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Summary of Smart Systems Innovations, LLC v. Chicago Transit Authority

1/12/2018

Smart Systems Innovations, LLC v. Chicago Transit Authority, Case No. 2016-1233 (Fed. Cir. October 18, 2017):

In Smart Systems Innovations, LLC v. Chicago Transit Authority, Case No. 2016-1233 (Fed. Cir., decided October 18, 2017), the U.S. Court of Appeals for the Federal Circuit affirmed the final judgment of the U.S. District Court for the Northern District of Illinois.

This case primarily concerns patent eligibility of patents-in-suit directed to “An open-payment fare system allows riders to conveniently and quickly access mass transit by using existing bankcards,” such as debit and credit cards, thereby “eliminat[ing] the need for, and added operational cost of, dedicated fare-cards,” paper tickets, and tokens.

Appellant Smart Systems Innovations (“SSI”) sued Appellees Chicago Transit Authority et al. in the U.S. District Court for the Northern District of Illinois, alleging infringement of four U.S. Patents (Nos. 7,566,003, 7,568,617, 8,505,816, and 8,662,390).  Appellees responded by filing a motion for judgment on the pleadings, asserting that various claims of the patents are patent ineligible under 35 U.S.C. § 101

Presentative claim 14 of the ’003 patent reads in part, “downloading . . . a set of bankcard records . . . ; receiving, from a bankcard reader, bankcard data . . . ; determining an identifier . . . ; determining whether the currently presented bankcard is contained in the set of bankcard records.”

The District Court granted Appellees’ Motion, holding that, “[s]tripped of the technical jargon that broadly describes non-inventive elements (e.g., the ‘interfaces’ and ‘processing systems’), and further shorn of the typically obtuse syntax of patents, the patents here really only cover an abstract concept: paying for a subway or bus ride with a credit card.”  Although the patents-in-suit disclose inventions that would allow riders to more quickly and efficiently access a mass transit network, the District Court explained that “the recent case law has reiterated that whatever bells and whistles may be added, when reduced to their core, claims directed to the performance of certain financial transactions—and paying a fare is a financial transaction—must be categorized as involving abstract ideas” (emphasis added).

During the appeal, regarding Step 1 of the Alice Test, Appellant argued that because the ’003 and ’617 patents disclose inventions that “operate in the tangible world” and satisfy a public demand for more convenient travel that did not exist in the prior art, the patents’ claims are not directed to an abstract idea.  SSI repeatedly emphasized that the court nevertheless should not find the Asserted Claims directed to an abstract idea because they apply to a particular, concrete field—namely, mass transit.  SSI also contended that the District Court failed to appreciate that, because the patents-in-suit disclose inventions claiming “speedier solutions,” the Asserted Claims do not fall within the abstract ideas realm.

However, the U.S. Court of Appeals for the Federal Circuit found that taken together, the Asserted Claims were directed to the formation of financial transactions in a particular field (i.e., mass transit) and data collection related to such transactions.  The court also found that the Asserted Claims were not directed to a new type of bankcard, turnstile, or database, nor do the claims provide a method for processing data that improves existing technological processes.  Rather, the claims were directed to the collection, storage, and recognition of data.  The court has determined that claims directed to the collection, storage, and recognition of data were directed to an abstract idea.  Specifically, the court has found that merely limiting the field of use of the abstract idea to a particular  environment does not render the claims any less abstract and that Appellant’s reliance on decisions from this court concerning obviousness did not change the conclusion because the analysis under § 101 differs from that under the other patent-validity statutes.

Under Step 2 of the Alice Test, Appellant argued that the Asserted Claims “solv[e] technological problems in conventional industry practice,” such that they disclose an inventive concept.  Appellant also argued that the Asserted Claims “reflect an unconventional way to make an electronic process better,” and that the Asserted Claims “address specific technology challenges that arose uniquely in the transit sector.”

However, the Federal Circuit dismissed these arguments because when claims like the Asserted Claims are “directed to an abstract idea” and “merely requir[e] generic computer implementation,” they “do[ ] not move into section 101 eligibility territory.”  The court also made it clear that when a patent’s claims disclose patent-ineligible subject matter, preemption concerns are fully addressed and made moot.  The Federal Circuit also explained that the machine-or-transformation test is not the sole test governing § 101 analyses and that the subject patent must disclose the use of an apparatus specific to the claimed invention, but the Asserted Claims disclosed use of only generic computer components and machinery.

On the other hand, Judge Linn penned a dissenting opinion, in which he opined that the majority committed the same error as the District Court in engaging in a reductionist exercise of ignoring the limitations of the claims in question and in failing to appreciate that the abstract idea exception—if it is to be applied at all—must be applied narrowly, consistent with its genesis.