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IP Alert: Customer Loyalty Program Does Not Claim Patent-Eligible Subject Matter

February 16, 2021

On February 8, in cxLoyalty, Inc v. Maritz Holdings, Inc., the Federal Circuit invalidated a patent for failure to claim patentable subject matter, reversing findings of the Patent Trial and Appeal Board (PTAB) relating to substitute claims in a covered business method (CBM) review.

cxLoyalty petitioned for CBM review of a Maritz patent relating to a system and method for permitting customers of a loyalty program to redeem loyalty points with third-party vendors without the need for human intervention. The PTAB concluded that the original claims were directed to an abstract idea that is not transformed through an inventive concept, making them ineligible under 35 U.S.C. § 101. But proposed substitute claims, according to the PTAB, contained an inventive concept, making them patent-eligible. The PTAB focused heavily on the fact that cxLoyalty did not submit any new testimony or other evidence to support its opposition to Maritz’s motion to amend. In contrast, Maritz filed an expert declaration to support patent eligibility of the substitute claims, which the PTAB relied upon to conclude that the substitute claims included an inventive concept.

cxLoyalty appealed PTAB’s ruling on the substitute claims and Maritz cross-appealed the patent ineligibility determination of the original claims.

The Federal Circuit first affirmed the PTAB’s determination that the original claims are directed to an abstract idea without significantly more. The PTAB had found, and the court agreed, that the claims are directed to facilitating or brokering a commercial transaction between a purchaser using a first form of value (i.e., a rewards program participant using points in whole or in part) and a seller transacting in a second form of value (i.e., a vendor system that transacts purchases in currency). The court rejected Maritz’s argument that the claimed invention conceals the nature of the transaction and is therefore patent-eligible, stating that loyalty intermediaries have long performed the cited function.

The court also rejected Maritz’s argument that the claims are directed to a technological solution to a technological problem, stating that the claims do not recite a solution to the purported problem because they apply “an abstract idea using conventional techniques specified in functional terms and at a high degree of generality” and “provide no useful guidance as to how this purported function is achieved and thus cannot be directed to a technical solution.” Maritz’s expert testimony on this point was not accorded weight for being no more than conclusory.

The Federal Circuit found the substitute claims patent-ineligible under section 101 for the same reasons as the original claims, reversing the PTAB’s determination. Notably, the court commented that while the PTAB repeatedly referred to the 2019 Revised Patent Subject Matter Eligibility Guidance, that guidance is not binding on the court’s patent-eligibility analysis. To the extent the guidance does not fully accord with case law, case law controls.

Maritz had argued that the substitute claims also constitute a technological solution to a technological problem and further recite unconventional subject matter. The court rejected both arguments, stating that the substitute claims do not provide any guidance on how the purported technical solution is achieved and novelty is insufficient for patent eligibility. The court reasoned that Maritz’s substitute claims differ from the claims in CardioNet v. InfoBionic because they are directed to the application of longstanding commercial practices using well-understood, routine, and conventional activities. And Maritz’s substitute claims differ from the claims in DDR Holdings, LLC v. Hotels.com because they merely employ conventional techniques, rather than the use of a computer network operating outside its normal and expected manner.

This case serves as a reminder to patent drafters that technical details and specificity are not only relevant to written support and enablement issues, but can also affect the outcome of patent-eligibility determinations. Identifying a technological invention is especially important for software technologies relating to commercial transactions, which  are difficult to prosecute and defend post-Alice. Patent practitioners in general should avoid overreliance on any written guidance from the USPTO; it is not binding to the court as stated by the court in this case.

For more information regarding this decision, please contact Fitch Even partner Karen J. Wang, author of this alert.

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