[00:00:00] Speaker 01: Okay, the next argument is docket number 23-1036, case lost versus verifone. [00:00:46] Speaker 01: Just fill it whenever you're ready. [00:01:23] Speaker 04: Good morning, your honors. [00:01:23] Speaker 04: If it pleases the court, Scott Fuller on behalf of the plaintiff appellant, Costellas LLC. [00:01:30] Speaker 04: The four patents that issue here recite eligible stuff. [00:01:36] Speaker 04: We think that this panel can get there under either step one or step two. [00:01:40] Speaker 04: We think the district court erred in both regards. [00:01:42] Speaker 04: But as to step one, again, [00:01:47] Speaker 04: focus of these claims as according to the district court and as what the defendants want to argue is that it's just mere underwriting. [00:01:55] Speaker 04: Even taking that as a broad principle to which the claims might be addressed to a specific solution to underwriting as a general concept, under step one, these are specific tailored solutions. [00:02:13] Speaker 04: They do not preempt [00:02:15] Speaker 04: all forms of underwriting by any means. [00:02:18] Speaker 04: Underwriting can be done multitude of ways that do not infringe these claims and do not practice the application of using specific charge back data as the claims require on the front end of the processing step. [00:02:32] Speaker 04: So as a non-abstract application of this general principle, we think that step one is dispositive. [00:02:40] Speaker 04: There's not an abstract idea captured in these claims and the district court aired [00:02:44] Speaker 04: at step one. [00:02:49] Speaker 04: As to step two is where district court we believe the opinion really falls apart and where defendants fail to establish that these claims are unconventional. [00:03:02] Speaker 04: The complaint in this case recites numerous paragraphs. [00:03:07] Speaker 04: There's about a dozen paragraphs that recite specific statements of fact [00:03:13] Speaker 04: which again on a motion to dismiss must be taken as true. [00:03:17] Speaker 04: All of these statements of fact go directly to the heart of the matter and that is whether or not the use of charge fact data in the processing of electronic payments at any step in the processing function was conventional as of the day of the invention. [00:03:36] Speaker 04: The factual statements in the complaint make it clear [00:03:40] Speaker 04: that at the time of the invention, no one was using charge back data in process. [00:03:47] Speaker 01: You can't rely on the abstract idea to be your source of something unconventional or non-routine. [00:03:57] Speaker 01: In other words, [00:03:59] Speaker 01: even if your abstract idea is novel, that's not something that's going to help you pass muster under either step one or step two of Alice. [00:04:10] Speaker 01: And so the fact that you have a method, a business method where you look up to see whether a would-be purchaser has been involved in chargebacks in the past before you consummate the transaction, [00:04:28] Speaker 01: I guess the question is, why isn't that business method just an abstract idea? [00:04:35] Speaker 01: And then under step two, why would that be given any credit in determining whether or not that could be regarded as an inventive step? [00:04:48] Speaker 04: This court has on many occasions held that and recognized the fact that patents rely on existing technologies. [00:04:55] Speaker 04: There's cases Bascom, DDR, and docs. [00:04:58] Speaker 04: where a new arrangement of existing pieces could still be inventive and unconventional. [00:05:05] Speaker 04: And if, to your honor's point, if the use of chargeback data later on after post-processing existed, this specific application, again, was unconventional. [00:05:19] Speaker 04: And the abstract idea of underwriting is not [00:05:27] Speaker 04: the use of charge-back data at a particular place in a processing step. [00:05:31] Speaker 04: So I... Well, let's look at it this way. [00:05:34] Speaker 01: We've oftentimes been searching for some type of specific implementation that could be considered to be at least arguably a technical advance over conventional computers, computer networks. [00:05:55] Speaker 01: Here, to the extent that computers are being contemplated at all here, I think it's very hard to be able to identify something that is in advance of a pre-existing computer. [00:06:17] Speaker 01: on a technical level versus just simply carrying out some kind of looking up of information using the computer as a tool for that? [00:06:27] Speaker 04: Well it's an unconventional data flow is the point of the invention that improves and provides multitude of benefits to merchants and those are all laid out in the complaint as well namely cost savings, savings on overhead, etc. [00:06:41] Speaker 04: So the application and again [00:06:44] Speaker 04: the use of charge back data at a particular place in the data flow, which was an unconventional practice. [00:06:50] Speaker 01: There was a claim that said, before you do a credit card transaction with a customer, you check that customer's credit score. [00:07:02] Speaker 01: And then you call up the credit score service. [00:07:08] Speaker 01: And then they look up the person's credit score. [00:07:11] Speaker 01: And then they tell the merchant. [00:07:13] Speaker 01: Here's the customer's credit score. [00:07:15] Speaker 01: Would that be patent eligible? [00:07:18] Speaker 04: If looking up the customer's credit score at that point in the process at the time of the invention was unconventional and if the complaint made specific factual averments to that point, then I would submit that at least on a motion to dismiss stage of a proceeding, which is where we are here, that those statements of fact taken as true [00:07:42] Speaker 04: would overcome the idea that it was unconventional because there are statements of fact to the contrary. [00:07:49] Speaker 02: If things were to our 101 doctrine than just, is it conventional? [00:07:54] Speaker 02: I'm not sure that I'm hearing any answer to what I understand Judge Chen's question to be. [00:08:01] Speaker 02: Put aside if it's conventional or not conventional. [00:08:03] Speaker 02: If all you've done is take an abstract idea and say, use a conventional, put aside conventional, my fault. [00:08:11] Speaker 02: here's an abstract idea, do it on a computer. [00:08:15] Speaker 02: Haven't we said that that is not eligible for patenting, putting aside whether it's conventional or non-conventional? [00:08:26] Speaker 04: These claims do not recite, do underwriting using a computer. [00:08:31] Speaker 02: Fine. [00:08:32] Speaker 02: How about my question? [00:08:34] Speaker 02: It's called a hypothetical. [00:08:36] Speaker 02: Okay. [00:08:37] Speaker 02: If it's just take the abstract idea and do it on a computer, [00:08:40] Speaker 02: Don't we know if we know anything? [00:08:42] Speaker 02: That's not that knowledgeable. [00:08:44] Speaker 04: Absolutely. [00:08:45] Speaker 04: No question that that would be an abstract idea. [00:08:47] Speaker 04: To take an abstract idea, use a computer to do it. [00:08:54] Speaker 04: Sure, under step one, that would be an abstract idea. [00:08:58] Speaker 02: But also under step two, we've said if all you had at step two is do it on a computer, you don't have a patent, right? [00:09:07] Speaker 04: I don't have any issue with that characterization of the law. [00:09:10] Speaker 04: Certainly, if you take an abstract idea, use a computer, I think you have an ineligible claim at that point. [00:09:18] Speaker 04: However, I do want to point, I do want to direct the court to another issue which was raised in our briefing, which has come up in multiple cases that I've been involved in. [00:09:29] Speaker 04: And it has to do with what to do with the patent examiner's findings. [00:09:33] Speaker 04: And I understand that the law is, and I have no [00:09:37] Speaker 04: quarrel with the law that this court, district court, they owe no deference to the patent examiner, certainly. [00:09:42] Speaker 04: This court is not obliged to abide by what a patent examiner does. [00:09:47] Speaker 04: However, in a context of a motion to dismiss, where there are underlying questions of fact, particularly what was conventional, is there preemption? [00:09:56] Speaker 04: These are questions of fact. [00:09:58] Speaker 04: The question arises, what do we do with the examiner's statements in that regard? [00:10:04] Speaker 04: which are set forth in the complaint, which are taken directly from the intrinsic record, those statements of fact from the patent examiner should be, under Motion to Dismissed standard, true just like any other factual statement in the complaint, and that is that they should be accepted as true, they should [00:10:21] Speaker 04: allow for the drawing of all reasonable inferences. [00:10:24] Speaker 01: Which statements in the complaint are you referring to? [00:10:27] Speaker 04: The statements in the complaint that recite exactly what defined what the patent examiner said during prosecution. [00:10:33] Speaker 04: Do you have those handy? [00:11:10] Speaker 04: One moment, Your Honor, bear with me, I apologize. [00:11:22] Speaker 02: Is it around 8304305? [00:11:25] Speaker 02: Thank you. [00:11:52] Speaker 04: Correct, yes, Your Honor. [00:11:54] Speaker 04: For example, paragraph 16, which you point to on appendix page 304, the statement that the examiner specifically addressed this issue of eligibility. [00:12:06] Speaker 04: And further down at the bottom of that paragraph 16, where he said that each of the claims includes an inventive concept, there is no preemption. [00:12:20] Speaker 04: you said that multiple times. [00:12:21] Speaker 01: So again, the question is... It's pretty conclusory, however, what he says. [00:12:25] Speaker 01: And if we disagree with his legal conclusion about step one on whether there's his claims, the focus of this claim is on an abstract idea, then I don't see how much of any of these other conclusory statements can really hold up. [00:12:49] Speaker 01: even under a motion to dismiss. [00:12:51] Speaker 04: That there is an inventive concept and that there is no preemption, those are fact questions. [00:12:56] Speaker 04: I understand, as to step one, the question of what is or is not abstract is a question of law. [00:13:01] Speaker 04: So his conclusions in that regard do not really have much of effect on a motion to dismiss. [00:13:07] Speaker 04: But his statements regarding preemption and his statements regarding conventionality or, in this case, patent-eligible subject matter is those are [00:13:18] Speaker 04: factual environments which, as made in the complaint, be taken as true and would support the inference that the factual statements that the patent examiner made would be accurate. [00:13:30] Speaker 04: So that was the point I wanted to raise in regard to patents. [00:13:35] Speaker 03: Mr. Fuller, I'm still having trouble understanding why we should consider this claim as anything more than directed to the abstract idea of underwriting. [00:13:48] Speaker 04: Because it provides a specific solution. [00:13:52] Speaker 04: There's a specific solution which is narrower, far narrower than just mere underwriting. [00:13:58] Speaker 03: The fact that it's been directed to a specific subset doesn't necessarily make that any different. [00:14:08] Speaker 03: I mean, that's the same as in Alice. [00:14:11] Speaker 04: I would counter that with the statement that if you're going to say that the claim is directed merely to underwriting, that there is zero preemption concern, which from Alice we know is the basis for the exceptions to patentability, there being no preemption would offset [00:14:38] Speaker 04: the idea that is directed to an abstract idea as broad as simple underwriting. [00:14:47] Speaker 03: I mean, it seems to me the thrust of your argument throughout has been that, well, this is new and different, and it's patent eligible because we're taking information about transactions and providing that information [00:15:06] Speaker 03: cash back transaction information, providing that upfront. [00:15:11] Speaker 03: And that's the difference. [00:15:13] Speaker 03: But that's exactly what underwriting is all about, correct? [00:15:19] Speaker 04: Underwriting as a concept is simply, let's prevent bad things from happening from this financial transaction. [00:15:28] Speaker 03: By giving people information before the fact. [00:15:32] Speaker 04: I wouldn't have any reason to disagree with Your Honor's assessment of underwriting in that regard. [00:15:41] Speaker 04: But even abstract ideas, again, because this Court has held many times, if there is an inventive concept behind it, which in this case is [00:15:54] Speaker 04: the unconventional application of the chargeback data. [00:15:56] Speaker 02: Just ask you real quick on page 25 you describe your claims as involving real time point of sale chargeback. [00:16:05] Speaker 02: Where is that your contention as to where in your claims does it require a real time point of sale chargeback? [00:16:13] Speaker 04: The term real time doesn't appear in the claims absolutely but the point of the claims like for example claim 20 point of sale. [00:16:21] Speaker 02: Is point of sale in the claims? [00:16:23] Speaker 04: The merchant terminal is... Is this a characterization of your plans? [00:16:28] Speaker 04: I believe so, yes. [00:16:30] Speaker 04: Yes, given the fact that there is a merchant terminal and the fact that the chargeback data is processed prior to or at the time of the processing of the transaction, ergo real-time. [00:16:41] Speaker 01: Okay, you've used up all your time, but we'll give you two minutes of your time, okay? [00:16:45] Speaker 01: Thank you. [00:16:47] Speaker 01: Let's hear from the other side. [00:17:02] Speaker 00: Thank you, Your Honors. [00:17:03] Speaker 00: May it please the Court? [00:17:05] Speaker 00: I think it's important in this case to just focus back on the claim language. [00:17:10] Speaker 00: We've been talking a little bit about the abstraction and how we would describe what is the claimed invention. [00:17:16] Speaker 00: But if we turn to the representative claim 20 of the 698 patent that's on the front cover of the blue and red brief and also that Appendix 75, we see that the claimed method recites receiving information regarding the transaction, processing the information, [00:17:32] Speaker 00: generating a report that includes prior charge back information and transmitting that report. [00:17:39] Speaker 00: So when we look at it and just say really true to the language of the claims, I don't even need to go through levels of abstraction or characterization of the claim language. [00:17:49] Speaker 00: What we really have here is a purported invention that is receiving, processing, and transmitting information. [00:17:57] Speaker 00: Now, we've had heard a couple of, and I think the courts hit the nail on the head about that being sort of generally an abstract idea of receiving and processing information. [00:18:08] Speaker 00: Now, Appellant talks about here, oh, well, it's out of the abstract idea realm because we are doing it on the front end. [00:18:17] Speaker 00: We're doing a processing beforehand. [00:18:19] Speaker 00: But if you look at the claim language again, the only limitation regarding prior to the transaction is the receipt of information regarding a transaction. [00:18:28] Speaker 00: That is received prior to. [00:18:29] Speaker 00: There's no prior to completion of the transaction. [00:18:33] Speaker 00: But otherwise, it's just processing, generating, translating. [00:18:36] Speaker 00: So when you talk about the receipt of information prior to completion of transaction, that is just timing of receipt. [00:18:44] Speaker 00: There's nothing about this invention that tells me the timing of the effect, how the system or the method is going to receive it, how it's going to process it, how it's going to transmit it. [00:18:57] Speaker 00: There's nothing about that limitation or that aspect of a purported invention that means all of a sudden this is not an abstract idea. [00:19:06] Speaker 00: And I think that's particularly important because when you look at and think about how the specification talks about the invention and the claims, it talks about consideration of a lot of different prior transaction information. [00:19:19] Speaker 00: Chargeback data is only one of those. [00:19:22] Speaker 00: But the system works sort of the same way regardless of what kind of data and at what point in time we are processing this data. [00:19:30] Speaker 00: For example, if you look at Appendix 64, [00:19:34] Speaker 00: It's the 698 patent at column 9, line 68. [00:19:37] Speaker 00: It says the apparatus and methods of this present invention can be utilized in order to provide information at any time during, prior to, or subsequent to a transaction. [00:19:52] Speaker 00: So we're talking about a system and method that's really agnostic to whether I'm getting stuff, I'm processing stuff on the front end or not. [00:19:59] Speaker 00: The processing, the receiving, and the transmitting is the same. [00:20:04] Speaker 00: And that ultimately leads to sort of the second step of Alice where we're talking about, is there some inventive concept? [00:20:11] Speaker 00: If we're just talking about receiving, processing, and transmitting information and data. [00:20:18] Speaker 00: In this case, it happens to specifically claim chargeback information, but there's nothing claimed or described in the patent, certainly not [00:20:27] Speaker 00: cited in the claim limitations that say, oh, because it's chargeback data, we have to treat it in a special way. [00:20:32] Speaker 00: I have to set up my system components in a different way. [00:20:36] Speaker 00: I have to do my processing in a different way. [00:20:39] Speaker 00: There is no limitation regarding how processing is done, how receiving is done, how transmitting is done. [00:20:45] Speaker 00: There is no limitations about what kind of components we're going to use, what sort of algorithms or software steps we're going to use that's different than just what a normal computer would use. [00:20:58] Speaker 00: And so I think, you know, we've heard a little bit about, oh, there is a specific solution or there is a new arrangement of existing pieces. [00:21:07] Speaker 00: I think your honors hit the point exactly where the new arrangement is a abstract idea. [00:21:15] Speaker 00: there is no new arrangement of any actual processing step or any actual components or anything in the computer system. [00:21:25] Speaker 00: So what we have here ultimately when we come down to it is generally the idea of receipt processing and transmitting of data. [00:21:34] Speaker 02: At A20, [00:21:36] Speaker 02: the district court in analyzing step two says underwriting always occurs before a transaction. [00:21:43] Speaker 02: I don't know if that's disputed, but it jumped out at me as potentially a fact finding on a rule 12 motion, possibly inconsistent with what's being alleged here. [00:21:56] Speaker 02: What's the basis for the district court making a statement like this on a rule 12 motion that underwriting always occurs before a transaction? [00:22:04] Speaker 00: So I think the court's characterization of the invention as underwriting, I think we've used whatever title we wanted. [00:22:14] Speaker 00: I'm not even sure we need to go and just characterize it as underwriting and then have a factual dispute as to what underwriting is. [00:22:22] Speaker 00: I think ultimately the point is what the claims are talking about and the way it's been characterized, even if you consider it as consideration prior to completion of a transaction. [00:22:33] Speaker 00: It's the illogical idea of if I'm going to use past data to inform a future decision. [00:22:39] Speaker 00: That's an abstract idea whether we want to say that's underwriting or characterize it as another sort of fundamental principle. [00:22:46] Speaker 00: That is just a logical mental kind of approach that you would do with anything, right? [00:22:51] Speaker 00: If I'm going to keep historical data, what do I use it for? [00:22:54] Speaker 00: I use it to inform future decisions. [00:22:56] Speaker 00: And the assessment of data at one point in some sort of logical timeline is really what, you know, appellant here is trying to claim its invention as. [00:23:07] Speaker 00: And I would go a step further to say that the claims are not even so limited, right, are so specific. [00:23:15] Speaker 00: It talks about receiving information about a transaction prior to completion of the transaction. [00:23:21] Speaker 00: And then there's separate processing, generating a report, and transmitting. [00:23:25] Speaker 00: And if you go back and read the specification, there are things where we do this, use this invention and use this method, approve the transaction, but then would later hold back delivery of the goods that were purchased because I now have this information was sent to the merchant. [00:23:44] Speaker 00: So there's nothing about it that has to be done in the [00:23:47] Speaker 00: the payment processing step. [00:23:49] Speaker 00: And as your honor pointed out, there is no point of sale limitation. [00:23:53] Speaker 00: There is nothing about processing at the point of execution of the sale. [00:23:58] Speaker 00: So I think that the underwriting characterization is a little bit of a red herring to try and manufacture a dispute of fact. [00:24:08] Speaker 01: Preemption. [00:24:09] Speaker 01: The opposing counsel says there's no preemption here of underwriting. [00:24:13] Speaker 01: So what's your response to that? [00:24:17] Speaker 00: Again, I think this is the beginning you play in the eligibility analysis of kind of the levels of abstraction. [00:24:27] Speaker 00: I think the way the district court characterized it is sort of viewing as generally what is being assessed here. [00:24:34] Speaker 00: I mean, what is being claimed? [00:24:36] Speaker 00: It's the receipt in processing and transmitting of information to assess risk. [00:24:43] Speaker 00: And that's what is being claimed here. [00:24:46] Speaker 00: And that does preempt it. [00:24:48] Speaker 00: in the realm of when we are considering chargeback information. [00:24:52] Speaker 00: So just because we've limited it to one type of data doesn't mean all of a sudden it's not an abstract idea. [00:24:58] Speaker 00: It's still just the concept of I'm going to take some kind of data and assess it prior to you to assess risk for a future transaction. [00:25:21] Speaker 04: Just very briefly, I did want to address one of the questions that you asked Judge Stark and that is how do we know that underwriting occurs prior to all transactions? [00:25:29] Speaker 04: We don't. [00:25:30] Speaker 04: There's nothing in the record that supports that notion and certainly nothing that supports the notion that the use of [00:25:38] Speaker 02: chargeback data at an early stage in the processing is in any way... Just to be clear, it just reports that underwriting always occurs before a transaction, which I read as, if you're going to do underwriting, you always do it before the transaction. [00:25:55] Speaker 02: It shouldn't actually say, we always do underwriting before a transaction. [00:26:03] Speaker 04: No, the patent talks at length about the fact that at the time of the invention was a huge problem with fraud, et cetera, which would suggest that there was no underwriting done prior to these transactions, which is the reason for all the fraud and losses to all the merchants than what the patent talks about. [00:26:24] Speaker 01: In your earlier talk with Judge Lynn, you had full agreement that underwriting occurs before you do a transaction. [00:26:32] Speaker 01: Did I misunderstand that colloquially? [00:26:36] Speaker 04: I'm not sure that I agree that underwriting always occurs before a transaction. [00:26:40] Speaker 04: I don't recall that being the question. [00:26:41] Speaker 04: But underwriting as a concept is, I think what Judge Lynn asked me, is that what is underwriting? [00:26:51] Speaker 04: What are we talking about when we talk about underwriting? [00:26:52] Speaker 04: We're just talking about preventing loss to a [00:26:58] Speaker 04: a merchant or a financial institution based on some sort of transaction. [00:27:03] Speaker 04: So I don't know if the timing was ever really discussed. [00:27:05] Speaker 03: Well, I certainly was left with the impression that you agreed with my observation that underwriting occurred before the transaction is completed. [00:27:16] Speaker 03: Are you backing away from that? [00:27:20] Speaker 04: I am backing away from that. [00:27:22] Speaker 04: I don't know that to be true. [00:27:24] Speaker 04: I think in certain circumstances, absolutely underwriting occurs before the transaction. [00:27:28] Speaker 04: But in other transactions, not. [00:27:34] Speaker 04: Thank you. [00:27:35] Speaker 02: Thank you, Mr. Fuller. [00:27:36] Speaker 04: The case is submitted.