-home media contexts by using GPS technology." In this case, the court found "the fact that the Patent seeks to solve security and transaction fee issues in non-physical credit card transactions" cannot save it because, like in RDPA, the narrow context does not turn an abstract idea into a non-abstract idea.

Step Two: Is There an Inventive Concept?

Turning to Alice step two, AuthWallet argued that the claims provided a specific improvement to electronic commerce through a "two-step authentication process performed by an intermediary service, where the intermediary service transmits a transaction notification to a mobile device, and the transaction notification message to provide information to continue the transaction." The court disagreed, finding that there was no inventive step because the claims "simply use two-step authentication processes and data storage mechanisms to manage online payment transactions with discounts." The court found this two-step authentication process concerned "generic computer functions" carried out by "conventional computer components" using "fundamental economic practices."

AuthWallet further argued that the patent overcame a specific problem of electronic commerce where the credit card is not physically presented to the vendor, resulting in reduced fees due to reduced fraud. The court dismissed this argument, noting that "online fraud and consumer authentication are not unique to online discounted sales" and that "AuthWallet does not connect fraud to the asserted claims."

Lastly, AuthWallet argued that preemption was not a concern because the claims were limited to e-commerce. The court disagreed, finding that "e-commerce does not narrow preemption concerns because of the proliferation of online sales in the marketplace in today's day and age."

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