The US Court of Appeals for the Federal Circuit affirmed a district court determination that claims of several patents were patent ineligible under 35 U.S.C. § 101 because they did not recite an innovation with sufficient specificity to constitute an improvement to computer functionality. Universal Secure Registry LLC v. Apple Inc., Case No. 20-2044 (Fed. Cir. Aug. 26, 2021) (Stoll, J.)

Universal Secure Registry (USR) sued Apple, Visa and Visa U.S.A. (collectively, Apple), asserting four patents directed to securing electronic payment transactions, which USR alleged allowed for making credit card transactions “without a magnetic-stripe reader and with a high degree of security” (e.g., allegedly Apple Pay or Visa Checkout). Apple moved to dismiss the complaint under Fed. R. Civ. Pro. 12(b)(6), arguing that the asserted patents claimed patent-ineligible subject matter under 35 U.S.C. § 101. The Delaware magistrate judge, quoting Visual Memory v. NVIDIA (Fed. Cir. 2017), determined that all the representative claims were directed to a non-abstract idea because “the plain focus of the claims is on an improvement to computer functionality itself, not on economic or other tasks for which a computer is used in its ordinary capacity.”

The district court judge disagreed, concluding that the representative claims failed at both Alice steps, and granted Apple’s motion to dismiss. The district court found that the claimed invention was directed to the abstract idea of “the secure verification of a person’s identity,” and that the patents did not disclose an inventive concept—including an improvement in computer functionality—that transformed the abstract idea into a patent-eligible application. USR appealed.

In assessing the claims under the Alice two-part test, the Federal Circuit noted that in cases involving authentication technology, patent eligibility often turns on whether the claims provide sufficient specificity to constitute an improvement to computer functionality itself. For example, in its 2017 decision in Secured Mail Solutions v. Universal Wilde, the Court (at Alice step one), held that claims directed to using a conventional marking barcode on the outside of a mail object to communicate authentication information were abstract because they were not directed to specific details of the barcode, how it was processed or generated or how it was different from long-standing identification practices. Similarly, in its 2020 decision in Prism Technologies v. T-Mobile, where the claims broadly recited “receiving” identity data of a client computer, “authenticating” the identity of the data, “authorizing” the client computer and “permitting access” to the client computer, the Court held at Alice step one that the claims were directed to the abstract idea of “providing restricted access to resources,” not to a “concrete, specific solution.” At step two, the Court determined that the asserted claims recited conventional generic computer components employed in a customary manner such that they were insufficient to transform the abstract idea into a patent-eligible invention.

The claims in issue fared similarly. The district court held that the representative claim was not materially different from the Prism claims, and the Federal Circuit agreed. Although the Court recognized some differences between the instant claims and those at issue in Prism (in that the USR claims were directed to a method for enabling a transaction between a user and a merchant where the merchant is given a time-varying code instead of the user’s secure credit card information), it concluded that the claims still “simply recite conventional actions in a generic way” (e.g., receiving a transaction request, verifying the identity of a customer and merchant and allowing a transaction) and “do not purport to improve any underlying technology.”

USR cited Ancora Technologies v. HTC America (Fed. Cir. 2018), arguing that the recitation of a time-varying multicharacter code used in combination with additional intermediaries constituted a specific technique that departed from earlier approaches to solve a specific computer problem. However, the Federal Circuit differentiated Ancora, noting that the Ancora claims recited a specific technique for addressing the vulnerability of license-authorization software to hacking in an unexpected way—by storing the software license record in the computer’s BIOS memory. In contrast, the claims in issue used a combination of conventional components in a conventional way to achieve an expected result. Thus, the Court concluded that under Alice step one, the asserted claims were directed to a method for verifying the identity of a user to facilitate an economic transaction for which computers were merely used in a conventional way rather than a technological improvement to computer functionality itself.

Turning to Alice step two, the Federal Circuit rejected USR’s argument that the claim recitations of time-varying codes and sending data to a third-party as opposed to the merchant each rose to the level of an inventive concept. As to USR’s first argument, the Court noted that the patent acknowledged that the step of generating time-varying codes for authentication of a user is conventional and long-standing (e.g., SecurID TM), which “retrieves a secret user code and/or time varying value from memory and obtains from the user a secret personal identification code.” As to USR’s second argument, that the step of bypassing the merchant’s computer constitutes an inventive concept, for which USR cited Bascom as a parallel case, the Court again disagreed. The Court explained that while in Bascom, “[f]iltering content on the Internet was already a known concept,” . . . “the patent describes how its particular arrangement of elements is a technical improvement over prior art ways of filtering such content.”

The Federal Circuit also cited to Alice itself, where the Supreme Court of the United States held the use of a third-party intermediary in a financial transaction to be an ineligible abstract idea. The Court drew parallels to Alice‘s claims that involved “a method of exchanging financial obligations between two parties using a third-party intermediary to mitigate settlement risk” and USR’s claims that involved allowing a financial transaction between two parties using a third-party intermediary to mitigate information security risks. As the Court noted, even under Bascom (citing Alice) “an inventive concept that transforms the abstract idea into a patent-eligible invention must be significantly more than the abstract idea itself.” Because “sending data to a third-party as opposed to the merchant is itself an abstract idea, it cannot serve as an inventive concept, and save the abstract idea under step two.”

The Court similarly analyzed the remaining two patents-at-issue before concluding that all claims of the asserted patents were directed to an abstract idea and that the claims contain no additional elements that transformed them into a patent-eligible application of the abstract idea.

Practice Note: In a non-precedential opinion issued the same day, Apple Inc. v. Universal Secure Registry LLC, Case Nos. 2020-1223, -1243 (Fed. Cir. Aug. 26, 2021) (Stoll, J.), the Federal Circuit referenced its above holding that USR’s patent claims were invalid under 35 U.S.C. § 101 in mooting USR’s appeal from the US Patent Trial & Appeal Board (Board) as to overlapping claims. The Court vacated the Board’s final written decision and remanded for the Board to dismiss Apple’s petition as to the overlapping claims.

Although the Board held a proposed substitute dependent claim (which contained more specific limitations than its related claim held patent ineligible by the Federal Circuit in the above decision), the Federal Circuit concluded that these additional limitations did not impact its analysis under Alice steps one and two and that the substitute claim too was directed to an abstract idea that was not transformed by a recited inventive concept into a patent-eligible invention. The Court reversed the Board’s determination of patent eligibility as to the substitute claim.

Practice Note: Both cases confirm the importance of discussing patent specification, the problem addressed and the non-obvious and technical innovations used in your inventive solution—a solution that should be reflected in claim recitations.