Patents & the Financial Services Industry

 Last week XPRT Ventures filed a complaint against eBay and subsidiaries PayPal, StubHub, Bill Me Later and Shopping.com, alleging both patent infringement and trade secret theft.  XPRT (pronounced “expert”) seeks $3.8 billion in damages, and the case has already garnered substantial attention from the mainstream media, business journals, the tech world, and patent commentators.  See here, here, here, and here.

At the heart of the claim is XPRT’s assertion that eBay misappropriated various trade secrets from George Likourezos and Michael Scaturro that related to streamlining electronic payment systems when eBay acquired PayPal back in 2002 and began practicing Likourezos and Scaturro’s invention without their permission or authorization.  The complaint also alleges that eBay infringes various patents invented by Likourezos and Scaturro, which were assigned to XPRT in 2008, including U.S. Patents  7,483,856, 7,567,937, 7,627,528, 7,610,244, 7,599,881, and 7,512,563.  The patents generally relate to payment in electronic commerce transactions, particularly for electronic auctions, and it was pointed out to me that XPRT’s ‘937 patent was one out this site’s “Patent of the Week” when the patent issued last July.

According to the complaint, Likourezos contacted eBay’s in-house IP counsel in 2001 to inform him of patent applications filed by Likourezos and Scaturro and to offer eBay the chance to review the applications on a confidential basis.  The inventions disclosed in the patent applications purportedly would have improved upon eBay’s current processes for effecting payments for online auction transactions, which at that time were being performed by eBay’s Billpoint payment system, and Likourezos wanted eBay to review them to determine if the parties could enter into a business arrangement for the inventions.

Likourezos was eventually contacted by Andre Marais (then a partner at Blakely Sokoloff Taylor and Zafman LLP, now a shareholder at Schwegman Lundberg and Woessner, P.A.), who represented eBay and requested copies of the patent applications for review and analysis.  After receiving “assurances of confidentialities” from Marais, Likourezos sent him the patent applications that disclosed – according to the complaint – descriptions of additional revenue streams for eBay, particularly automatically transferring funds to an electronic auction payment account corresponding to a user of an electronic auction website and effecting payment between a user a another party, such as an electronic auction system operator.

eBay ultimately did not enter into an agreement with Likourezos, but several months later it announced its plans to acquire PayPal for “the purposes of integrating PayPal into its eBay.com platform . . . [and] such acquisition was done in order to modify PayPal and incorporate it into the eBay.com platform in the manner suggested by Mr. Likourezos.” Complaint para. 45 (emphasis added).  The complaint goes on to assert that eBay’s access to Likourezos’s “confidential information,” namely his patent applications, allowed eBay to “recognize the advantages it would realize by acquiring, modifying and integrating PayPal’s payment platform with eBay’s own e-commerce payment platform.” Complaint para. 46.

Other points of interest alleged in the complaint:

• eBay filed its own patent application (App. No. 10/427,553) to cover the eBay-PayPal payment system after Likourezos disclosed his patent applications to eBay.
• Andre Marais, who was the first outside counsel of eBay to communicate with Likourezos about the Likourezos-Scaturro invention and presumably see their patent applications, was the same practitioner who later drafted the eBay patent application and Marais continues to be the attorney or record for the eBay patent application.
• Marais and others associated with the filing and prosecution of the eBay patent application 10/427,553 knew of Likourezos’ patent applications (now “the XPRT patents”) but failed to disclose the XPRT patents to the Patent Office, thereby violating their duty of disclosure to the USPTO. [Comment: eBay did file an IDS that identified one of the XPRT CIP patent applications before any examination of its 10/427,553 application occurred and eBay has since identified all of the XPRT patents in the still-pending 10/427,553 application]
• Because the claims filed by eBay in its patent application “paralleled those of” the XPRT patents, eBay thereby “admitted the patentability of” Likourezos-Scaturro claims because eBay had a duty of candor before the USPTO to submit only patentable claims. Complaint para. 68.

This last assertion is particularly interesting.  Most patent attorneys excel at drawing distinctions between patent claims and other similar technologies.  Thus, given that the claims in the eBay application and the XPRT patents undoubtedly do not have identical language, we are likely to see eBay argue that its own claims are different enough from those in the XPRT patents to simultaneously allow eBay take the position that its own claims are patentable while XPRT’s claims are invalid and/or not infringed.

In sum, XPRT alleges infringement by eBay of six patents, misappropriation of trade secrets, and unjust enrichment by eBay for unauthorized use of XPRT’s inventions.  XPRT is seeking $3.8 billion for eBay’s alleged wrongful conduct plus treble damages.

The case poses some interesting questions, particularly because it asserts intertwined patent and trade secret misappropriation claims in a financial services-related intellectual property case.

As the case progresses, we can expect to see the outcome hinge on various fact-specific issues.  Here are a few possibilities.  On the trade secret side:

• Whether Likourezos and Scaturro were employees of XPRT at the time of the initial communications with eBay in 2001 and 2002, and if not, whether and when XPRT acquired rights to Likourezos and Scaturro’s “confidential information”?
• The precise language of the confidentiality agreement between Likourezos and eBay (according to the complaint, eBay unilaterally changed the effective date of the agreement).
  • It is not clear from the complaint whether eBay entered into a written NDA with Likourezos before Likourezos disclosed the first patent applications to eBay).
  • It is also not clear from the complaint whether eBay was bound to confidentiality if it learned of Likourezos and Scaturro’s “confidential information” independently through no improper means (according to the complaint, this “confidential information” was disclosed in patent applications that were published as early as 2002, and eBay certainly would have had legitimate access to the patent applications after they published, absent contrary language in the NDA).
• Did the PayPal technology – as it existed prior to the acquisition by eBay – misappropriate the Likourezos/Scaturro “confidential information” disclosed in the Likourezos/Scaturro patent applications?  If not, precisely how did eBay modify PayPal and incorporate it into the its platform in a manner that misappropriated the Likourezos/Scaturro “confidential information” rather than just modify the PayPal technology through normal means to join PayPal to eBay.
• According to the complaint, eBay began misappropriating the Likourezos/Scaturro “confidential information” beginning when it acquired PayPal, which occurred on July 8, 2002 and was public knowledge.  Why did Likourezos and Scaturro wait eight years to file a complaint for trade secret misappropriation? Delaware Statute of Limitations states: “An action for misappropriation must be brought within 3 years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.” 6 Del. C. § 2006.  The complaint may attempted to address this by indicating that certain aspects of eBay’s misappropriation were not implemented — and were therefore perhaps not discoverable – until 2008 (although, this may come back to the issue that the inventions were most likely publicly available as published by the PTO starting in 2002); also, “For the purposes of this section, a continuing misappropriation constitutes a single claim,” 6 Del. C. § 2006.

And on the patent side:

• After eBay acquired PayPal, was the PayPal technology applied in a specific manner that reflected eBay’s knowledge of the Likourezos/Scaturro “confidential information,” or was the mere acquisition of PayPal by eBay sufficient to infringe the XPRT patents and misappropriate the Likourezos/Scaturro “confidential information”?
• If the mere acquisition of PayPal by eBay was sufficient to misappropriate the Likourezos/Scaturro “confidential information,” whether eBay was considering acquiring PayPal before viewing Likourezos’ patent applications, which might demonstrate that eBay did not misappropriate if it can show it simply continued to proceed with an earlier business consideration – namely acquiring PayPal – notwithstanding its access to the “confidential information”?
• The impact of the prosecution history on the Likourezos/Scaturro patents on XPRT’s assertion of “provisional rights” (i.e., whether the claim amendments changed the claims beyond “substantially identical” during prosecution and, if so, what is the earliest date provisional rights will flow for royalty purposes and how does that affect the $3.8 billion damages?

More to come as this huge case develops . . .

 From Bloomberg.com:

U.S. Bancorp, Minnesota’s largest bank, should pay $27 million for infringing patents related to digital checks owned by DataTreasury Corp., a jury in Texas said Friday.

The trial is the first of three on DataTreasury’s infringement claims that may lead to more than $1 billion in damages against the banking industry.

The patents relate to the imaging of checks, their transmission and their storage in a central repository.

U.S. Bancorp denied infringing the patents. The company’s lawyers had no comment on the verdict.

On its face, this case is a David versus Goliath story about a small Plano-based company with just a few patents to its name fighting against the behemoth commercial banks of the world, including U.S. Bank any many others.  DataTreasury is asserting it’s patents against U.S. Bank, Wells Fargo, Bank of America, Wachovia, Deutsche Bank, and many, many others.  Although some of the banks have already settled with DataTreasury, about a dozen are still fighting the suit.

Background

Being in the check processing business got expensive for banks.  Declining volumes and high fixed-costs made per-check processing fees go up for paper checks.  Not surprisingly, many banks sought to find a cheaper way to process checks; rather than sorting physical checks and lugging them about the county every day, some banks decided to exchange electronic images of checks rather than the original checks themselves.  This worked fine for the banks that agreed to the electronic alternative, but a large number of banks were unwilling to sign on (they still liked to get the paper checks) and, as was their right under previous laws, they could demand that the original paper check be presented for payment.  Therefore, it was a practical impossibility for a bank to switch to an electronic-only system because that would require it to obtain electronic presentment agreements with all other banks and there were still holdouts.

In 2003, Congress passed the Check Clearing for the 21st Century Act, which came into effect on October 28, 2004.  The Act facilitates electronic check exchange by a authorizing a new negotiable instrument called a “substitute check.”  A substitute check is a paper reproduction of an original check, and it is the legal equivalent of an original check.  Under the Act, all banks must accept substitute checks in place of the originals, even if the banks do not choose to create substitute checks.  Thus, by creating legally equivalent substitute checks for presentment to banks, even those banks that had not agreed to accept checks electronically previously now must accept the paper reproduction of the original check.  The ability to eliminate the need to sort and ship checks around the country saved the banking sector $2 to $4 billion annually under some estimates.

The timing of the Check Clearing for the 21st Century Act worked out quite nicely for DataTreasury, which received two patents covering its check-imaging technology, U.S. Patents 5,910,988 and 6,032,137, in 1999 and 2000 respectively.  Initially, DataTreasury sought to partner with banks in a check-imaging joint venture, but the prospective banks ending up going it along or enlisting the likes of IBM to develop their own technology without DataTreasury.

DataTreasury brought suit against dozens of banks, asserting the ‘988 and ‘137 patents and claiming that the banks’ systems for capturing and exchanging digital images of checks infringed the patents.  The banks attempted to fight the suit in Congress too: there was a failed legislative effort that would have granted banks immunity against DataTreasury’s patent lawsuit. Many of the banks entered into settlement agreements with DataTreasury, including JP Morgan Chase, Bank One, Ingenico and RDM, and they now pay licensing fees.  However, U.S. Bank is one of the defendants that decided to fight in court, and after many years the case is now finally being heard.

The Financial Services Industry: Prime Target for Patent Litigation

Regardless of whether DataTreasury is a patent troll (or more charitably, a “non-practicing entity” or NPE) or a true technology provider and innovator in the industry, it is clear that one of its greatest assets is its intellectual property, which it is currently licensing and asserting against dozens of banks.  Financial services corporations are prime targets for the business model of NPEs because they tend to have deep pockets and substantial transaction volume, which allows the NPEs to extract large sums even from relatively small per-transaction royalties, and financial institutions tend to be risk averse and prefer settlement, at least historically. 

Case in point: in the current litigation, DataTreasury is seeking a combined $1.6 billion in damages, with $200 million of that against U.S. Bank.  Such numbers are daunting, even for large companies, but the alternatives to fighting a patent suit are not particularly attractive either.  Those familiar with the upward trend of NPEs targeting financial services corporations understand that there are a number of ways to fight back or take proactive defensive actions to protect themselves, but there is no easy answer to the situation.

For example, rather than fighting the case in court, a bank might take a license from the licensor.  The cost-benefit analysis of taking a license may be doable, albeit probably more complicated than it initially seems, but the direct costs involved with paying a per-transaction royalty would not be the only cost at stake; once you take a license from NPE, expectations have been announced to other NPEs about how you deal with their threats.  Thus, taking a license may be the correct answer in some circumstances, but it’s not necessarily a cheap one and it has its own secondary and tertiary effects.  Alternatively, a bank may attempt to design around a family of patents that protect certain technology, such as check-imaging.  But again, there are costs involved: the design around may not be cheap, a licensor may still dispute whether a bank has effectively avoided infringement with the design-around, and the licensor will certainly still want to be compensated for perceived past infringement.

Current U.S. Bank Litigation

The current case dates back to 2002 and, in addition to the ‘988 and ‘137 patents, includes several other DataTreasury patents.  When DataTreasury asserted the various patents against numerous banks, several simply accepted a license with DataTreasury.  However, many other banks chose to fight the litigation instead, and the resultant case became so big and complex that the judge in the U.S. District Court’s eastern district of Texas broke it into three different trials.  The first trial, which includes U.S. Bank, is currently underway.  The second patent infringement trial will be against Well Fargo in August, and the third one will be in October against Bank of America.

In the current trial against U.S. Bank, DataTreasury asserts that U.S. Bank makes, uses, sells, or offers for sale a system or method that infringes claims 1, 26, and 46 of the ‘988 patent and claims 42 and 43 of the ‘137 patent, in part through direction or control of The Clearing House Payments Company L.L.C., or Viewpointe Archive Services, L.L.C.  A sample claim from the ‘988 patent is reproduced below:

26. A method for central management, storage and verification of remotely captured paper transactions from documents and receipts comprising the steps of:

capturing an image of the paper transaction data at one or more remote locations and sending a captured image of the paper transaction data;

managing the capturing and sending of the transaction data;

collecting, processing, sending and storing the transaction data at a central location;

managing the collecting, processing, sending and storing of the transaction data;

encrypting subsystem identification information and the transaction data; and

transmitting the transaction data and the subsystem identification information within and between the remote location(s) and the central location.

Among U.S. Bank’s defenses are non-infringement, invalidity, no direct infringement coupled with lack of control over third parties (namely Viewpointe and The Clearing House), and standing (defendants argue that DataTreasury is not the rightful owner of the patents in suit and therefore lacks standing).  And not surprisingly, the case has been bitterly disputed at every step of the way.  A read of the court’s 116-page claim construction order alone shows how the parties challenged every possible issue.

For example, in construing the term “image” (e.g., claim 26 recites “capturing an image of the paper transaction data at one or more remote locations and sending a captured image of the paper transaction data”), the plaintiff requested that the court merely construct the term as “an electronic representation of an object” whereas the defendants requested the narrower construction of “electronic representation of an object having a pictorial likeness of the object.”  As with other construed elements, the court tried to find a measured middle ground, construing “image” as “an electronic, visual representation of at least part of an object,” which falls short of the defendants request that the “image” must to be a pictorial likeness of the object but requires that the image be a visual representation of at least part of an object, which accounts for “snippets” that might not be considered “visual representations” of an entire object but are “images” nonetheless as the term is discussed in the patent.

The hard-fought battle is understandable.  According to an order issued by the judge, Bank of America handles about 62 percent of the alleged check volume and faces about 55% of the alleged damages — $868.7 million –  and Wells Fargo accounts for $100.6 million of the alleged damages (6.3% of the total) and U.S. Bank’s share is just under $202 million (13% of the total).  If the defendants lose, the damages could be trebled.  So, the stakes are high and many banks are watching to see what happens to U.S. Bank.  Who knew writing checks could be so interesting.  And expensive.

In Trading Technologies International Inc. v. eSpeed et al. (Fed. Cir. 2010), the CAFC upheld a $2.5 million infringement ruling against eSpeed Inc., a commodities exchange operator, and several of its affiliates.  The suit was brought by Trading Technologies International Inc. (TTI), which asserted U.S. Patent Numbers 6,766,304 and 6,772,132.

The patents-in-suit claim methods for displaying the market data for a commodity traded in an electronic exchange that includes a graphical user interface with “a dynamic display for a plurality of bids and for a plurality of asks in the market for the commodity and a static display of prices corresponding to the plurality of bids and asks.”  The GUI purportedly facilitates more accurate and efficient orders in a trading environment.  The problem solved by the invention relates to market fluctuations and rapid changes in bids and asks prices listed in those grids.  For example, when a trader wishes to place a buy at the inside market he may place the mouse cursor on the grids for the inside market and click the mouse.  However, as traders send bids and offers to the market, the price and quantity of the traded commodity change, which alter the inside market.  With earlier fixed grids, traders who wished to place an order at a particular price would miss that market opportunity if the inside market moved as the trader tried to enter an order, and in a fast moving market, missing an intended price could happen often and have very significant economic consequences.

The invention solved this problem by implementing static price levels, which are describe in more detail in the patents linked above:

(Claim 1 of the ’132 patent)

A method of placing a trade order for a commodity on an electronic exchange having an inside market with a highest bid price and a lowest ask price, using a graphical user interface and a user input device, said method comprising:

setting a preset parameter for the trade order;

displaying market depth of the commodity, through a dynamic display of a plurality of bids and a plurality of asks in the market for the commodity, including at least a portion of the bid and ask quantities of the commodity, the dynamic display being aligned with a static display of prices corresponding thereto, wherein the static display of prices does not move in response to a change in the inside market;

displaying an order entry region aligned with the static display prices comprising a plurality of areas for receiving commands from the user input devices to send trade orders, each area corresponding to a price of the static display of prices; and

selecting a particular area in the order entry region through single action of the user input device with a pointer of the user input device positioned over the particular area to set a plurality of additional parameters for the trade order and send the trade order to the electronic exchange.

 

(Claim 1 of the ’304 patent)

A method for displaying market information relating to and facilitating trading of a commodity being traded in an electronic exchange having an inside market with a highest bid price and a lowest ask price on a graphical user interface, the method comprising:

dynamically displaying a first indicator in one of a plurality of locations in a bid display region, each location in the bid display region corresponding to a price level along a common static price axis, the first indicator representing quantity associated with at least one order to buy the commodity at the highest bid price currently available in the market;

dynamically displaying a second indicator in one of a plurality of locations in an ask display region, each location in the ask

display region corresponding to a price level along the common static price axis, the second indicator representing quantity associated with at least one order to sell the commodity at the lowest ask price currently available in the market;

displaying the bid and ask display regions in relation to fixed price levels positioned along the common static price axis such that when the inside market changes, the price levels along the common static price axis do not move and at least one of the first and second indicators moves in the bid or ask display regions relative to the common static price axis;

displaying an order entry region comprising a plurality of locations for receiving commands to send trade orders, each location corresponding to a price level along the common static price axis; and

in response to a selection of a particular location of the order entry region by a single action of a user input device, setting a plurality of parameters for a trade order relating to the commodity and sending the trade order to the electronic exchange.

The district court ruled that eSpeed, Ecco, Eccoware, and eSpeed International nonwillfully infringed the two TTI patents, and the Federal Circuit affirmed.  One ruling of note related to the issue of priority.  On cross-appeal, eSpeed argued that the patents-in-suit did not deserve priority back to March 2, 2000, the filing date of the provisional application – both patents claimed priority back to a common provisional application – and that they were therefore invalid under the on-sale bar.

The crux of eSpeed’s argument about priority was that every claim of the patents-in-suit recites use of a “single action of a user input device,” but in contrast, the provisional application never used that phrase but instead referred only to “a single click of a computer mouse.”  It is well settled that, in order to enjoy the benefit the filing date of a provisional application, it must describe the invention in such a way that one of ordinary skill in the art “would understand that the genus that is being claimed has been invented, not just the species of a genus.”  eSpeed alleged that the district court erred in finding that one of ordinary skill in the art would understand the provisional application to mean that traders could enter orders through a “single action of a user input device.”

In its opinion, the Federal Circuit found that the patents-in-suit are indeed entitled to claim priority to the provisional application.  The provisional application distinguished between order entries performed in a single action and multiple-step actions, and the court agreed with TTI’s expert that the provisional did not distinguish a single-click from other types of single actions, and therefore one of ordinary skill in the art could read the provisional application to encompass any single actions.  Moreover, the parties’ experts did not dispute that one of ordinary skill in the art would have known about other forms of a “single action” such as a double-click or pressing a key.  The Federal Circuit reasoned that, considering the undisputed knowledge of those skilled in the art, disclosure of a species in this case provides sufficient written description and support for a later filed claim directed to a very similar and understandable genus.

In short, as long as the application did not distinguish a single-click from other types of single actions – such as a double-click or pressing a key – the disclosure of “a single click of a computer mouse” provides those skilled in the art with sufficient written description to support the broader “single action of a user input device.”  Presumably this would apply not just in a provisional/non-provisional context but also in a specification/claim context, where a claim recites a “single action of a user input device” and is sufficiently supported but a disclosure of “a single click of a computer mouse.”  This result makes sense; in the field of computer-based graphical user interfaces, skilled artisans understand a variety of I/O techniques, and this is particularly true in commodity trading interfaces or other financial transaction technologies.

“U.S. Bancorp stands to lose $200 million, and maybe more, in a patent dispute that the Minneapolis-based banking company and other banks across the country are fighting in a federal court in Texas…”

Read more here.

Plaintiff DataTreasury Corp. is asserting six U.S. patents against various defendants in this suit:

• U.S. Patent No. 5,910,988 for an invention in remote image capture with centralized processing and storage
• U.S. Patent No. 6,032,137 for an invention in a remote image capture with centralized processing and storage
• U.S. Patent No. 5,265,007 for an invention of a central check clearing system
• U.S. Patent No. 5,583,759 for an invention with a mechanism for expediting the deposit, transport, and submission of checks into the payment system
• U.S. Patent No. 5,717,868 for an invention with an electronic payment interchange concentrator
• U.S. Patent No. 5,930,778 for an invention with a system for expediting the clearing of financial instruments and coordinating the same with invoice processing at the point of receipt

Regent Markets Group, a Bahamas-based betting company, recently asserted U.S. Patent No. 7,206,762, against derivatives trading company IG Markets.  The patent, entitled “Betting system and method,” is directed towards an automated betting system and method for financial markets.  Specifically, the complaint alleges that Regent’s ‘762 patent is infringed by IG Markets’ PureDeal trading platform and that IG Markets contributes to and induces others to infringe the ‘762 patent.

Regent developed and operates an automated betting system that offers fixed-odds financial bets to the public over the Internet.  The patent explains the distinction between “spread bet” and a “fixed odds” bet:

Although betting in many diverse forms has been in existence for thousands of years, the concept of a bet on the future performance of one or more financial market indicators is a relatively recent one. Such a bet may take one of two forms, as will be described.

 

The first form of such a bet (the “spread bet”) is one which, if won by the making of a correct prediction, pays out a sum proportional to the market fluctuation. For instance, a speculator may bet that a given stock will fall within a set period of time, and, if this prediction is correct, may receive winnings in direct proportion to the amount by which the stock has fallen in that period of time.

 

The other form that such a bet may take is known as the “digital option”. Digital bets are of the same form as a traditional sporting bet in that the speculator predicts a certain event and receives either a fixed sum of winnings (if that event does occur) or no winnings (if the event does not occur). For instance, a speculator may bet that a certain stock index will rise to a certain level by a certain time. If the named index does reach this level, the speculator wins an agreed amount of money irrespective of any amount by which the index has exceeded the predicted level. It is this type of bet that is known as a “fixed odds” bet.

So, under a fixed-odds system, a speculator who bets that a certain stock index will rise at a certain level by a certain time wins an agreed amount of money.  To draw the analogy to sports betting, the fixed-odds betting on financial markets is akin sports betting where participants receive a point spread when betting on events such as college football, the NFL, or the NBA, and gamblers win if they accurately predict the winner of the event after the final score is adjusted by the point spread.  Similarly, fixed-odds betting also bears some resemblance to a “money line” wager when betting on sporting events such as tennis, boxing, NASCAR or other bets where winners are picked without regard for the point spread; gamblers are paid out according to the fixed money line ratios if they accurately predict the result of the event.

A couple of things caught my attention about this case.  First, speculation in the financial markets is not uncommon.  And although there is a distinction between investment and speculation, a certain degree of speculation exists in a variety of investment decisions.  Thus, even though some have tried to draw a line between speculators and investors, a more accurate description may be a continuum, with risk-bearing financial decisions that represent “investments” at one end and speculative betting, or essentially a form of gambling, at the other end.

In this context, I found it interesting that the patent was so unabashed as to frame the invention as a “betting system” without any backup position that the system was somehow something less than a method for speculators, but rather it had an investment component too.  This may not pose a problem in the U.S., where gambling patents are readily issued without concern for 35 U.S.C. §101, and the utility requirement is low and innovations are rarely found unpatentable for protecting methods that are illegal in certain jurisdictions or are considered to be immoral or offensive.  However, this is not uniformly true in other patent systems around the world.  For example, Article 5 of the Patent Law of China provides that “No patent right shall be granted for any invention that violates the laws of the State, goes against social morals or is detrimental to the public interest,” and this provision is routinely used to object to inventions directed towards gambling on the grounds that they are publicly recognized as detrimental to public interest and contrary to social morality.  Regent Market Group is organized under the laws of the Bahamas and based out of the British Isles where it is licensed and regulated by the Gambling Supervision Commission, and its founder, Jean-Yves Sireau, declares his residence and citizenship to be of Hong Kong.

Second, I think it will be interesting to see whether the defendants attack the patent’s validity, either before the District Court or through reexamination at the USPTO.  Though the patent’s claims are plainly directed to a method and system that calculates fixed odds for a bet, based on input from the user and data on the financial market, here is a sample of what a couple of the independent claims would look like if we simply changed the term “financial market” with a well-known gambling context such as, say, “sporting event”:

26.         A computer program embodied on a computer readable medium and operable on a central processing machine in communication with a data feed, for:

receiving one or more parameters from a user relating to a fixed-odds bet on an aspect of a sporting event;

obtaining data concerning the sporting event via the data feed;

calculating a fixed-odds price for the bet based on at least one of the parameters received from the user and the data obtained via the data feed; and

communicating the fixed-odds price to the user.

32.         A fixed-odds betting system comprising:

a user terminal operable to accept from a user multiple parameters relating to a fixed-odds bet on an aspect of a sporting event;

a data feed to a source of data concerning the sporting event; and

a central processing machine in communication with the data feed and the user terminal, the central processing machine operable to calculate a fixed-odds price for the fixed-odds bet based on at least one of the parameters input by the user and data obtained from the data feed.

Such sport betting systems and methods are presumably practiced at casinos, racinos, and even on the Internet, but some of the automated features may not predate the priority date of the patent (March 28, 2000).  Moreover, just because these limitations may have existed in a sports betting context does not necessarily render them obvious in a financial betting context.  For these reasons, I am eager to see how the defendant responds to what appears to be broad patent covering financial market speculation.

Mobile banking platform provider MShift files patent action against Digital Insight over mobile banking technology

MShift, Inc. has launched a patent infringement suit against Digital Insight Corporation as well as Digital Insight’s customers. Community Trust Financial Corporation and Community Trust Bank are named as co-defendants. The action asserts that the mobile banking technology that Digital Insight provides its banking customers infringes on a patent awarded to mShift in 2005. MShift technology powers over 200 US Mobile Banking applications for some of the largest financial institutions in America, as well as for local banks and regional credit unions across the USA.

 

The action, filed in the United States District Court in the Northern District of California, asserts that the mobile banking technology Digital Insight is providing its customers, such as Community Trust Bank, infringes on MShift’s United States Patent No. 6,950,881 (the ‘881 Patent’). The ‘881 Patent’ is entitled a ‘System for Converting Wireless Communications for a Mobile Device’ and was awarded to MShift on September 27, 2005. The ‘881 Patent’ is a fundamental patent that covers communications between a mobile device and a network site. The inventions of the ‘881 Patent’ enable mobile devices such as Smartphones to access network sites such as online or home banking sites by means of a conversion and adaptation engine which performs translations between the language of the network site (e.g. HTML) and the language supported by the mobile device (e.g., WAP, HDML, HTML) as required. By dynamically adapting and configuring data from one or more sources for presentation and use via mobile phones, the ‘881 Patent’ describes an innovative conversion engine that defines the modern mobile banking experience.

After filing a patent infringement suit against 42 banks — including Bank of America, Capital One, Citigroup, Goldman Sachs Group, JPMorgan Chase & Co. and Merrill Lynch & Co. — TQP obtained another settlement, this one from Citigroup Inc. and its subsidiaries.  The patent at issue is U.S. Patent Number 5,412,730, entitled “Encrypted data transmission system employing means for randomly altering the encryption keys,” issued in 1995, is directed towards online encrypted data transmissions technology.

TQP has already settled with Goldman Sachs, JPMorgan, Merrill Lynch and Morgan Stanley.  In September, TQP sued another group of online vendors including Ticketmaster, Apple, eBay and PayPal, alleging the same claims.

Update: TQP reached a settlement agreement with Capital One in its patent infringement suits over its online encrypted data transmissions patent.  The parties jointly filed to dismiss TQP’s claims against Capital One.

TQP and ING also jointly filed to dismiss the claims against ING.

Back in August, Phoenix Licensing filed a complaint in the U.S. District Court for the Eastern District of Texas, asserting its automated financial services marketing patents against more than three dozen insurers and financial companies, including Allstate, Prudential, Barclays, New York Life Insurance Co., PNC Bank, Hartford Financial Services Group Inc., Royal Bank of Scotland Group PLC, KeyCorp and Bank of America. Phoenix Licensing LLP et al v. The Allstate Corp. et al, case number 2:09-cv-00255-TJW.

The complaint claims that the defendants infringe two of its patents relating to marketing and sales of financial products:

• U.S. Patent Number 5,987,434, entitled “Apparatus and method for transacting marketing and sales of financial products,” which recites electronically collecting clients’ information and automatically selecting and presenting financial products appropriate for that client.  See, e.g., independent claim 2:

2. A method for using client information about clients comprising a plurality of client records to automatically select and present financial products appropriate for the clients, the method comprising:

 

automatically inputting into a computer-accessible storage medium the client information including the plurality of client records without human intervention between input of the respective client records, inputting information about the financial products, and inputting decision criteria pertaining to selection from among the financial products;

 

using a central processing unit in communication with the storage medium to select a subset of the financial products for each of the clients appropriate for that client using the client information, the financial products information, and the decision criteria; and

 

using an output device to prepare a client communication for each of the clients which identifies the subset of the financial products appropriate for that client.

• U.S. Patent Number 6,999,938, entitled “Automated reply generation direct marketing system”, which recites creating automatically generated customized replies in response to communications from customers and delivering them to the customers.  See, e.g., independent claim 1:

1. A method for automatically preparing customized replies to responses from one or more consumer entities, the method comprising:

 

receiving one or more responses from one or more consumer entities, said responses comprising nonpurchase requests and being in response to mass marketing communications relating to offerings for one or more financial products or services being offered as part of a mass marketing campaign;

 

automatically generating one or more replies, each of said replies being generated prior to receipt from a consumer entity of a purchase commitment of said one or more financial products or services being offered as part of said mass marketing campaign, each reply customized for a consumer entity using other than one or more of name, address and account number of said consumer entity, and responsive to a nonpurchase request received from said consumer entity, each of said replies specific to one of said responses or a subsequent response; and

 

delivering said replies to corresponding consumer entities.

In their Answers, the defendants of course asserted non-infringement and invalidity.  However, with the claims as broad as they are, the interesting part of the dispute – if it gets that far – may focus on the prior art.  On the other hand, the patents’ priority date goes back to 1996.

Back in 2007, Phoenix Licensing threatened legal action with the same two patents against State Farm Mutual Automobile Insurance. State Farm sued Phoenix, seeking declaratory judgment of noninfringement and invalidity of the patents.

IP Innovation, LLC v. Red Hat, Inc., No. 2009 WL 2460982 (E.D.Tex. Aug. 10, 2009).

Judge Davis of the Eastern District of Texas recently issued an opinion interpreting the requirements for computer-related means-plus function claims articulated in WMS Gaming and its progeny.  Specifically, the court ruled that when a means-plus-function limitation is just a “structure” within a larger executable program, and it does not rely on the external input/output functionality of the computer, WMS Gaming’s requirement for disclosing an algorithm does not apply.  Rather, the corresponding structure is computer code that performs the required function of the means-plus-function limitation within the larger computer program.

The court wrote:

WMS Gaming requires an algorithm “[i]n a means-plus-function claim in which the disclosed structure is a computer, or a microprocessor.” This is because “[a] general purpose computer, or microprocessor, programmed to carry out an algorithm creates a new machine, because a general purpose computer in effect becomes a special purpose computer once it is programmed to perform particular functions pursuant to instructions from program software.” Thus, the term “means for assigning” required an algorithmic structure when “a computer” or “microprocessor” performed the function of “assigning.”

 

WMS Gaming and its progeny are inapplicable to this case. Here, the specified function is not performed through interaction of a programmed computer with external elements using the computer’s input/output functionality (i.e., assigning numbers for rotating reels of a slot machine). Instead, the “control means” interacts with workspace data structures that are part of a program of code that is executable on a computer and performance of the specified function is not carried out through a computer’s input/output functionality. This understanding is reinforced by claim 11, which adds the “input means” limitation and provides for interaction of the executable program with a user, which would involve a computer’s input/output functionality.

 

Thus, the “means” specified in the patents calls for structure within the executable program that interacts with the workspace data structure in essentially switching between first and second workspace displays. Accordingly, IPI is correct that the corresponding structure for the “control means” limitations does not require an algorithmic structure as dictated by WMS Gaming. It is, of course, the user who makes a selection of workspace displays through the use of a pointer control device (such as a mouse). Thus, the “control means” must necessarily be those program components that facilitate the user’s selection of a workspace. The mechanism for user selection of workspaces, via the pointer control device, are the displayed pop-up menus and icons. However, rather than being merely the displayed “pop up menus and icons,” the structure actually interacting with the user-guided pointer control device is the corresponding code creating the interactive menus and icons. Therefore, the structure recited in the specification for the “control means” terms is “executable computer code implementing selectable graphical user interface pop-up menus and icons and equivalents.”

The disputed term defined by the specification was the “display system object”:

When read by one skilled in the art, the specification provides that a “display system object,” an “object” being understood as a tool for data manipulation, creates “display objects,” which have their own specific meaning in the context of the patent. The specification goes on to explain that this tool may include “one or more data structures and a number of procedures, and a data structure and procedure such as an editor or other application could be called on by more than one display system object.” ‘412 Patent at 8:28-32. This language does not connote merely function, but structure. Defendants’ main complaint with this language seems to be that it does not describe particular code for implementing the “generation” function. However, that level of specificity is not required in a means-plus-function limitation in order to save its validity. See Biomedino, 490 F.3d at 950 (“While the specification must contain structure linked to claimed means, this is not a high bar: all one needs to do in order to obtain the benefit of [§ 112, ¶ 6] is to recite some structure corresponding to the means in the specification, as the statute states, so that one can readily ascertain what the claim means and comply with the particularity requirement of [§ 112,] ¶ 2.”) (internal quotation marks omitted).  As with the term “control means,” the “display object means” is not carried out through a computer’s input-output functionality. Rather, the “display object means” is yet another module within the executable code described within entirety of the patent. The function of this code is to generate display objections. Given the understood meaning of “object” within the art, disclosure of a “display system object” provides sufficient structure for the claimed functionality.

It will be interesting to see how broadly this approach will be taken.  By finding that the recited structure for the “control means” is “executable computer code implementing selectable graphical user interface pop-up menus and icons and equivalents,” rather than code or pseudo-code actually found in the specification and its structural equivalents, the opinion leaves open the question whether any executable code will suffice and how that would affect the scope of such claims.