COURTS CONTINUE TO WHITTLE AWAY AT BUSINESS METHOD PATENTS
Western Union Payment System Patents Found Obvious and Unpatentable

by: John R. Harris

The federal courts continue to whittle away at the prospects for protecting software and business methods with patents. Dec. 7, 2010 was a day of infamy for Western Union’s four patents relating to methods and systems of sending money through a financial services organization – all four patents were ruled invalid by U.S. Court of Appeals for the Federal Circuit (CAFC). The system in all four patents relates to money transfer services such as those offered by Western Union through retail locations where a customer may identify a recipient and tender an amount to be delivered to the recipient.

Western Union sued MoneyGram Payment Systems, Inc. in 2007 and won a $16.5 million jury award. MoneyGram appealed to the CAFC on the ground that the patents were invalid for obviousness over certain prior art known as the “Orlando Valuti” system. Western Union acquired Orlando Valuti in 1997 and modernized the system for its own purposes by including an electronic transaction fulfillment device (ETFD) that communicated via the Internet. MoneyGram argued that the Western Union inventions were merely the known Orlando Valuti payment system of providing a customer with direct access to a customer service representative, modified by replacing a fax component (well known) with a keypad to enter a security code for transmission over the Internet.

The CAFC agreed with MoneyGram and held all four Western Union patents invalid for obviousness. Western Union made several arguments that its inventions were not obvious, particularly that it was not readily apparent how to substitute the ETFD keypad for code entry for the fax machine. Western Union also argued that there was no motivation to combine a known ETFD with the known Orlando Valuti system, and that the commercial success of the Western Union system should have been taken into account. (The commercial success of a product can sometimes be used to help show nonobviousness of an invention; evidence of commercial success is known as a “secondary consideration” of nonobviousness.)

The CAFC was not persuaded at all by commercial success as a secondary consideration of nonobviousness, mainly because Western Union had not shown a sufficient connection or “nexus” between the claimed invention and the commercial success.

In June 2010, the U.S. Supreme Court ruled in its Bilski v. Kappos decision that business method or other process-type inventions are not patentable subject matter unless the process is tied to a particular machine or results in the transformation of an article of some nature. That case and the Western Union v. MoneyGram case highlight the difficulties that continue to be encountered in protecting business and e-commerce type technologies that rely on computers, telecommunications, the Internet, etc. to carry out arguably novel business processes. Businesses seeking to protect their investments in these areas of technology should pay careful attention to the requirements for obtaining valid patents in this area.

The case can be found here.

For further information, contact the author.

This information is presented for educational purposes and is not intended to constitute legal advice. Opinions expressed are those of the author and not of Morris, Manning & Martin, LLP; see disclaimer at http://www.www.mmmtechlaw.com/privacy-policy-and-disclaimer/. Contact John Harris for more information at jharris@mmmlaw.com.