AuthWallet, LLC v. Block, Inc.

Background

AuthWallet alleged that Block’s payment platforms infringed claims 1 through 40 of U.S. Patent No. 9,292,852. The patent concerns processing financial-transaction data, identifying stored-value items supplied by different third parties, notifying a purchaser about those items through a mobile device, allowing the purchaser to select a benefit, applying it to part of the transaction, and processing payment for the remaining amount. AuthWallet alleged direct, induced, and contributory infringement, either literally or under the doctrine of equivalents. The doctrine of equivalents can treat a product or process as infringing even when it does not literally satisfy every patent-claim term, if the claimed and accused elements are equivalent.

The complaint alleged that Block operated financial-transaction platforms, offered mobile payment options involving rewards for multiple vendors, received card pre-authorization requests containing purchaser-identification and transaction-amount information, and could add or send dollar amounts, points, discounts, and other awards to customers. AuthWallet sought compensatory damages, an order barring future infringement, and attorneys’ fees, expenses, and costs.

Block’s Motion

Block moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim. Block argued that all 40 patent claims were ineligible under Section 101 of the Patent Act. It treated claim 1 as representative and argued that the other claims either described the same method in system or computer-readable-medium form or added only additional abstract details. Block also argued separately that claims 28 through 40 were ineligible because they covered temporary computer-readable media.

AuthWallet did not dispute using claim 1 as representative. It argued that claim 1 covered concrete steps that improved security for transactions in which a physical payment card was not presented. It characterized the patent’s main improvement as two-step authentication through an intermediary that sends a transaction notification to a mobile device. AuthWallet also argued that the patent addressed online fraud, authentication, and transaction-fee problems.

Section 101 Analysis

The court applied the two-part test from Alice Corp. v. CLS Bank International. First, a court asks whether the patent claims are directed to an abstract idea or another category that cannot receive patent protection. Second, if they are, the court asks whether the claim contains an inventive concept—additional elements that transform the abstract idea into a patent-eligible application rather than merely using ordinary technology to carry it out.

At the first step, the court held that the ’852 Patent was directed to the abstract idea and established business practice of processing payments in sales transactions while giving purchasers discounts or other benefits for use in future purchases. The court reasoned that retailers had long provided coupons and other financial incentives and that the patent described using computer technology to carry out that practice. It concluded that the claims recited generic steps and results rather than a specific technological solution or an improvement to computer functionality.

The court rejected AuthWallet’s argument that the patent’s focus on online transactions, security, and reduced transaction fees made the claims patent-eligible. It stated that the patent’s narrow online context did not change the abstract nature of processing discounted payments, and that the claimed authentication and transaction-management functions were conventional and generic. The court concluded that the claims failed the first step of the Alice test.

At the second step, the court held that the claims did not contain an inventive concept. In the court’s view, the claims used two-step authentication and data storage mechanisms to manage online payment transactions with discounts, but those functions were carried out through conventional computer components. The court also concluded that fraud and consumer-authentication concerns were not problems unique to online discounted sales and that AuthWallet had not connected those concerns to a sufficiently specific claimed invention. The court stated that no further factual development was needed to decide eligibility.

Because the court found all 40 claims substantially similar and linked to the payment-processing method in claim 1, it applied its analysis of claim 1 to claims 2 through 40.

Unresolved Alternative Argument and Disposition

The court did not reach Block’s alternative argument that claims 28 through 40 were ineligible because they encompassed temporary computer-readable media. It granted Block’s motion to dismiss and directed the clerk to close the motion and the case. The opinion does not state that the motion or case was dismissed with or without prejudice.