DCT

1:16-cv-01090

Reich & Tang Deposit Solutions LLC v. Island IP LLC

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I. Executive Summary and Procedural Information

  • Parties & Counsel:
  • Case Identification: 1:16-cv-01090, D. Del., 11/23/2016
  • Venue Allegations: Plaintiff alleges venue is proper in the District of Delaware because Defendants are organized under Delaware law, 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 nine of Defendants' patents related to computer-implemented cash accounting techniques are invalid as directed to patent-ineligible subject matter 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 involves computer-automated systems for managing large cash deposits by distributing funds across multiple banking institutions to maximize FDIC insurance coverage while complying with federal banking regulations.
  • Key Procedural History: Plaintiff was a licensee of a 58-patent portfolio from Defendants. Following the 2014 Alice decision, Plaintiff ceased paying royalties, asserting the patents were invalid. Defendants subsequently sued Plaintiff in New York state court for breach of contract. Plaintiff then filed this federal action seeking to invalidate the patents. The complaint notes that the patent portfolio is subject to 36 terminal disclaimers.

Case Timeline

Date Event
1997-10-23 Earliest Priority Date for patents-in-suit (’716, ’382, ’960, ’676, ’689 Patents)
2005-03-01 Priority Date for ’668 Patent
2007-03-16 Priority Date for ’771, ’901, and ’321 Patents
2010-02-23 Issue Date of U.S. Patent No. 7,668,771
2010-03-02 Issue Date of U.S. Patent No. 7,672,901
2010-03-16 Issue Date of U.S. Patent No. 7,680,716
2011-09-13 Issue Date of U.S. Patent No. 8,019,668
2012-08-28 Issue Date of U.S. Patent No. 8,239,321
2013-02-26 Issue Date of U.S. Patent No. 8,386,382
2013-10-29 Issue Date of U.S. Patent No. 8,571,960
2014-06-12 Issue Date of U.S. Patent No. 8,606,676
2014-06-19 Supreme Court issues decision in Alice Corp. v. CLS Bank Int'l
2014-07-22 Issue Date of U.S. Patent No. 8,655,689
2015-05-01 Plaintiff notifies Defendant of repudiation of license agreement
2015-06-23 Defendants file breach of contract action in New York state court
2016-11-23 Complaint for Declaratory Judgment filed

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

U.S. Patent No. 7,668,771 - "System and Method for Allocation to Obtain Zero Activity in a Selected Aggregated Account"

The Invention Explained

  • Problem Addressed: The patent background describes pre-existing cash management systems but does not explicitly state a problem they fail to solve (Compl. ¶ 98). The complaint alleges that prosecution history documents frame the problem as minimizing withdrawal activity from interest-bearing accounts to comply with federal regulations like Regulation D, which limit the number of permissible withdrawals per month (’771 Patent, col. 1:29-46; Compl. ¶ 98).
  • The Patented Solution: The invention is a computer-implemented method for managing a group of aggregated accounts held at different banks. It allocates fund deposits and withdrawals by first calculating a net transaction amount from client accounts. It then selects at least one aggregated account for the transaction while specifically avoiding withdrawals from or deposits to at least one other designated "no-activity" account in the group (’771 Patent, Abstract; col. 7:11-34). This selective allocation is designed to preserve the transactional quiescence of certain accounts.
  • Technical Importance: This approach allows a financial system to maintain the interest-bearing status of certain large aggregated accounts by shielding them from transaction activity that could violate federal regulations (Compl. ¶ 98).

Key Claims at a Glance

  • The complaint challenges the claims of the patent generally, with the independent claims being the primary focus of its ineligibility arguments (Compl. ¶¶ 135, 147). Independent claims 1, 30, and 43 are asserted.
  • Claim 1 (Method) requires:
    • Accessing a database with aggregated account and client transaction account information.
    • Allocating deposits to and withdrawals from the aggregated accounts by:
      • Accessing transaction data for a "sub-period of time."
      • Calculating a "first net transaction amount" for each aggregated account.
      • Determining whether any aggregated account has a "no-withdrawal designation."
      • Selecting at least one aggregated account for a transaction while "avoiding withdrawing funds" from any account with a "no-withdrawal designation."
      • Allocating client asset balances among the accounts so that any account with a no-withdrawal designation and a negative net transaction is not decreased.
    • Generating instructions to execute the fund transfers.
    • Updating the database with the results.

U.S. Patent No. 7,672,901 - "System and Method for Holdback Procedure for After-Hours Transactions"

The Invention Explained

  • Problem Addressed: The patent does not explicitly state a problem in its background section. The invention itself is directed at managing client transaction requests that occur after the daily cut-off time for processing and settling fund transfers (’901 Patent, Abstract).
  • The Patented Solution: The invention describes a computer-implemented method that conducts an allocation process for fund deposits and withdrawals. A key feature is the calculation of a "holdback amount" from transactions that occurred before a cutoff time. This holdback amount is then used to satisfy withdrawal requests that occur after the cutoff time (’901 Patent, Abstract; col. 13:45-67). This allows the system to provide liquidity for after-hours transaction requests using funds from the same day's activity.
  • Technical Importance: This method provides a mechanism for financial systems to service client withdrawal requests after normal processing deadlines without requiring the financial institution to fund these transactions from other sources (Compl. ¶ 142).

Key Claims at a Glance

  • The complaint challenges the claims of the patent generally, with the independent claims being the primary focus of its ineligibility arguments (Compl. ¶¶ 142, 153). Independent claims 1 and 10 are asserted.
  • Claim 1 (Method) requires:
    • Conducting an allocation process to allocate net deposits and withdrawals from aggregated accounts.
    • This process includes determining if a request occurred after a "cut-off time."
    • It further involves receiving or calculating a "holdback amount" from pre-cutoff transactions.
    • The system holds back this amount by adjusting the withdrawal from or deposit to the aggregated account.
    • Finally, it initiates a post-cutoff procedure that transfers funds from the holdback amount to satisfy a post-cutoff withdrawal request.

U.S. Patent No. 7,680,716 - "System and Method for Allocating Excess Funds in Aggregated Control Account"

  • Technology Synopsis: This patent addresses the temporary risk of client funds being uninsured when they are held in a central control account at an intermediary bank for a short period before being distributed to various FDIC-insured accounts. The solution involves reallocating excess deposits over the FDIC limit from one client's balance to other eligible clients' balances within the control account to maintain insurance coverage during this interim period (’716 Patent, Abstract; Compl. ¶ 140).
  • Asserted Claims: The complaint asserts the independent claims are directed to patent-ineligible subject matter (Compl. ¶¶ 140, 159).
  • Accused Features: The complaint does not identify specific accused features, as it is a declaratory judgment action focused on invalidity (Compl. ¶ 157).

U.S. Patent No. 8,019,668 - "System and Method for Allocation to Obtain Zero Activity in a Selected Aggregated Account with Holdback"

  • Technology Synopsis: This patent claims a method for allocating client deposits by accessing a database, determining where to transfer funds based on "selection" and "allocation" rules, and generating instructions to execute the transfers. The complaint characterizes this as a generic, computer-implemented business method for bookkeeping and allocating funds based on unspecified rules (’668 Patent, Abstract; Compl. ¶ 130).
  • Asserted Claims: The complaint presents Claim 1 as "representative of the patents-in-suit" and argues its elements are abstract accounting and business practices implemented on generic computers (Compl. ¶¶ 130-131).
  • Accused Features: The complaint does not identify specific accused features, as it is a declaratory judgment action focused on invalidity (Compl. ¶ 163).

U.S. Patent No. 8,239,321 - "System and Method for Allocation to Obtain Zero Activity in One or More Selected Aggregated Deposit Accounts"

  • Technology Synopsis: The patent claims a method that allocates funds but avoids withdrawals from a subset of aggregated accounts based on unspecified "criteria" for a "sub-period of time." A report of the allocations is also generated. The complaint alleges these are merely accounting practices implemented on a generic computer (’321 Patent, Abstract; Compl. ¶ 138).
  • Asserted Claims: The complaint asserts the independent claims are directed to patent-ineligible subject matter (Compl. ¶¶ 138, 171).
  • Accused Features: The complaint does not identify specific accused features, as it is a declaratory judgment action focused on invalidity (Compl. ¶ 169).

U.S. Patent No. 8,386,382 - "System and Method for Allocation to Obtain Zero Activity in a Selected Aggregated Account with Holdback"

  • Technology Synopsis: The patent adds that transfer data is obtained "via an internet interface," funds are not withdrawn from a subset of accounts based on unspecified "criteria," and a report is generated. The complaint alleges these elements merely specify accounting practices implemented with a generic computer and "internet interface" (’382 Patent, Abstract; Compl. ¶ 136).
  • Asserted Claims: The complaint asserts the independent claims are directed to patent-ineligible subject matter (Compl. ¶¶ 136, 177).
  • Accused Features: The complaint does not identify specific accused features, as it is a declaratory judgment action focused on invalidity (Compl. ¶ 175).

U.S. Patent No. 8,571,960 - "System and Method for Allocation to Obtain Zero Activity in One or More Selected Aggregated Deposit Accounts"

  • Technology Synopsis: The patent claims a system where a minimum or maximum fund cap for a financial institution is adjusted based on its capital usage, and fund allocation is based on that cap. The complaint alleges this is a basic accounting practice implemented on a generic computer (’960 Patent, Abstract; Compl. ¶ 137).
  • Asserted Claims: The complaint asserts the independent claims are directed to patent-ineligible subject matter (Compl. ¶¶ 137, 183).
  • Accused Features: The complaint does not identify specific accused features, as it is a declaratory judgment action focused on invalidity (Compl. ¶ 181).

U.S. Patent No. 8,606,676 - "System and Method for Allocating Excess Funds in Control Account"

  • Technology Synopsis: This patent claims a method where funds are held in an intermediary bank's operating account before distribution, and the client's fund amount in an account is changed to stay below a specified amount. The complaint alleges these are basic accounting practices implemented on a generic computer (’676 Patent, Abstract; Compl. ¶ 139).
  • Asserted Claims: The complaint asserts the independent claims are directed to patent-ineligible subject matter (Compl. ¶¶ 139, 189).
  • Accused Features: The complaint does not identify specific accused features, as it is a declaratory judgment action focused on invalidity (Compl. ¶ 187).

U.S. Patent No. 8,655,689 - "System, Method and Program Product for Modeling Fund Movements"

  • Technology Synopsis: This patent claims a method where the total funds in an aggregated account are determined based on clients being in three "stratifications" (high, middle, low). These totals are compared to capacity caps, and account parameters are modified based on excess capacity. The complaint alleges these are basic accounting practices implemented on a generic computer (’689 Patent, Abstract; Compl. ¶ 141).
  • Asserted Claims: The complaint asserts the independent claims are directed to patent-ineligible subject matter (Compl. ¶¶ 141, 195).
  • Accused Features: The complaint does not identify specific accused features, as it is a declaratory judgment action focused on invalidity (Compl. ¶ 193).

III. The Accused Instrumentality

  • Product Identification: As a declaratory judgment action, the complaint does not accuse a defendant's product. Rather, the subject of the dispute are Plaintiff's own "cash sweep" and cash management services (Compl. ¶ 67).
  • Functionality and Market Context:
    • The complaint alleges that Plaintiff has been providing cash sweep services since 1975 (Compl. ¶ 67). Since 2007, these have included FDIC-insured cash sweep services where a customer's cash balances are regularly swept into accounts at one or more banks in amounts not exceeding the FDIC insurance limit (at the time, $250,000) (Compl. ¶ 68).
    • The complaint alleges that Plaintiff is an "industry leader" in providing deposit, liquidity, and cash management solutions for various financial entities (Compl. ¶ 56). However, it does not provide specific technical details regarding the implementation of Plaintiff's sweep services that are subject to the patent license.

IV. Analysis of Invalidity Allegations

The complaint does not provide claim charts mapping Plaintiff's products to the patents. Instead, it provides a chart for U.S. Patent No. 8,019,668, which it proffers as "representative of the patents-in-suit," to argue that the claims are directed to an abstract business method implemented with generic computer components (Compl. ¶ 130). The chart highlights the Plaintiff's characterization of the claimed steps as conventional business or accounting practices.

  • U.S. Patent No. 8,019,668 Invalidity Allegations (as representative example from Complaint)
Claim Element (from Independent Claim 1) Plaintiff's Characterization of the Claim Element Complaint Citation Patent Citation
(A) accessing, using one or more computers, one or more databases comprising: (1) aggregated deposit account information... (2) client account information... Accessing a database containing accounting information. ¶131, p. 24 col. 30:10-45
(B) determining, using the one or more computers, at least one aggregated deposit account... to which to deposit/transfer or to withdraw/transfer funds, based at least in part on a selection rule... Allocating and transferring client funds among accounts based on unspecified "rules" and account activity with a computer. ¶131, p. 25 col. 30:46-58
(C) obtaining transfer data comprising an amount of funds comprising deposits/transfers... [Characterization not explicitly provided in chart] ¶131, p. 25 col. 30:59-63
(D) allocating funds, using the one or more computers, to one or more of the aggregated deposit accounts... based on the transfer data and on one or more allocation rules... Allocating and transferring client funds among accounts based on unspecified "rules" and account activity with a computer. ¶131, p. 25 col. 30:64-31:3
(E) allocating, using the one or more computers, fund amounts of client accounts among the aggregated deposit accounts, to substantially match respective amounts allocated... Allocating and transferring client funds among accounts based on unspecified "rules" and account activity with a computer. ¶131, p. 25 col. 31:4-10
(F) generating and communicating data for one or more instructions, using the one or more computers and a network communication link, to transfer funds... [Characterization not explicitly provided in chart] ¶131, p. 26 col. 31:11-19
(G) updating, using the one or more computers, the one or more databases with information based at least in part on one or more of the allocating steps. Updating the books kept in the database to record where the client funds were allocated (with a computer). ¶131, p. 26 col. 31:20-24
  • Identified Points of Contention: The central dispute is whether the patents-in-suit claim patent-eligible subject matter under 35 U.S.C. § 101. The analysis raises two primary questions for the court under the framework from Alice Corp. v. CLS Bank Int'l.
    • Scope Questions (Alice Step One): The complaint alleges the patents are directed to the abstract ideas of "allocating funds across accounts and updating accounting to reflect the allocations" to comply with regulatory limits like FDIC insurance (Compl. ¶¶ 128, 143). This raises the question of whether the claims, as a whole, are directed to a fundamental economic or business practice rather than a specific technological solution.
    • Technical Questions (Alice Step Two): The complaint asserts that the claims add, at most, "only generic computing components performing established and conventional functions" (Compl. ¶ 110). This frames the key question of whether the recited elements—such as "one or more computers," "databases," and "a network communication link"—provide an "inventive concept" sufficient to transform the abstract idea into a patent-eligible application. Plaintiff's chart for the ’668 Patent, which characterizes elements as "Accessing a database (with a computer)" and "Updating the books," directly supports this line of argument (Compl. ¶ 131, p. 24-26).

V. Key Claim Terms for Construction

While the case centers on § 101 eligibility rather than traditional infringement, the construction of certain terms may influence the abstract idea analysis. The Plaintiff's argument hinges on the assertion that key claim terms describe abstract goals rather than concrete technical steps.

  • The Term: "selection rule" and "allocation rules" (’668 Patent, cl. 1(B), 1(D))

  • Context and Importance: Plaintiff characterizes these as "unspecified 'rules'" to support the argument that the claims recite an abstract process without a specific, inventive technical implementation (Compl. ¶ 130). The scope of these terms is critical; if construed broadly to cover any business logic for moving money, it may support the abstract idea argument. If construed more narrowly to require specific algorithms disclosed in the specification, it may support patent eligibility.

  • Intrinsic Evidence for Interpretation:

    • Evidence for a Broader Interpretation: The claims themselves do not specify the content of the "rules," which could suggest the terms should be interpreted broadly to encompass any set of criteria for allocating funds (Compl. ¶ 130).
    • Evidence for a Narrower Interpretation: The specification may provide specific examples of rules, such as those designed to maintain minimum balances or avoid exceeding maximum caps, which a patentee might argue limit the scope of the claims to those specific, disclosed implementations (’668 Patent, col. 12:35-51).

  • The Term: "no-withdrawal designation" (’771 Patent, cl. 1(c))

  • Context and Importance: Plaintiff alleges that considering whether a bank has a "no-withdrawal" designation is a basic accounting practice implemented on a generic computer, not an inventive concept (Compl. ¶ 135). The patentability of this claim may turn on whether this "designation" is viewed as a mere data flag representing a business rule or as part of a concrete, technical system for managing account activity.

  • Intrinsic Evidence for Interpretation:

    • Evidence for a Broader Interpretation: The claim language uses the general term "designation," which could be argued to be a simple label or data field reflecting a business decision (’771 Patent, col. 31:47-54).
    • Evidence for a Narrower Interpretation: The specification describes this feature in the context of a specific system designed to avoid withdrawals from certain accounts to comply with regulations, potentially tying the term to a particular technical purpose and implementation (’771 Patent, Abstract; col. 13:1-14).

VI. Other Allegations

The complaint is for a declaratory judgment of invalidity and does not contain allegations of indirect or willful infringement.

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

This case appears to be a direct test of the patent eligibility of computer-implemented financial management methods after the Supreme Court's Alice decision. The central issues for judicial determination will likely be:

  • The Question of Abstraction: Are the patents-in-suit fundamentally directed to the abstract economic ideas of risk-spreading (maximizing FDIC insurance) and regulatory compliance (managing withdrawal limits), which Plaintiff alleges are "long prevalent in our system of commerce" (Compl. ¶ 109)? Or do they claim a specific, tangible improvement to computer functionality?
  • The Question of Inventive Concept: If the claims are found to be directed to an abstract idea, do the computer-based limitations—such as using databases, generating electronic instructions, and obtaining data via an "internet interface"—amount to an "inventive concept"? The case will likely turn on whether these elements are viewed as merely conventional computer automation of a known business practice, as Plaintiff argues, or as a specific, non-routine technological solution to a problem rooted in computer networks and large-scale data processing.