In the post-Alice world, patents that relate in any material way to financial processes or systems have come under increased attacks in the early stages of infringement litigation—as defendants aim to secure a cheap and fast exit from the controversy. While such challenges are often successful, such an outcome is not guaranteed. In one recent case, a Rhode Island court upheld patent claims relating to mobile payment processing as reciting eligible subject matter under Alice.

Plaintiff LevelUp brought a patent infringement claim against Relevant, asserting that Relevant’s technology infringes LevelUp’s patent describing a point-of-sale (POS) system that distinguishes between different types of data streams through the use of specific data sequences (or “sentinels”). When a POS terminal receives the first sentinel, the terminal can interrupt its current task to process the transaction data. And when the terminal receives the second sentinel, the terminal recognizes that the transaction data is received and can complete the transaction.

After the Court granted LevelUp’s request for a preliminary injunction, Relevant filed a motion for judgment on the pleadings, arguing that LevelUp’s patent is invalid because it recites ineligible subject matter under the Alice framework. Specifically, Relevant analogized the POS terminal functionality claimed in the LevelUp patent to the use of Morse code with the earliest telegraph systems, and asserted that LevelUp’s recitation of a “POS terminal,” “credential reader,” and “server” in the claims amount to nothing more than ordinary, generic computing technology that is insufficient to confer patent eligibility.

In deciding the question, Judge McConnell walked through the two-step Alice analysis, evaluating: (1) whether the patent claims are directed to an abstract idea; and (2) if so, whether the claims recite an inventive concept sufficient to transform the abstract idea into a patent-eligible application.

For the first step, Judge McConnell concluded that the claims recite an improvement to the POS terminal itself, “by enabling the POS terminal to differentiate between different forms of data streams (e.g., bar codes on an item for purchase and a barcode on a mobile device that operates as a payment method).” The Rhode Island court pointed to the recent Federal Circuit decisions in Enfish (patent relating to a self-referential database model) and Trading Technologies (patent relating to a structured GUI in an electronic trading system) as inventions that similarly improve the functioning of the underlying technology. Because LevelUp’s claims are directed to a specific method for distinguishing between data streams that improves the operation of the POS terminal, Judge McConnell found that the claims were not directed to an abstract idea.

To complete a full analysis of the issue, the Court proceeded to evaluate the patent claims under step two of the Alice test. Here, Judge McConnell rejected Relevant’s contention that the sentinels in the patented technology were akin to the use of Morse code, explaining that the existence of a pre-Internet analog does not automatically render a patent ineligible. Instead, the court concluded that the claimed invention “overcomes unique technological challenges” by providing a POS terminal “that can process multiple data streams at a time through different inputs and stop a lower priority transaction mid-stream.” As such, LevelUp’s patent claims contained an inventive concept sufficient to render them patent-eligible.

Based on the above findings, the Court denied Relevant’s motion for judgment on the pleadings.

Judge McConnell’s decision in this case is a prime example of how the evaluation of early-stage motions to invalidate patents under § 101 has matured since Alice was decided by the Supreme Court. Plaintiffs in such matters can credit the increasing number of Federal Circuit decisions finding claims patent-eligible as providing the lower courts with better guidance on how to navigate these issues.

The case is SCVNGR, Inc. d/b/a LevelUp v. DailyGobble, Inc. d/b/a Relevant, Case No. 1:16-cv-00134-M-LDA, before Judge John J. McConnell, Jr.