Net MoneyIN, Inc. v. VeriSign, Inc.

Citations: 545 F.3d 1359; 88 U.S.P.Q. 2d (BNA) 1751; 2008 U.S. App. LEXIS 21827; 2008 WL 4614511Docket: 2007-1565

Court: Court of Appeals for the Federal Circuit; October 20, 2008; Federal Appellate Court

Original Court Document: View Document

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Net MoneyIN, Inc. (NMI) appeals a final judgment from the United States District Court for the District of Arizona, which invalidated claims from U.S. Patents No. 5,822,737 (‘737 patent) and No. 5,963,917 (‘917 patent). The court found claims 1, 13, and 14 of the ‘737 patent and claim 1 of the ‘917 patent invalid under 35 U.S.C. § 112, paragraph 2, due to a lack of corresponding structure for means-plus-function limitations. NMI’s motion to amend its complaint to include a claim for inducement of infringement was also denied, a decision the appellate court upheld as within the district court's discretion. However, the appellate court reversed the district court's ruling on claim 23 of the ‘737 patent, determining that an incorrect legal standard was applied regarding its anticipation under 35 U.S.C. § 102(a). The case centers on systems for processing credit card transactions online, highlighting the industry's early efforts to ensure secure electronic payments, as reflected in a 1995 document titled "Internet Keyed Payments Protocol" (iKP), which aimed to secure online transactions while maintaining the existing financial infrastructure. The appellate court’s decision affirms in part, reverses in part, and remands for further proceedings consistent with its findings.

The iKP reference outlines two standard payment protocols for online transactions. In the first protocol, a customer selects items from a merchant's website and sends credit card information to the merchant, who forwards it to their bank. The bank seeks authorization from the issuing bank and informs the merchant of the approval. The second protocol allows the customer to send an authorization request with their credit card information directly to the merchant's bank, which then seeks authorization and notifies the customer before the customer informs the merchant of the approval.

Mark Ogram, a patent attorney, identified two issues with these existing protocols: the transmission of sensitive information to unknown merchants and the stringent financial requirements imposed by credit card issuers on merchants. To address these shortcomings, he proposed a new payment model that introduces a fifth entity—a 'financial processing' entity—into the transaction process. This entity would receive the customer's credit card information and purchase amount, obtain authorization from the issuing bank, and notify both the customer and the merchant of the authorization.

Ogram filed a patent application on February 5, 1996, for this payment model, leading to the issuance of the ’737 and ’917 patents, which are assigned to his company, NMI. The ’737 patent describes a financial transaction system featuring components such as a first bank computer, a merchant computer, a customer computer, and the new financial processing computer, detailing their interactions and functions. NMI subsequently filed a lawsuit in 2001 against several competitors, including VeriSign, for infringing these patents related to Internet credit card processing.

The district court conducted a claim construction hearing and invalidated claims 1, 13, and 14 of the ’737 patent and claim 1 of the ’917 patent due to a lack of corresponding structure for means-plus-function limitations, rendering them indefinite under 35 U.S.C. § 112, ¶ 2. Following this, VeriSign filed two summary judgment motions. The first sought to establish that it did not induce infringement of NMI’s patents, to which NMI responded by requesting to amend its complaint to include a claim for inducement of infringement. The district court granted VeriSign's motion and denied NMI’s request to amend. The second motion argued that the iKP reference anticipated claim 23 of the ’737 patent under 35 U.S.C. § 102(a), which the court also granted, leading to a final judgment in favor of VeriSign. NMI appealed, and jurisdiction was established under 28 U.S.C. § 1295(a)(1). 

Claim construction and definiteness are both questions of law reviewed de novo. Summary judgment is appropriate only when there are no genuine issues of material fact. The denial of a motion to amend is reviewed for abuse of discretion. The court found claims 1, 13, and 14 of the ’737 patent and claim 1 of the ’917 patent indefinite, addressing them separately, particularly noting that claim 1 of the ’737 patent lacked disclosed structure for the claimed function of generating an authorization indicia. NMI contended that the claim provided sufficient structure, challenging the district court's means-plus-function classification.

NMI does not present arguments for claims 13 or 14, implying these claims depend on claim 1. NMI asserts that if the generating means in claim 1 is interpreted as a means-plus-function element, the specification provides adequate structure to make the claim definite. VeriSign counters that the district court correctly found the claim lacks sufficient structure to counter the means-plus-function presumption and that the specification does not provide enough structure to perform the claimed function. Under 35 U.S.C. § 112, paragraph 6, a claim element expressed as "means" is presumed to be in means-plus-function format unless it explicitly recites sufficient structure to perform the function. NMI argues that the phrase “first bank computer containing financial data” provides adequate structure to rebut this presumption. However, VeriSign contends that the claim's vague reference to a "bank computer" does not satisfy the requirement due to the diverse configurations and programming of computers. The court agrees with VeriSign, stating that the bank computer is not identified as the means for generating authorization indicia, but rather as a broader category that includes such means. The claim fails to specify any component of the bank computer that would rebut the presumption. Consequently, the district court's conclusion that claim 1 is drafted in means-plus-function format stands. NMI further claims that the specification describes a "bank computer," but the court notes that it does not require detailing the computer's internal structure to establish sufficient disclosure.

Claim 1(a) specifies that the 'bank computer' includes 'financial data' such as 'customer account numbers and available credit data.' A skilled individual would recognize that this computer would be programmed to compare account and amount data and generate an authorization indicia if credit is available. However, VeriSign argues that the district court found the ’737 patent's specification inadequate as it does not disclose the structure that corresponds to the generating function of the claimed bank computer. According to patent law, an applicant using means-plus-function language must sufficiently describe the corresponding structure in the specification. Failure to do so results in not distinctly claiming the invention as required by 35 U.S.C. § 112, paragraph 2. Courts have consistently mandated that the disclosed structure for computer-implemented inventions must be more than a general-purpose computer, as it does not limit the claim's scope to the specific structures or actions performing the function. Therefore, if the only disclosed structure is a general-purpose computer without an algorithm for the claimed function, the claim is invalid. In this case, the specification lacks an algorithm for how the general-purpose bank computer generates an authorization indicia, leading the district court to correctly determine that claims 1, 13, and 14 are indefinite under § 112, paragraph 2.

Regarding the ’917 patent, Claim 1 describes a financial transaction system with a financial processing computer that automatically responds to orders by receiving customer account and amount data from both the customer and merchant computers. While the district court interpreted this claim element as means-plus-function, it construed the function narrowly, requiring that both types of data must come from both computers. NMI disputes this interpretation, asserting that the claim language allows for a broader interpretation where data can come from either computer. VeriSign defends the district court’s construction, stating it aligns with the ordinary meaning of the claim language.

NMI contends that the function interpretation should allow data to originate from either the merchant or customer computer, arguing for a broader scope than what was presented in the district court. However, this new interpretation is deemed improper for appeal, as it deviates from NMI's earlier assertion that the financial processing computer receives customer account data from the customer computer and amount data from the merchant computer. As a result, the district court's construction is affirmed, with NMI acknowledging that no structure is disclosed in the specification to perform the claimed function, leading to the claim's indefiniteness under 35 U.S.C. § 112, 2. Thus, the district court's invalidation of claim 1 of the ’917 patent is upheld.

Regarding claim 23 of the ’737 patent, which describes an Internet payment system comprising five specific links, the district court found all elements present in the iKP reference, although spread across two examples. The court ruled that this combination constituted anticipation under 35 U.S.C. § 102(a). NMI argues that this approach of combining examples was erroneous, while VeriSign contends that the district court correctly utilized teachings from a single document to disclose all five links, supporting their claim of anticipation as sufficient under established legal standards.

A reference must demonstrate that it anticipates a claimed invention under Section 102(a) by showing all elements of the invention described within a single prior art document. Anticipation requires not only a full disclosure of the claim elements but also that these elements are arranged as specified in the claim. This principle is supported by precedent, such as in Xerox and Advanced Display Systems, which assert that every element must be disclosed in the context of the claimed arrangement. The requirement extends beyond simple ordering of elements; it encompasses the necessity for the entire arrangement or combination of elements to match the claims' specifications. For instance, in Lindemann Maschinenfabrik, a prior reference was deemed non-anticipatory because it described an entirely different device with distinct parts and operations. Similarly, in Ecolochem, the court determined that a prior art reference involving hydrogen could not anticipate a claim involving hydrazine since the relevant figure and text did not connect the two, thus failing to meet the 'arranged as in the claim' requirement.

A prior art reference must disclose all elements of a claimed invention arranged as specified in the claim to anticipate it under 35 U.S.C. § 102. Recent case law, including Finisar Corp. v. DirecTV Group, emphasizes that mere disclosure of individual elements is insufficient; the elements must be presented in the same configuration as claimed. In the case at hand, the iKP reference described two distinct protocols for processing Internet credit card transactions, but failed to show all five links of claim 23 arranged as required. The district court incorrectly concluded that claim 23 was anticipated by combining parts of these separate protocols. While minor differences exist between the protocols and the claimed invention, such differences relate to issues of obviousness under 35 U.S.C. § 103, not anticipation. Rejections under § 102 are valid only when the prior art identically discloses the claimed subject matter, not when parts of the invention can be supplemented or combined from distinct teachings. The prior art must clearly and unequivocally disclose the claimed invention without requiring the artisan to piece together unrelated elements.

The district court's finding of anticipation was reversed due to an error in combining different parts of the iKP reference, which did not disclose all limitations of claim 1 as arranged in the claim. NMI had initially asserted a claim for inducement of infringement under 35 U.S.C. § 271(b) but abandoned this claim in its Third Amended Complaint. When VeriSign subsequently moved for partial summary judgment on inducement, NMI sought to amend its complaint to reintroduce this claim, arguing that VeriSign's motion indicated consent to litigate the issue. The district court denied NMI's motion to amend and granted VeriSign's motion for partial summary judgment, leading NMI to argue that the court abused its discretion. However, the court maintained it was within its discretion to deny the amendment since VeriSign's motion was based on waiver rather than the merits of inducement. The court emphasized that amendment is mandatory only when an issue is tried with the parties' express or implied consent. In this case, it concluded that VeriSign did not consent to litigate the inducement claim, as its motion pointed out NMI's failure to assert such claims in their Third Amended Complaint and did not address the merits of inducement. Thus, the court determined that VeriSign's intent was to prevent NMI from reasserting inducement claims at trial.

The district court interpreted NMI's motion as an attempt to formally eliminate a particular claim, not as a consent to litigate the issue, contrary to the Plaintiff's assertion. The court had discretion to deny NMI's request to amend its complaint for a fourth time, particularly since the amendment sought to introduce a claim of inducement of infringement that NMI had previously disavowed. This request was made twenty months past the amendment deadline and four months after discovery had closed. The court noted that granting the motion would lead to significant delays and prejudice to the defendant, VeriSign. Consequently, it concluded that denying the motion did not constitute an abuse of discretion, as such denial is permissible if the amendment would be futile, cause undue prejudice, or be sought in bad faith. The ruling resulted in an affirmation in part, a reversal in part, and a remand for further proceedings, with no costs assigned.