Payment Patent Infringement J. Thomas Vitt

Overview The Patent System The Emergis Case Practical Lessons

The Patent System What Can You Patent?

The Patent System What Can You Patent? Supreme Court: “anything under the sun made by man” “Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent . . .” But you cannot patent: (1) abstract ideas (2) laws of nature (3) physical phenomena

The Patent System What Can You Patent? To obtain a patent, the claimed invention has to be: Novel (meaning the invention has at least one difference from what’s in the art) Not Obvious (meaning more than ordinary skill is required) Useful (an easy standard) The Practical Reality: The pendulum swings back and forth, but more things are patentable than you might think

The Patent System Two Areas of Special Interest for Payment Systems Business Method Patents Software Patents

The Patent System Business Method Patents “A new and useful process” is patentable A method of doing business can meet this definition Limited by the “abstract idea” limitation (and other requirements for patentability)

The Patent System: The Controversy Over Business Method Patents State Street (1998) Broad permission for business methods as long as the method produced a “useful, concrete, tangible result” Led to significant increase in “business method” patent filings Business method patents are harshly criticized

The Patent System: The Controversy Over Business Method Patents Bilski (2010) Federal Circuit reversed State Street and created a narrow, bright line test for business methods: “tied to a machine” or “transformation of matter” But the Supreme Court rejected that bright line “machine or transformation” test Business methods survive (barely) and can still be patented But, Supreme Court invalidated the patent in the Bilski case as “abstract idea”

The Patent System: The Controversy Over Business Method Patents Continuing battle on what business methods are patentable Congress to the rescue? No, but Pending Patent Reform: Singles out business method patents that claim “a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service” for a special post-grant review procedure Can use to stop litigation and force Patent Office review May apply to business methods in utility payment systems

The Patent System: Software Patents Less controversial than business method patents, but still controversial Mark Cuban: Outlaw all software patents! Software patentable as an article of “manufacture”, also as a “process” Retail Decisions (August 16, 2011) Rejected computerized credit card fraud detection system as “abstract idea”

The Emergis Case The Emergis Patent Claims an Electronic Invoicing and Payment System

The Emergis Case 99 Claims! But, essentially the patent claims using a computer to pay bills online Emergis was a “non-practicing entity” (called a “patent troll” by defendants)

The Emergis Case Emergis Patent Claims: Many words obscuring simplicity (1) invoice presentation electronics adapted to present customer billing data . . . and to request payment instructions Translation: A computer sends you the bill (2) remote electronic customer authorization interface . . . to (a) receive customer billing data and request for payment (b) provide customer billing data and request for payment instructions to customer (c) transmit customer payment instructions directly to invoicer Translation: You use a computer to pay the bill

The Emergis Case Direct Transmission is the key

The Emergis Case The Emergis Campaign Sent (at least) dozens of threat letters to utilities in 2004-2006 time period Filed 16 lawsuits in 2005-2006

The Emergis Case The Response to the Emergis Campaign Pay, or Fight?

The Emergis Case Several Companies Chose to Settle Different Payment Systems Non-infringement defense is much cheaper than invalidity Home-grown systems/third-party providers Emergis Settlement Strategy, and the Costs of Litigation

The Emergis Case Fear of Cost of Patent Litigation Is A Powerful Tool for Plaintiffs Median Costs To Defend Mid-Sized Patent Case is $1.5 Million (through end of discovery) and $2.5 Million (through trial) Source: AIPLA Report of the Economic Survey (2011)

The Emergis Case: Emergis v. Otter Tail Otter Tail’s vendor, Princeton eCom, chose to fight Defense Strategy Focus just on direct transmission noninfringement defense Princeton eCom system was the same as Figure 1 Ignore, as much as possible, all other issues Ask Court to dismiss the case as soon as possible

The Emergis Case The Strategy Worked Chronology is Revealing April 18, 2005 Otter Tail Letter: “the system used follows the prior art illustrated by Figure 1 of the ‘362 Patent” January 26, 2006 Emergis Files Suit July 10, 2006 Otter Tail Files Motion for Summary Judgment, re Direct Transmission March 9, 2007 Otter Tail Wins in District Court January 31, 2008 Federal Circuit Affirms Otter Tail’s Win

The Emergis Case Defense Argument: Emergis Argument Direct Transmission means what it says. Payment instructions go only to third-party vendor, are not transmitted “directly to the invoicer”, and indeed are never transmitted to the invoicer Emergis Argument “directly to the invoicer” means directly to the invoicer or to an agent or third party that the invoicer hires or controls

The Emergis Case District Court and Federal Circuit Rejected Emergis Argument Summary Judgment of No Infringement Early Motion Saved Money Emergis Campaign Ended

Practical Lessons From The Emergis Case Pay Attention To Vendor Contracts Consider Joint Defense Analyze Early, and Don’t Feel Compelled to Cave

Questions?

J. Thomas Vitt Partner Dorsey & Whitney LLP 50 South Sixth Street Suite 1500 Minneapolis, MN 55402-1498 (612) 340-5675 vitt.thomas@dorsey.com Devan V. Padmanabhan Partner Dorsey & Whitney LLP 50 South Sixth Street Suite 1500 Minneapolis, MN 55402-1498 (612) 343-7990 padmanabhan.devan@dorsey.com