Payment Patent Infringement

1. Payment Patent Infringement J. Thomas Vitt

2. Overview • The Patent System • The Emergis Case • Practical Lessons

3. The Patent System What Can You Patent?

4. 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

5. 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

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

7. 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)

8. 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

9. 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”

10. 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

11. 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”

12. The Emergis Case • The Emergis Patent Claims an Electronic Invoicing and Payment System

13. 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)

14. 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

15. The Emergis Case • Direct Transmission is the key

16. 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

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

18. 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

19. 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)

20. 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

21. 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

22. The Emergis Case • Defense 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

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

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

25. Questions?

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