Secure Payment Patents Invalidated Under Alice, Days After Judge Connolly Gives “Paramount Consideration” to Plaintiff’s Choice of Forum

July 5, 2020

Last week, Delaware District Judge Colm F. Connolly issued orders considering two magistrate recommendations: a first, agreeing that a case filed against Apple and Visa by inventor-controlled Universal Secure Registry LLC (USR) should not be transferred to the Northern District of California; and a second, disagreeing that a motion challenging the four patents at issue in that same case under Alice should be denied. In the latter, Judge Connolly ruled that the asserted claims are patent-ineligibly directed to the abstract idea of “the secure verification of a person’s identity”, ending the litigation. Though less consequential in light of that Alice ruling, litigants before Judge Connolly may still want to take note that the transfer denial order does reinforce an expansive reading of one of the relevant factors.

USR sued Apple and Visa over the four patents-in-suit (8,577,813; 8,856,539; 9,100,826; 9,530,137) all the way back in October 2017. A barrage of petitions for inter partes review (IPR) (and covered business method review) followed, as did the defendant’s motions to transfer out of Delaware to the Northern District of California and to dismiss under Alice. Magistrate Judge Sharon R. Fallon returned reports and recommendations (R&Rs) that both should be denied, ruling with respect to the latter that the patents are “not directed to an abstract idea because ‘the plain focus of the claims is on an improvement to computer functionality, not on economic or other tasks for which a computer is used in its ordinary capacity’” (internal citations omitted). Objections were lodged, but a joint request for a stay paused litigation in October 2018.

This past March, USR asked Judge Connolly to schedule a case management conference because the original, jointly requested stay was to await the PTAB’s consideration of challenges (not the completion of any subsequent appeals), and in late January the PTAB handed down its final written decision in “the last remaining PTAB proceeding related to any of the subject patents”: “The Patent Office has completed its review of Defendants’ multiple challenges to the patents-in-suit, finding many claims not to be unpatentable”. (The results of the myriad IPR proceedings were indeed mixed.) The defendants asked the court to consider its objections to the pending R&Rs before setting a schedule in the case. Judge Connolly did just that.

The court invalidated all of the asserted claims from each of the four patents (via claims identified as exemplary), Judge Connolly ruling that they are directed to the abstract idea of “the secure verification of a person’s identity”. Countering Judge Fallon’s finding that the claims teach improvements in computer functionality, the court noted that “USR . . . has never argued that the patents disclose improvements in computer technology” and ruled that “neither the patents’ claims nor their written descriptions teach or purport to teach improvements in computer functionality”. Judge Connolly then walked through each exemplary claim, finding no further inventive concept in the claim elements taken separately or as a whole, in particular rejecting the USR argument that patent-eligible innovation could rest on “transaction approval without providing account identifying information to the merchant” (emphasis in original). Per the court, “sending data to a third-party as opposed to the merchant is not a technological innovation, but rather a [sic] ‘insignificant post-solution activity’ that is insufficient to confer patent eligibility” (internal citations omitted).

That decision ended the district court case, on June 30. However, future litigants before Judge Connolly, particularly any defendants interested in seeking a transfer for convenience out of Delaware, should also mark the court’s footnote in the order adopting Judge Fallon’s recommendation that the case against Apple and Visa not be transferred (appearing in the same document recommending rejection of the Alice challenge). Judge Fallon had noted that “[p]laintiffs have historically been accorded the privilege of choosing their preferred venue for pursuing their claims” and that deference to that choice should be given, less so when that venue is not the plaintiff’s “home forum”. Accordingly, because USR has no facilities in Delaware, its choice of forum here “weighs in USR’s favor, but not as strongly as it would if USR had a place of business in Delaware”—i.e., its forum preference weighs only “slightly against transfer”.

Judge Connolly took issue with this analysis, dropping a note in his order to clarify: “The Court notes that Plaintiff’s forum choice should have been given ‘paramount consideration’ and, therefore, that its choice of venue weighed strongly, as opposed to slightly, against transfer” (citing two of his prior orders denying transfers in cases brought separately by NPEs Realtime Data LLC and VLSI Technology LLC), fuller coverage of which can be found at “Fortress Triples Down Against Intel in Delaware, Where Recent Appointee’s Ruling May Signal a Steep Climb for Transfers” (May 2019). Judge Connolly has now several times emphasized that a plaintiff’s choice of forum is to be afforded “paramount consideration”, apparently to be disturbed only under unusual circumstances.

USR, which had targeted Apple Pay and the Visa payment processing network, was formed in Massachusetts in December 2007 by Kenneth P. Weiss, the asserted patents’ named inventor. Weiss is the founder of several Massachusetts-based companies, principally Security Dynamics Technologies (f/k/a Security Dynamics, Inc.), which was formed in 1986 and went public after the acquisition of (and changing its name to) RSA Security, a company acquired by EMC in 2006 and now owned by Dell. In addition, Weiss created USR ID, Inc., also in MA, in October 2016. That company maintains a website touting USR ID, a mobile payment app of uncertain commercial traction. Weiss is also the principal at Strategic Diversity, another MA company, formed in July 1998, with “interests in intellectual property licensing, private equity investment, and other projects”. In July 2016, USR granted a security interest in multiple Weiss patents, including those in suit here, to KW Strategic Enterprises, LLC, yet another MA-based Weiss company, this one also formed in December 2007.

The patents-in-suit, all with Weiss as the sole named inventor, generally relate to processing secure financial transactions using mobile devices. The ‘813, ‘826, and ‘137 patents belong to a family of nine, with the earliest member issuing in September 2010 and the ‘137 patent issuing most recently, in December 2016, all with an estimated priority date in February 2006. The ‘539 patent issued as the second of two family members in October 2014; the parent issued in June 2007, both with an estimated priority date in March 2001.

Judge Connolly took the Delaware bench in August 2018 in the seat vacated by now-Senior District Judge Sue Robinson.