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Federal Circuit Invalidates as Obvious Patent That Updates a Prior Art System with Modern Electronic Devices

December 07, 2010
Rodkey, Kevin D.

Decision icon Decision

Last Month at the Federal Circuit - January 2011

Judges: Rader, Lourie (author), Prost

[Appealed from: W.D. Tex., Judge Sparks]

In Western Union Co. v. MoneyGram Payment Systems, Inc., Nos. 10-1080, -1210 (Fed. Cir. Dec. 7, 2010), the Federal Circuit reversed the jury’s determination that the patents-in-suit were not invalid for obviousness.  The Court also reversed the district court’s denial of MoneyGram Payment Systems, Inc.’s (“MoneyGram”) renewed motion for JMOL on obviousness, infringement, and invalidity.

The Western Union Company (“Western Union”) owns four patents (“money transfer patents”) directed to systems for performing formless money transfers using an electronic transaction fulfillment device (“ETFD”).  The patents claim a system where a customer has telephone access to the customer service representative (“CSR”) at a financial institution, who obtains the details of the money transfer from the customer and “stages” the transfer for the customer, storing the transaction details in a host computer.  The customer can later complete the transaction at a retail location where an agent is able to retrieve the transaction from a computer through an ETFD and accept the required amount of money from the customer.

Prior to filing the applications for its money transfer patents, Western Union acquired its competitor, Orlandi Valuta, which employed a similar formless money transfer system that Western Union concluded could not be used on the large scale needed for Western Union’s business.  The Orlandi Valuta system required customers to initiate a transaction with a CSR using a telephone.  The CSR enters the transaction information from the customer into a computer system and faxes an invoice to the customer’s retail location.  The customer would not receive confirmation of the transaction, but instead would wait at the retail location where a retail agent calls the customer’s name upon receipt of the fax.  At this point, the customer would tender the required amount of money to the agent to complete the transaction. 

MoneyGram, a direct competitor of Western Union, uses its “FormFree” money transfer system.  The FormFree system provides the customer with a confirmation number, which, when provided by a customer to a retail agent, allows for completion of a previously staged transaction.  This confirmation number is stored in a database with other transaction information.  After learning of the Western Union patents, MoneyGram attempted to design around them.

Western Union sued MoneyGram for infringement of the money transfer patents.  At trial, a jury determined that MoneyGram’s original and redesigned systems infringed Western Union’s money transfer patents.  The jury also determined that the money transfer patents were not invalid for obviousness based on the Orlandi Valuta prior art system and awarded reasonable royalty damages to Western Union.  Following trial, MoneyGram renewed its motion for JMOL on obviousness based on the Orlandi Valuta system.  The district court denied the motion to renew, holding that MoneyGram had waived its argument specifically as it related to Orlandi Valuta.  The district court nevertheless decided that the jury had a legally sufficient evidentiary basis upon which it could conclude that the asserted claims were not obvious.  MoneyGram appealed the district court’s rulings on claim construction, infringement, and invalidity.

On appeal, the Federal Circuit first considered the district court’s denial of MoneyGram’s renewed motion for JMOL.  The Court reminded that even a cursory motion suffices to preserve an issue on JMOL so long as it serves the purpose of Fed. R. Civ. P. 50(a), which is to alert the court to the party’s legal position as to the insufficiency of the evidence.  Noting that the Fifth Circuit applies a similarly liberal standard, the Court held that MoneyGram’s statements specifically listing Orlandi Valuta’s system as prior art that rendered the Western Union patents obvious preserved the issue for JMOL. 

The Federal Circuit turned next to the merits of MoneyGram’s obviousness argument.  The Court considered whether the claimed invention simply takes a known prior art system and adds obvious elements, such as the use of an off-the-shelf keypad to access transaction data.  MoneyGram argued that Western Union’s patented invention simply replaced the fax machine in the Orlandi Valuta system with an off-the-shelf keypad—a well-known device in the art.  MoneyGram further argued that even if the Orlandi Valuta system did not use a code, adding a numerical code to a system that processes financial transactions would have been common sense to a person of skill in the art.  MoneyGram also argued that adding the use of Internet-based communications would have been obvious under the Court’s precedent.  According to Western Union, the keypads known in the prior art were not the same as an ETFD, and the jury’s verdict of nonobviousness was supported by the lack of evidence of any motivation to combine the missing elements with the Orlandi Valuta system.

The Federal Circuit agreed with MoneyGram that the money transfer patents are obvious.  With regard to the keypad, the Court found that the patent specification itself describes the addition of an electronic fulfillment device, such as an electronic terminal having a keyboard.  The Court found that the specification identified the Western Union FDX-400, which has a numeric keypad, as an example, and that the Orlandi Valuta system used an FDX-400.  The Federal Circuit concluded that, based on this evidence, no reasonable jury should have found that MoneyGram failed to present sufficient evidence to demonstrate that electronic transaction devices were commonplace in the art at the time of the invention.

Next, the Court addressed whether there was motivation to combine the prior art ETFD with the Orlandi Valuta system and concluded there was.  The Court reminded that “[a]n obviousness determination is not the result of a rigid formula disassociated from the consideration of the facts of a case.”  Slip op. at 17.  The Court also reiterated its previous holding that it is obvious to apply the use of the Internet to existing electronic processes at a time when doing so was commonplace.  The Court then held that the specific limitations of the patents, such as using an ETFD to retrieve information from a database, are simply routine modifications that are part of adapting new technology to an existing system.  The Court specifically concluded that it would not have been difficult at the time of the invention for a person of ordinary skill in the art “to integrate an electronic transaction device that was available from Western Union itself into a well-known money transfer system that was also owned by Western Union.”  Id. at 18.  Accordingly, the Court held that the combination of the ETFD with the Orlandi Valuta system would have been obvious to a person of ordinary skill in the art at the time of the invention.  For the same reasons, the Court held that claims that primarily add the use of Internet-based communications, specifically TCP/IP protocols, to an existing invention would also have been obvious to a person of ordinary skill in the art. 

Next, the Federal Circuit addressed whether the use of a code as part of a formless money transfer was obvious.  Finding it was, the Court held that it would have been common sense for a person of ordinary skill in the art to use a code generated and provided to a customer at the staging phase of the transaction at the retail location to look up the transaction information in the manner claimed in Western Union’s money transfer patents.  The Court noted that the Orlandi Valuta system, when a CSR entered a transaction into the system, generated a corresponding code that was printed on the invoice received by the customer at the retail location.  After considering all of the disputed elements of the asserted claims, the Federal Circuit held that the claimed combination represented no more than the predictable use of prior art elements according to their established functions, and as such, the claims were obvious as a matter of law.

Finally, the Court concluded that the district court erred in its heavy reliance on secondary considerations in denying MoneyGram’s JMOL of obviousness.  The Federal Circuit reminded that the patentee must establish a nexus between evidence of commercial success and the patented invention.  The Court found that Western Union pointed only to testimony that the patented invention allowed customers to simply pick up the phone and have a CSR stage a transaction, and therefore enabled the growth of Western Union’s business.  However, the Court observed that Western Union did not claim that it invented the formless money transfer system or that the Orlandi Valuta system was not prior art; therefore, Western Union could not claim any commercial success that arose from the features of the system found in the prior art as a secondary consideration for nonobviousness.  The Federal Circuit then reiterated that weak secondary considerations generally do not overcome a strong prima facie case of obviousness.  Here, the Court held that the inventions represented no more than the predictable use of prior art elements according to their established functions.  The Court concluded that secondary considerations were inadequate to establish nonobviousness as a matter of law and reversed the judgment of the district court.


Summary authored by Kevin D. Rodkey, Esq.