Vancouver, Canada - December 15, 2013: A Lego toy of Gandalf, the Wizard from The Lord of the Rings and The Hobbit. Gandalf is a member of the order of the Istari and one of the Maiar of Valinor. He lends counsel and leadership to Bilbo Baggins, the Fellowship of the Ring and the people of Middle Earth.

On July 6, 2016, the PTAB cancelled claims in a patent which had bedeviled more than 250 named defendants in litigation dating back to 2008.  The list of defendants reads like a Who’s Who of financial and commercial businesses, including the nation’s most prominent banks, credit card companies, online stock traders, e-Commerce retailers, cable and telecommunications companies, airlines, and even all twelve of the nation’s Federal Reserve banks.  Any plans the patent owner had to continue its siege of these vast tracts of economic activity were brought to a halt by the PTAB’s final written decision in MasterCard International, Inc. v. Stambler, Case CBM2015-00044, Paper 32 (PTAB 2016), which found that the petitioner, MasterCard, had proven the challenged claims were anticipated by and/or obvious over prior art.

Until now, the Patent Owner had successfully maneuvered to postpone this day of reckoning, managing to fend off eight previous post-grant attacks.  The Federal Reserve banks had earlier filed four Petitions for Inter Partes Review, but Patent Owner chose to settle with the banks shortly before anticipated institution.  The petitions were thereafter terminated upon joint motions of the Petitioners and Patent Owner.  Termination of the banks’ petitions eliminated a further threat from Fifth Third Bank, which had filed an untimely IPR petition, but had sought joinder with the banks’ petitions.  In light of the termination of proceedings on the banks’ petitions, the PTAB denied Fifth Third Bank’s motion for joinder.

A new round of lawsuits in 2014 prompted newly named defendants VISA and BMO Harris to file timely post-grant challenges.  BMO Harris filed a petition seeking Covered Business Method Review, resurrecting the earlier prior art attacks, and adding a challenge to patent eligibility under Section 101.  Before a decision on institution, however, the Patent Owner again terminated these proceedings through a settlement with BMO Harris.

In an IPR petition, VISA too resurrected prior art arguments from earlier petitions, and evidently stood firm against settlement overtures that had derailed earlier challenges.  However, in the first substantive comment on these prior art challenges, the PTAB ultimately denied institution on October 31, 2014.  The PTAB  found VISA had failed to establish a reasonable likelihood that it would prevail with respect to at least one challenged claim.

MasterCard followed with two CBM petitions of its own.  Ultimately, it chose to terminate one, in order to streamline proceedings with respect to the other.  MasterCard persuaded the PTAB to institute proceedings on its remaining CBM petition, arguing that the arguments in its petition were not substantially similar to those previously raised unsuccessfully by VISA because they relied, in part, upon a previously un-cited secondary reference.   The PTAB agreed.  As it would later develop, however, the PTAB would eventually cancel certain of Patent Owner’s claims on grounds similar or identical to those unsuccessfully pressed by VISA.

MasterCard’s CBM petition challenged claims of U.S. Patent No. 5,793,302, entitled “Method for securing information relevant to a transaction.”  The ‘302 Patent related generally to a transaction system for authenticating a transaction, document or record such that information associated with the at least one of the parties involved is coded to produce a joint code.  The joint code, in turn, is used to code information relevant to the transaction, document or record, to produce a Variable Authentication Number.  During subsequent stages of the transaction, only parties capable of reconstructing the joint code will be able to decode the VAN properly in order to re-derive the coded information.

As a first matter, the PTAB found that the ‘302 Patent was appropriate for review under the transitional program created for reviewing covered business method patents.  The PTAB noted that at least one claim was directed to “a method for authenticating the transfer of funds,” and thus qualified as a claim directed to a “financial product or service.”

The PTAB further determined that the ‘302 Patent was not a “technological invention” exempt from CBM review.  The Patent Owner argued that the claims solved the technical problem of verifying the identity and securing the interests of parties in multi-party transactions.  The PTAB, however, viewed the problem solved as a “business problem,” not a “technical problem.”  According to the PTAB, the problem solved was the authentication of individuals and information in a financial transaction.

The PTAB also observed that the ‘302 Patent did not solve this problem by means of novel technical feature.  The solution was described in terms of “conventional building blocks” consisting of a combination of known technologies.  In this regard, the PTAB specifically highlighted the ‘320 Patent’s observation that “those of skill in the art would appreciate that many additions, modification, and substitutions [to the preferred embodiments] are possible without departing from the scope or spirit of the invention.”  Such statements have routinely been included in patent specifications for years, but are now providing ammunition for both those challenging patents using the CBM procedure and those arguing lack of patentable subject matter under Section 101.

MasterCard argued that the claims were anticipated by and/or obvious over prior art, relying on two publications: a 1989 textbook entitled “Security for Computer Networks,” authored by D.W. Davies (“Davies”),and a 1982 textbook entitled “Cryptography: A New Dimension in Computer Data Security—A Guide for the Design and Implementation of Secure Systems,” authored by C.H. Meyer (“Meyer”). The PTAB agreed with MasterCard, including the argument that Davies anticipated certain claims–an argument that the PTAB had earlier found wanting in addressing VISA’s petition.

Petitioner has shown sufficiently a reason to combine Davies and Meyer, providing articulated reasoning supported by rational underpinnings for combining the references, and we adopt Petitioner’s contentions as our own.

In holding that the claims were obvious in light of the combination of the two references, the PTAB rejected Patent Owner’s arguments that insufficient evidence was adduced of a motivation to combine their teachings.  Noting that the petitioner offered testimony of its renowned cryptographic expert, Dr. Whitfield Diffie (2015 Turing Award winner, co-developer of the Diffie-Hellman protocol, and spitting image of Gandalf from Lord of the Rings), that the two references were in the same subject area, the PTAB importantly further observed that the Davies reference expressly made reference to the Meyer textbook and to another article authored by Mr. Meyer.  “We find that the citation by Davies to Meyer further supports Petitioner’s contention that one of ordinary skill in the art would have been motivated to combine Meyer with Davies because of their similar subject areas, overlapping teachings, cross-referencing, and the predictable results yielded by their being combined.”

Ironically, the Patent Owner had thought the primary reference’s mention of the earlier secondary reference supported its argument of a lack of motivation to combine.  In its Response in opposition to the Petitioner’s challenge, the Patent Owner had asserted that:

Meyer is a 1982 textbook that teaches a variety of data security concepts.  Davies is a 1989 textbook that also teaches a variety of data security concepts.  Each is a whole encyclopedic reference unto itself.  Neither purports to reveal any gap in its teachings that might be filled by consulting any other reference. . . .

Whatever parts of the earlier Meyers [sic. Meyer] reference that might have been intriguing to a person of skill in the art like Davies many years later, Davies already explicitly incorporated.  Whatever remained would have been of insufficient interest to motivate any combination. (at pp. 52-53.)

The MasterCard CBM provides several useful lessons.  One, if at first you don’t succeed, try, try, again.  The Patent Owner was evidently successful in fending off one attack after another, but ultimately it only takes one to succeed.  Second, petitioners arguing obviousness based upon a combination of references must remember that they bear the burden of proof and must “articulat[e] reasoning supported by rational underpinnings for combining the references.”  Expert testimony is highly recommended, if not essential, in this effort.  The mere mention by one reference in the combination of the remaining reference—even just mention of the author of the earlier reference—may help persuade the PTAB of the necessary motivation.  Unfortunately, although the PTAB’s decision helps MasterCard, the last defendant standing, it comes too late for the hundreds who previously settled with the Patent Owner.