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Smart Systems Innovations, LLC v. Chicago Transit Authority

United States District Court, N.D. Illinois, Eastern Division

July 10, 2015



EDMOND E. CHANG, District Judge.

Since 2014, hordes of people have boarded subways and buses in the Chicago area by "tapping" fare-readers with the Ventra, a "contactless" card loaded with transit funds that also functions as a bank account-linked debit card. In this lawsuit, Plaintiff Smart Systems Innovations, LLC alleges that Defendants, the Chicago Transit Authority and three companies that the CTA contracted with to develop the Ventra system (Cubic Corporation, Cubic Transportation Systems, and Cubic Transportation Systems Chicago), are infringing on five of Smart Systems' patents. Smart Systems says that the patents cover the "open payment" system on which Ventra is based.[1] Defendants move for judgment on the pleadings under Federal Rule of Civil Procedure 12(c) as to four of these patents, arguing that they assert rights to non-patentable subject matter in violation of the Patent Act, 35 U.S.C. § 101. R. 50. For the reasons that follow, the Defendants' motion is granted.

I. Background

An open-payment fare system allows riders to conveniently and quickly access mass transit by using existing bankcards. Open payment eliminates the need for, and added operational cost of, dedicated fare-cards (or, to get even more antiquated, tokens or paper tickets). Smart Systems alleges that it was "an early developer of open payment technologies for public transit" in this country. R. 42, Am. Compl. ¶ 10. After observing the successful implementation of the technology in Seoul, South Korea, [2] Smart Systems sought to replicate that success in the United States, partnering with a Korean company before becoming "the owner of the fundamental United States patent enabling open payments for transit." Id. ¶ 11. Smart Systems applied for and was granted five related patents in total, the key claims of which are described next.

A. The Unchallenged '044 Patent

The first patent was issued in October 1998 by the United States Patent and Trademark Office (PTO). It is numbered 5, 828, 044 (the '044 patent) and entitled "Non-Contacting Type Radio Frequency Recognizing Credit Card System, " and was granted to a Korean firm, Kookmin Credit Card Co., Ltd. Id. ¶¶ 24, 26. Kookmin assigned all right and title in the '044 patent to a company related to Smart Systems in November 2004, which then assigned an exclusive license to Smart Systems in June 2011. Id. ¶ 26. The '044 patent involves technology that transmits card numbers through "radio frequency" to a "card terminal, " which then sends the number data "to a wire-connected computer" that checks against "a black list, to make a decision for issuing an approval of a transaction." R. 42-1, '044 Patent at Abstract. (Aside from one drawing that diagrams a subway turnstile-regulation system, this patent does not appear to be necessarily limited to contactless credit card transactions solely in the mass transit context. See id. at Fig. 7.) Defendants do not contend, at least at the pleadings stage, that this particular patent is invalid.

B. The Challenged '003, '617, '816, and '390 Patents

Defendants do seek judgment as to the remaining four patents. Two of these are entitled "Learning Fare Collection System for Mass. Transit, " the first issued by the PTO as Patent No. 7, 566, 003 (the '003 patent) to Smart Systems in July 2009, and the second as Patent No. 7, 568, 617 (the '617 patent) in August 2009. Id. ¶¶ 27, 28. They similarly claim a "bankcard terminal" for gating access to "a first transit system, " comprised of: an "interface" for uploading and downloading information from a "processing system"; a "bankcard reader"; a "processor, coupled to the bankcard reader and to the first interface, to receive the bankcard data" and generate a "hash identifier"; "memory" to "hold" a list or set of bankcard records; and a "second interface." R. 42-1, '003 Patent at 14:58-15:14 (Claim 1); R. 42-1, '617 Patent at 11:6-29 (Claim 1). All in all, these claims describe a method for "validating entry" into a transit network, by first "determining whether [a] currently presented bankcard is contained in the [stored set or list] of bankcard records" and then, after so "verifying" the generated identifier, "denying access" if the proffered card is invalid and not in the records. '003 Patent at 15:50-16:6 (Claim 14); '617 Patent at 11:62-12:18 (Claim 13).

The third and fourth patents at issue incorporate the use of slightly more complicated mass transit fares, including recognition of multiple, distinct balances on a single card and time-based tickets familiar to many urban commuters, like weekly and monthly passes. The PTO issued Patent No. 8, 505, 816 (the '816 patent), entitled "Public Transit System Fare Balance Processor for Multi-Balance Funding, " to Smart Systems in August 2009. Am. Compl. ¶ 29. This patent claims a "method of funding transit rides... from a plurality of funding sources, " employing a "processor" that stores "a plurality of balance classes" and "fare rules" in memory, receives bankcard identifier data, and then "infer[s]... a resultant fare." R. 42-1, '816 Patent at 25:11-38 (Claim 1). Finally, in March 2014, Smart Systems was issued Patent No. 8, 662, 390 (the '390 patent), also named "Public Transit System Fare Balance Processor for Multi-Balance Funding." Am. Compl. ¶ 30. This final patent claims a "method of using a bankcard as an identifying token for time-based mass transit fare products, without using writeable memory on the bankcard, " accomplished by "processing" a "timepass record" as well as "presentation records" comprising of a "timestamp" and an "identifier." R. 42-1, '390 Patent at 24:42-25:5 (Claim 1).

C. Procedural History

In its amended complaint, filed in January 2015, Smart Systems alleged that the Ventra system infringed its patents, either literally or under the doctrine of equivalents, as Defendants knew about the '044 patent since 2005 and the remaining patents since as early as 2012. See Am. Compl. at Counts 1-5. Defendants, for their part, have raised a number of counterclaims, including non-infringement, invalidity of the patents as they assert rights to non-patentable, abstract ideas, as well as attorney's fees and costs. See R. 43, Answer at Counterclaims 1-2. Defendants have moved for judgment on the pleadings on the invalidity question as to the four latter patents. R. 50, Mot. J. Pleadings. After reviewing the parties' briefs, the Court requested additional submissions, in particular directing Smart Systems to point to actual claim language from the patents themselves (which was almost entirely missing in its initial memorandum of law) to justify why the patents adequately "cover more than abstract ideas and involve inventive concepts." R. 62, Minute Entry dated May 22, 2015.

II. Standard of Review

A motion for judgment on the pleadings under Fed.R.Civ.P. 12(c) challenges "the sufficiency of the complaint to state a claim upon which relief may be granted." Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). "[A] complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). These allegations "must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555. The allegations that are entitled to the assumption of truth are those that are factual, rather than mere legal conclusions. Iqbal, 556 U.S. at 678-79.

Patents are presumed to have been validly issued, and a party bringing a Rule 12(c) motion challenging one's validity must point to clear and convincing evidence (in the pleadings themselves) demonstrating that the patent covers ineligible material. See Microsoft Corp. v. i4i Ltd. P'ship, 131 S.Ct. 2238, 2242 (2011) (extending § 282 of the Patent Act, which lays out assumption of validity and burden of proof, to invalidity defenses); accord Vehicle Intelligence & Safety LLC v. Mercedes-Benz USA, LLC, ___ F.Supp.3d ___, ___, 2015 WL 394273, at *2 (N.D. Ill. Jan. 29, 2015) (applying standard to motions for judgment on the pleadings). Because courts may consider documents incorporated by reference as well as take judicial notice of matters of public record in evaluating motions for judgment on the pleadings, district courts may look to the contents of the patents themselves without ...

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