Coupon Patent Easily Found Invalid under § 101

On January 12, 2016, the District Court for the District of Delaware issued an opinion in a case captioned Motivation Innovations, LLC v. Petsmart, Inc.  Plaintiff, Motivation Innovations, LLC, filed a patent infringement action against defendant Petsmart Inc. alleging infringement of U.S. Patent No. 5,612,527, and defendant filed a motion for judgment on the pleadings asserting that the '527 is invalid under 35 U.S.C. § 101 as being directed to an abstract idea without significantly more.

The District Court granted the Defendant's motion for judgment on the pleadings, and found the '527 patent invalid under 35 U.S.C. § 101.

The '527 patent, titled "Discount Offer Redemption System and Method," was filed on March 31, 1995, and issued on March 18, 1997.  An ex parte reexamination of the '527 patent was completed on April 27, 2010 with original claims 1-16 confirmed, original claims 17-20 confirmed with amendment (or depending from an amended claim), and new claims 21-39 allowed.

District Court's thoughts on § 101 Challenges

The District Court followed the two-prong test for distinguishing patents that claim laws of nature, natural phenomena, and abstract ideas from those that claim patent-eligible applications of those concepts.  First, we determine whether the claims at issue are directed to one of those patent-ineligible concepts.  If so, we then ask, "[w]hat else is there in the claims before us?"  The second prong has become known as a search for an "inventive concept" -- i.e., an element or combination of elements that is "sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself."

The District Court summarized many Federal Circuit cases covering § 101 law including DDR Holdings, Ultramercial, and the Intellectual Ventures cases.  The District Court expressed its confusion with the current state of the law, and stated that in reviewing post-Alice cases, "the court is struck by the evolution of the § 101 jurisprudence, from the complete rejection of patentability for computer programs to the almost complete acceptance of such, to the current (apparent) requirements that the patent claims in suit (1) disclose a problem 'necessarily rooted in computer technology,' and (2) claim a solution that (a) not only departs from the 'routine and conventional' use of the technology, but (b) is sufficiently specific so as to negate the risk of pre-emption."

The District Court noted that even though most of the patent claims now being challenged under § 101 would have survived such challenges if mounted at the time of issuance, these claims are now in jeopardy under the heightened specificity required by the Federal Circuit post-Alice.

The District Court offered a further opinion that "it is less than clear how a § 101 inquiry that is focused through the lens of specificity can be harmonized with the roles given to other aspects of the patent law (such as enablement under § 112 and non-obviousness under § 103), especially in light of the Federal Circuit's past characterization of § 101 eligibility as a 'coarse' gauge of the suitability of broad subject matter categories for patent protection."

The District Court continued, complaining that:

Given the evolving state of the law, the § 101 analysis should be, and is, a difficult exercise.  At their broadest, the various decisions of the Federal Circuit would likely ring the death-knell for patent protection of computer-implemented inventions, a result not clearly mandated (at least not yet).  On the other hand, to recognize and articulate the requisite degree of specificity -- either in the equipment used or the steps claimed -- that transforms an abstract idea into patent-eligible subject matter is a challenging task.  In trying to sort through the various iterations of the § 101 standard, the court looks to DDR as a benchmark; i.e., the claims (informed by the specification) must describe a problem and solution rooted in computer technology, and the solution must be (1) specific enough to preclude the risk of pre-emption, and (2) innovative enough to "override the routine and conventional" use of the computer.  DDR, 773 F.3d at 1258-59.  The pre-emption concern is generally amenable to review in the context of a motion to dismiss or for judgment on the pleadings.  The second requirement, which may well involve issues of fact relating to the state of the art in the technological environment involved, is more appropriately addressed after discovery in the context of a motion for summary judgment.

I think a number of practitioners echo the sentiments of the District Court, and find the Federal Circuit's handling of § 101 challenges confusing and inconsistent, at best.

The '527 patent

The '527 patent discloses and claims methods for redeeming discount offers by associating a machine-readable identification code, such as a barcode, with data identifying items to be offered at a discount.  The data is stored in a database in memory, and the discount is provided for those items for which data is listed in the database.  Independent claim 1 recites:

1.  A method for redeeming discount offers comprising:
    providing a circulation medium and providing said medium with indicia which includes a machine readable identification code;
    causing said medium to be distributed to potential users;
    associating said identification code with data identifying items which are to be offered at a discount provided as part of said medium and storing said data in memory in a data base so as to be addressable by said identification code;
    providing means for reading said identification code provided with said circulation medium;
    providing means associated with said code reading means for tabulating sales of items so that any discount corresponding to an item listed in said data is deducted from the price of the item in the tabulation; and
    using said reading means to identify said code provided with said medium and using said means for tabulating items to obtain a price for the involved item and to cause a discount to be debited against the purchased item if the involved item is listed as part of said data identifying an item as qualifying for a discount as called for by the data base data defined by the identification code of the medium.

Independent claim 17 slightly differs from claim 1 and recites "A method of tracking customer purchasing habits," with the differing claim functions including:

    providing means for tabulating items and for recording the items purchased by the bearer of the circulation medium and providing means for calculating the at least one discount on the item offered at discount by said identification code means; and
    tabulating items purchased and storing a record of the tabulated items in said data file identified by the identification code means thereby enabling tracking of purchasing habits of individuals who receive and use the circulation medium.

The '527 specification describes that a point of sale ("POS") machine uses the indicia on the flyers "to identify items which are offered at a discount and then apply an appropriate credit to the purchased items."  Moreover, each point of sale machine is linked to a main computer which includes a controller responsible for managing the data which is input to the system through the point of sale machines as part of the normal transactions of the store.  The point of sale machines are standard readily available machines each having a microcomputer unto themselves which is capable of communicating in real time with the main computer of the network.

§ 101 Analysis

Applying the analytical framework of Alice, the District Court first determined that the claims at issue are directed to an abstract idea of using coupons to provide discounts.  Regardless of the extra limitations related to how the method is used or what it improves, the patent claims are simply directed to the "use and redemption" of coupons.

Turning to step two of the Alice framework, the District Court found that the additional limitations of the asserted claims recite conventional or routine activity or computer technology.  For example, creating and distributing a circulation medium (e.g., brochure) having a UPC bar-code is conventional activity, and associating bar-codes with a data file and using a generic bar-code scanner to scan the bar-code as well as using a generic point-of-sale machine include use of generic/known computer devices.  In fact, the '527 specification explains that the POS machine is a "standard readily available machine," with a microcomputer capable of communicating in real time with the main computer of the network.  No special programming is disclosed.

The Plaintiff describes the '527 patent as disclosing a particular and specific method and system for the use and redemption of "discount offers" (or coupons) that reduced the need for consumers and retailers to handle and process large quantities of coupons, reduced fraud, and allowed retailers to keep track of purchases made by individual consumers.  The Plaintiff's main argument was that the invention is novel because it had not been previously known to use a single coupon with one "indicia" to redeem offers on multiple products, or to create and use a database of individual customer's purchasing history while doing so.

But, the District Court, following its understanding of the application of § 101 law, stated that the inventive concept of using a machine readable identification code to take discount offers and track customer purchasing habits, is not an internet (or computer) centric problem.  The District Court here placed its emphasis on the need for the invention to be necessarily rooted in computer technology so as to survive the § 101 challenge.

Here, the '527 patent had problems from the beginning.  It is not advised to describe aspects or elements recited in the claims as "standard" or "well-known".  This will only lead to courts finding those items to be routine and conventional computer technology.  In addition, clearly by March 31, 1995 (the filing date of the '527 patent), coupons were in use.  The Plaintiff's only assertion of inventive concept was associating one coupon with discounts on multiple items.  This, though, is difficult to find as an inventive concept.  You can imagine prior art coupons offering discounts on multiple items (i.e., $1 off 2 or more boxes of cereal).  Because the "business method" aspects of the claim were not new, and because the computer elements in the claim only covered generic computer functionality, these claims were doomed by Alice.