Reich & Tang Deposit Solutions LLC v. Island IP LLC

I. Executive Summary and Procedural Information

• Parties & Counsel:
  • Plaintiff: Reich & Tang Deposit Solutions, LLC and Reich & Tang Deposit Networks, LLC (Delaware)
  • Defendant: Island Intellectual Property LLC and Double Rock Corporation (Delaware)
  • Plaintiff’s Counsel: Morris, Nichols, Arsht & Tunnell LLP; Paul Hastings LLP
• Case Identification: 1:16-cv-01085, D. Del., 11/23/2016
• Venue Allegations: Venue is alleged to be proper as Defendants are organized under the laws of Delaware, are subject to personal jurisdiction, and have previously availed themselves of the venue in prior lawsuits.
• Core Dispute: Plaintiff, a former licensee, seeks a declaratory judgment that Defendants' patents related to computerized cash management accounting techniques are invalid as being directed to patent-ineligible abstract ideas under 35 U.S.C. § 101 in light of the Supreme Court's decision in Alice Corp. v. CLS Bank Int'l.
• Technical Context: The technology lies in the financial services sector, specifically computer-implemented systems for managing "sweep" accounts to maximize FDIC insurance coverage and interest income by distributing client funds across multiple banking institutions while navigating federal banking regulations.
• Key Procedural History: Plaintiff licensed a portfolio of Defendants' patents for years, paying millions in royalties. Following the Supreme Court's 2014 Alice decision, Plaintiff ceased royalty payments, asserting the patents were invalid. Defendants subsequently sued Plaintiff in New York state court for breach of the license agreement. Plaintiff then filed this federal action seeking a declaration of patent invalidity. The complaint notes that in prior litigation against a third party, a court upheld related patents by analogizing them to claims in Ultramercial, a Federal Circuit decision that was later vacated and reversed by the Supreme Court post-Alice.

Case Timeline

Date	Event
1998-10-21	Earliest Priority Date for Patents-in-Suit ('551', '734', '131', '246')
1999-10-08	Earliest Priority Date for Patents-in-Suit ('688', '640', '821', '916')
2007-06-22	Earliest Priority Date for Patents-in-Suit ('383', '324')
2009-04-14	U.S. Patent No. 7,519,551 Issues
2010-03-16	U.S. Patent No. 7,680,734 Issues
2010-05-11	U.S. Patent No. 7,716,131 Issues
2010-08-03	U.S. Patent No. 7,769,688 Issues
2010-10-05	U.S. Patent No. 7,809,640 Issues
2011-04-26	U.S. Patent No. 7,933,821 Issues
2012-02-14	U.S. Reissue Patent No. RE43,246 Issues
2012-11-13	U.S. Patent No. 8,311,916 Issues
2013-02-26	U.S. Patent No. 8,386,383 Issues
2014-05-13	U.S. Patent No. 8,612,324 Issues
2014-06-19	U.S. Supreme Court decides Alice Corp. v. CLS Bank Int'l
2015-05-07	Plaintiff notifies Defendants it is repudiating the license agreement
2015-06-23	Defendants sue Plaintiff in New York state court for breach of contract
2016-11-23	Complaint for Declaratory Judgment filed in D. Del.

II. Technology and Patent(s)-in-Suit Analysis

U.S. Patent No. 7,519,551 - "Systems and methods for administering return sweep accounts"

• Issued: April 14, 2009

The Invention Explained

• Problem Addressed: The patent's background describes how federal banking regulations create a conflict for depositors: "demand" accounts (e.g., checking) offer unlimited transfers but cannot pay interest, while interest-bearing "non-demand" accounts (e.g., money market accounts) are subject to strict monthly limits on the number of withdrawals ('551 Patent, col. 1:19-54).
• The Patented Solution: The invention proposes a computer-implemented method where a third-party agent manages client funds held in a demand deposit account at a bank. The agent "sweeps" funds between the client's account and a pooled, interest-bearing money market deposit account, also held at the client's bank. A centralized database tracks all transactions, allowing the system to calculate net fund movements and distribute interest to clients, thereby providing both unlimited transfers and interest income while keeping deposits on the client bank's balance sheet ('551 Patent, Abstract; col. 3:7-50).
• Technical Importance: This approach provided a method for banking institutions to offer competitive, interest-bearing products that mimicked the flexibility of a checking account, addressing regulatory constraints that limited their product offerings ('551 Patent, col. 2:25-34).

Key Claims at a Glance

• The complaint challenges the validity of the patent generally, with independent claim 1 being representative of the method claims.
• Essential elements of claim 1 include:
  • A computer-implemented method for managing funds for client accounts held at a first banking institution.
  • Maintaining a plurality of FDIC-insured and interest-bearing aggregated deposit accounts at different banks, including one at the first banking institution.
  • Maintaining an electronic database with information on client funds held in the aggregated deposit accounts.
  • Administering the accounts to transfer client funds to an aggregated account at the first bank.
  • Except for clients exceeding a specified balance, in which case their additional funds are transferred to an aggregated account at a different bank.
  • Withdrawing funds from an aggregated deposit account more than six times a month while preserving its insured and interest-bearing status.
  • Updating the electronic database based on these transfers.
• The complaint does not explicitly reserve the right to assert dependent claims but seeks a declaration that all claims are invalid (Compl. ¶152).

U.S. Patent No. 7,680,734 - "Money fund banking system"

• Issued: March 16, 2010

The Invention Explained

• Problem Addressed: The patent addresses the same regulatory problem as the '551 Patent: federal law (specifically, 12 C.F.R. § 329.2) prohibits paying interest on "demand deposits," which are defined as accounts permitting more than six certain types of withdrawals per month ('734 Patent, col. 1:19-41).
• The Patented Solution: The patent describes a computer-administered system that manages a plurality of client accounts held at a banking institution. It uses a single, pooled, insured money market deposit account to hold client funds. A database tracks all client deposits and withdrawals, calculates the net transaction across all accounts, and uses that net figure to either deposit funds into or withdraw funds from the single pooled account. This structure allows clients to make unlimited withdrawals (including by debit card) from their individual accounts while the system ensures the pooled account remains compliant with withdrawal limits, thereby allowing interest to be earned and distributed to clients ('734 Patent, Abstract; Fig. 1).
• Technical Importance: The system aimed to provide depositors with the benefits of both interest-bearing and demand accounts, overcoming regulatory restrictions that traditionally forced a choice between earning interest and having transactional flexibility ('734 Patent, col. 2:7-18).

Key Claims at a Glance

• The complaint challenges the validity of the patent generally, with independent claim 1 being representative of the method claims.

• Essential elements of claim 1 include:

  • A method for managing client accounts.
  • Accessing a database with information on client funds held in one or more FDIC-insured and interest-bearing aggregated deposit accounts at one or more banking institutions.
  • Administering deposits to and withdrawals from the client accounts, including more than six withdrawals per month, with at least one made by debit card.
  • Determining a net transaction on a regular basis.
  • Determining whether to deposit to or withdraw from the aggregated accounts based on the net transaction.
  • Making more than six withdrawals per month from an aggregated account via an intermediate bank.
  • Updating the database.

• The complaint seeks a declaration that all claims are invalid (Compl. ¶158).

• Multi-Patent Capsule: U.S. Patent No. 7,716,131

  • Patent Identification: U.S. Patent No. 7,716,131, "Money fund banking system with multiple banks and/or rates," issued May 11, 2010.
  • Technology Synopsis: This patent describes a computerized system for managing client funds across multiple deposit accounts at different banks to provide FDIC insurance in excess of the statutory maximum for a single institution. The system determines whether a client's balance exceeds a specified amount and, if so, distributes the excess funds to an account at a different preselected bank, while allowing more than six transactions a month ('131 Patent, Abstract; col. 2:1-11).
  • Asserted Claims: Independent claims 1, 12, 23, and 34 are representative.
  • Accused Features: Plaintiff seeks a declaratory judgment that the patent is invalid as directed to the abstract idea of allocating funds among multiple institutions for risk-management purposes, implemented on generic computer components (Compl. ¶141, 161-162).

• Multi-Patent Capsule: U.S. Patent No. 7,769,688

  • Patent Identification: U.S. Patent No. 7,769,688, "Money fund banking system," issued August 3, 2010.
  • Technology Synopsis: This patent claims a computer program product stored on a computer-readable medium for executing a method of managing client funds. The method is substantially similar to that described in the '640 patent, involving the use of one or more aggregated accounts, processing more than six client transfers per month by various means (credit card, debit card, check, ACH), and calculating net transfers more than six times per month using an intermediate bank ('688 Patent, Abstract).
  • Asserted Claims: Independent claim 1 is representative.
  • Accused Features: Plaintiff seeks a declaratory judgment that the patent is invalid, arguing it is substantially identical to the '640 patent's system claim and is directed to an abstract accounting practice implemented with a generic computer (Compl. ¶139, 167-168).

• Multi-Patent Capsule: U.S. Patent No. 7,809,640

  • Patent Identification: U.S. Patent No. 7,809,640, "Money fund banking system," issued October 5, 2010.
  • Technology Synopsis: This patent claims a system for managing client funds using more than one aggregated account. It describes processing more than six client transfers per month by means including credit card, debit card, check, or ACH, and calculating net transfers more than six times per month using an intermediate bank ('640 Patent, Abstract).
  • Asserted Claims: Independent claim 1 is representative.
  • Accused Features: Plaintiff seeks a declaratory judgment that the patent is invalid as directed to an abstract accounting practice, merely adding that client transfers can be made by various means and implemented with a generic computer (Compl. ¶138, 173-174).

• Multi-Patent Capsule: U.S. Patent No. 7,933,821

  • Patent Identification: U.S. Patent No. 7,933,821, "Systems and methods for administering return sweep accounts," issued April 26, 2011.
  • Technology Synopsis: This patent describes a system for managing funds across multiple institutions where funds are allocated up to a specified amount in one account, with excess funds going to a second account. The system determines which account to withdraw from for client transactions (which may exceed six per month) and determines a net transaction for each aggregated account to enable fund transfers among them more than six times a month ('821 Patent, Abstract).
  • Asserted Claims: Independent claims 1, 12, 22, and 32 are representative.
  • Accused Features: Plaintiff seeks a declaratory judgment that the patent is invalid as directed to an abstract accounting practice implemented with a generic computer (Compl. ¶144, 179-180).

• Multi-Patent Capsule: U.S. Patent No. 8,311,916

  • Patent Identification: U.S. Patent No. 8,311,916, "Systems and methods for administering return sweep accounts," issued November 13, 2012.
  • Technology Synopsis: This patent describes a system for managing client funds held in aggregated accounts at more than one institution, providing "non-penalized liquidity." The system transfers funds to or from the aggregated accounts more than six times a month using a demand deposit account to facilitate client transactions ('916 Patent, Abstract).
  • Asserted Claims: Independent claims 1, 12, and 23 are representative.
  • Accused Features: Plaintiff seeks a declaratory judgment that the patent is invalid as directed to an abstract accounting practice implemented with a generic computer (Compl. ¶142, 185-186).

• Multi-Patent Capsule: U.S. Patent No. 8,386,383

  • Patent Identification: U.S. Patent No. 8,386,383, "Money fund banking system with multiple banks and/or rates," issued February 26, 2013.
  • Technology Synopsis: This patent describes a system where funds are held in aggregated accounts at more than one institution and are allocated among those accounts based on a maximum percentage. The system processes client transactions, which may exceed six per month, and determines whether to make deposits or withdrawals from the aggregated accounts ('383 Patent, Abstract).
  • Asserted Claims: Independent claims 1 and 12 are representative.
  • Accused Features: Plaintiff seeks a declaratory judgment that the patent is invalid as directed to an abstract accounting practice implemented with a generic computer (Compl. ¶140, 191-192).

• Multi-Patent Capsule: U.S. Patent No. 8,612,324

  • Patent Identification: U.S. Patent No. 8,612,324, "Systems and methods for administering return sweep accounts," issued May 13, 2014.
  • Technology Synopsis: This patent describes a system for managing client funds held in aggregated accounts at more than one institution, with funds allocated across multiple accounts to provide "non-penalized liquidity." The system determines transfers from an aggregated account more than six times in a month while maintaining the account as insured and interest-bearing, using a demand deposit account ('324 Patent, Abstract).
  • Asserted Claims: Independent claims 1, 12, and 23 are representative.
  • Accused Features: Plaintiff seeks a declaratory judgment that the patent is invalid as directed to an abstract accounting practice implemented with a generic computer (Compl. ¶145, 197-198).

• Multi-Patent Capsule: U.S. Reissue Patent No. RE43,246

  • Patent Identification: U.S. Reissue Patent No. RE43,246, "Money fund banking system," issued February 14, 2012.
  • Technology Synopsis: This patent, a reissue of U.S. Patent No. 6,374,231, describes a method for managing multiple client demand accounts whose funds are held in a single insured money market deposit account. The method involves using a database to administer client transactions, determining an aggregate net transaction, using that net transaction to move funds to or from the single money market account, and distributing interest (RE'246 Patent, Abstract). The complaint identifies this patent's claims as representative of the entire portfolio (Compl. ¶132).
  • Asserted Claims: Independent claims 1 and 4 are representative.
  • Accused Features: Plaintiff seeks a declaratory judgment that the patent is invalid, alleging it claims generic and conventional steps reflecting abstract accounting and business practices implemented on a generic "computer" and "database" (Compl. ¶132, 203-204).

III. The Accused Instrumentality

Product Identification

• The patented methods for cash management as claimed in the patents-in-suit. This is a declaratory judgment action for invalidity, and the Plaintiff does not identify a specific accused product but rather challenges the validity of the patents it formerly licensed.

Functionality and Market Context

• The complaint alleges that the patents claim fundamental and long-standing economic and business practices for managing money (Compl. ¶98, 111, 118-119). The functionality described involves using generic computers to implement methods of: (1) aggregating customer funds to address regulatory limits; (2) allocating funds across multiple accounts and institutions to extend FDIC insurance beyond the limit for a single institution; and (3) managing withdrawals from savings and money market accounts to maintain the ability to award interest under federal regulations (Compl. ¶91-92, 125). Plaintiff alleges these are conventional business practices that have been known and established in the banking industry for decades, citing advisory opinions from the FDIC, Federal Reserve, and SEC from as early as 1975 (Compl. ¶123-128).

IV. Analysis of Infringement Allegations

As this is a complaint for declaratory judgment of invalidity under 35 U.S.C. § 101, no traditional infringement claim chart is presented. Instead, the complaint provides a chart that analyzes a representative claim to argue it is directed to an abstract idea implemented with generic computer components. The chart below summarizes this invalidity argument as presented in the complaint.

• RE43,246 Patent Invalidity Allegations (as characterized by Plaintiff)

The complaint presents a chart breaking down the elements of Claim 1 of the '246 patent to illustrate its argument that the claim recites an abstract business method implemented with generic computer components (Compl. ¶133).

Claim Element (from RE43,246, Claim 1)	Plaintiff's Characterization as an Abstract Practice	Complaint Citation
A method for managing a plurality of demand accounts...in a single insured money market deposit account, comprising:	Business Method: Managing an insured, aggregated account	¶133
providing a database having client information for each account;	Administer multiple client accounts (with a database)	¶133
administering clients' deposits to and withdrawals from each of their demand accounts; authorizing or rejecting the use of funds...	[part of administering accounts]	¶133
determining the net transaction aggregated across all said demand account deposits and withdrawals on a regular periodic basis;	Determining a net deposit or withdrawal based on client transfers	¶133
using the determination of the net transaction to deposit funds to or withdraw funds from said single insured money market deposit account;	[part of determining net deposit/withdrawal]	¶133
distributing interest paid on said single money market deposit account to said clients' demand accounts; and	Distribute interest to clients and update the books (with a database)	¶133
updating the database for each client's deposit and authorized demand payment.	[part of distributing interest/updating books]	¶133

• Identified Points of Contention: The central dispute is not over whether a product meets the claim limitations, but whether the claim limitations themselves describe patent-eligible subject matter.
  • Scope Questions: A primary legal question will be whether the claims, when considered as a whole, are "directed to" the abstract idea of managing financial accounts to circumvent banking regulations, a practice Plaintiff alleges is a fundamental economic practice (Compl. ¶111, 126).
  • Technical Questions: A key question for the court will be whether the recitation of computer elements like a "database" and the performance of steps like "determining" and "updating" add a sufficient "inventive concept" to transform the abstract idea into a patent-eligible application. Plaintiff argues these are merely generic computer functions applied to the abstract idea (Compl. ¶112, 132, 146).

V. Key Claim Terms for Construction

• The Term: "database"
• Context and Importance: This term appears in the representative claim of the '246 Patent and is central to Plaintiff's invalidity argument. Plaintiff characterizes the claimed "database" as a generic computer element used to implement the abstract business method of bookkeeping and account administration (Compl. ¶132-133). The patent eligibility of the claims may turn on whether "database" is construed as a generic data repository or as a component of a specific, non-conventional technological arrangement.
• Intrinsic Evidence for Interpretation:
  • Evidence for a Broader Interpretation: The complaint alleges that during prosecution of numerous related patents, the patentees argued that claim elements could be implemented in generic ways (Compl. ¶105). For example, with respect to "obtaining information," the patentees allegedly stated it could be obtained from "one or more databases" or an "external source," suggesting a broad, non-limiting interpretation ('551 Patent, col. 4:61-63; Compl. ¶106).
  • Evidence for a Narrower Interpretation: The specification of the '551 Patent, a related patent, describes the database as keeping track of specific information, including "deposits to, and withdrawals from, each of the client demand accounts, as well as each client's proportionate and/or monetary share in the Pooled MMDA Account" ('551 Patent, col. 4:61-66). A defendant could argue this specific function, in the context of the overall system architecture (e.g., '551 Patent, Fig. 1), imparts a more specific structure than a generic database.

VI. Other Allegations

The complaint does not contain allegations of indirect or willful infringement.

VII. Analyst’s Conclusion: Key Questions for the Case

This declaratory judgment action will likely be resolved by the court's application of the two-step framework from Alice Corp. v. CLS Bank Int'l. The central questions for the court are:

• A core legal issue will be one of subject matter eligibility: Are the claims of the patents-in-suit "directed to" the abstract idea of managing financial accounts to comply with government regulations—a long-standing economic practice—as Plaintiff alleges, or do they claim a specific improvement to computer functionality?
• A second key question, assuming the claims are directed to an abstract idea, will be one of inventive concept: Does the claims' recitation of components like a "database" and a "computer" for performing routine accounting functions amount to a transformative inventive concept, or does it merely automate a fundamental business practice using conventional technology in a predictable way?