The Software IP Report

Determining a Discount to Encourage Participation in an Electronic Trading System is Ineligible

The District of Delaware held that patent claims for multiple patents directed to “electronic trading and settlement systems” are abstract ideas, and “[e]ncouraging participation in a system in which all parties need to utilize similar technology through the well-known concept of discounting” does not provide an inventive concept,  granting a motion to dismiss based on lack of patent-eligible subject matter under 35 U.S.C. § 101 and the Alice/Mayo test. Fast 101 PTY LTD. v. Citigroup Inc., et al., No. 19-1819-RGA (D. Del. Jan. 30, 2020).

U.S. Patent Nos. 8,515,867; 8,660,947; 8,762,273; and 10,115,098 are directed to “‘an invoiceless trading system that creates incentives for customers to pay suppliers within a predetermined period of time.’” The court identified claim 1 of the ‘867 patent as representative of all claims in the asserted patents. Independent claim 1 of the ‘867 patent is reproduced here:

       1. A system configured for electronic settlement of an order placed by a customer with a supplier comprising:

       one or more bank servers, at least one of the one or more bank servers receives a message related to the order, the message comprising at least an order amount;

       a database associated with at least one of the one or more bank servers that stores the order amount;

       one or more processors associated with at least one of the one or more bank servers that determines an incentive amount, wherein the incentive amount is determined based at least in part on one or more fiscal attributes of the customer and the order amount; and

       a payment gateway associated with at least one of the one or more bank servers, the payment gateway electronically transfers to a supplier account on a first data an early payment for the order, the supplier account associated with the supplier, wherein the early payment is less than the order amount by at least the incentive amount, and the payment gateway that electronically receives a customer payment from a customer account on a second date, the customer account associated with the customer, wherein the customer payment is not less than the early payment plus an interest amount, wherein the interest amount is based at least in part on a credit period, wherein the credit period is an amount of time between the first date and the last date.

The court applied the two-step Alice framework to Citigroup’s Rule 12(b)(6) motion to dismiss. Citigroup argued that “the claims fail under step one of the Alice framework for claiming the abstract idea of an intermediated settlement system, the same abstract idea presented in Alice.” The court agreed with Citigroup that, like Alice, the claims are directed to “exchanging financial obligations between two parties by the use of a third-party intermediary.” Although Alice did not disclose the concept of calculating an incentive amount, the court found this concept analogous to the Federal Circuit decision in Mortg. Grader, Inc., v. First Choice Loan Servs., Inc., 811 F.3d 1314 (Fed. Cir. 2016), which “found that calculating an amount based on fiscal attributes [is] an abstract idea.” As such, the court found the claims are directed to an abstract idea.

The court went on to analyze step two of Alice. The court noted that “providing a discount based on early payment and a customer’s credit rating is [not] a practice that transforms claims beyond ‘a fundamental economic practice long prevalent in our system of commerce,’ similar to the concepts of ‘hedging risks’ in Bilski v. Kappos, 561 US 593 (2010) and ‘intermediate settlement’ in Alice.” Further, while “improvements to the functioning of prior art technical systems constitute inventive concepts,” see SRI Int’l, Inc. v. Cisco Systems, Inc. 930 F.3d 1295 (Fed. Cir. 2019), the court notes that the claims of the asserted patents “do not provide a technical solution to the problem of participation” in the electronic trading system, but “[i]nstead, the claims offer an incentive to use the electronic trading system.” The court also noted that the patents “fail to explain how the generic components actually accomplish what is disclosed in the claims.” As such, the court found that the “claims contain no inventive concept because they are not directed to ‘an improvement in computers as tools,’ but instead assert an ‘independently abstract idea[] that use[s] computers as tools.’” Elec. Power Grp., LLC v. Alston S.A., 830 F.3d 1350, 1354 (Fed Cir. 2016), alteration in original. Therefore, the court found the patents do not satisfy the Alice framework and is patent ineligible subject matter.

Lessons for Practice

As this case illustrates, providing generic components “is not sufficient to confer patentability where the claims do not offer an improvement in the functioning technology.” Further, “reciting results-oriented functionality” without describing how to accomplish the solution is also insufficient to establish patentability. The decision in this case, like many previous cases, reinforces that it is important to draft claims and the specification towards providing a technical solution to a technical problem.