Universal Secure Registry LLC v. Apple Inc. et al

Filing 137

REPORT AND RECOMMENDATIONS- denying 21 MOTION to Transfer and 16 MOTION to Dismiss. Please note that when filing Objections pursuant to Federal Rule of Civil Procedure 72(b)(2), briefing consists solely of the Objections (no longer than te n (10) pages) and the Response to the Objections (no longer than ten (10) pages). No further briefing shall be permitted with respect to objections without leave of the Court. Objections to R&R due by 10/3/2018. Signed by Judge Sherry R. Fallon on 9/19/2018. (lih)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
UNIVERSAL SECURE REGISTRY, LLC, )
)
Plaintiff,
)
)
V.
)
)
APPLE INC., VISA INC., and VISA
)
)
U.S.A., INC.,
)
Defendants.
)

Civil Action No. 17-585-CFC-SRF

REPORT AND RECOMMENDATION
I.

INTRODUCTION
Presently before the court in this patent infringement action are the following motions:

(1) a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to
Federal Rule of Civil Procedure 12(b)(6), filed by defendants Apple Inc., Visa Inc., and Visa
U.S.A., Inc. (collectively "defendants") (D.I. 16); and (2) defendants' motion to transfer venue to
the Northern District of California pursuant to 28 U.S.C. § 1404 (D.I. 21). For the following
reasons, I recommend that the court deny defendants' motions to dismiss and transfer.

II.

BACKGROUND
A. Parties

Plaintiff Universal Secure Registry, LLC ("USR") is a limited liability company
organized and existing under the laws of Massachusetts with its principal place of business in
Newton, Massachusetts. (D.I. 1 at ,-i 4) USR develops technological solutions for identity
authentication, computer security, and digital and mobile payment security which allow users to
securely authenticate their identity using technology built into a personal electronic device
combined with the users' biometric information. (Id. at ,-r 21) USR is the owner by assignment

of United States Patent Nos. 8,577,813 ("the '813 patent"); 8,856,539 ("the '539 patent");
9,100,826 ("the '826 patent"); and 9,530,137 ("the' 137 patent") (collectively, the "patents-insuit"). (Id at ,r,r 2-3) The patents-in-suit allow a user to employ an electronic device as an
"electronic wallet" capable of interacting with point-of-sale devices to authorize payments. (Id
at ,r 22)
Apple Inc. ("Apple") is incorporated in California and maintains its headquarters in
Cupertino in the Northern District of California. (Id. at ,r 5) Apple maintains a retail store in
Delaware. (Id. at ,r 13) Visa Inc. and Visa U.S.A., Inc. ("Visa") are Delaware corporations
maintaining a principal place of business in Foster City, California. (Id. at ,r,r 6-7) USR accuses
defendants of infringing the patents-in-suit by providing the Apple Pay service. (Id. at ,r,r 8-9)
Specifically, USR identifies the following allegedly infringing devices which support Apple Pay:
Apple iPhone 7, iPhone 7 Plus, iPhone 6s, iPhone 6s Plus, iPhone 6, iPhone 6
Plus, iPhone SE, iPhone 5, 5s, and Sc (paired with Apple Watch), iPad (5 th
generation), iPad Pro (12.9 inch), iPad Pro (9.7 inch), iPad Air 2, iPad mini 4,
iPad mini 3, Apple Watch Series 2, Apple Watch Series 1, Apple Watch (1 st
generation), MacBook Pro with Touch ID, and all Mac models introduced in 2012
or later (with an Apple Pay-enabled iPhone or Apple Watch) (collectively, the
"Accused Products") ....

(Id. at ,r 39)
B. Patents-In-Suit

USR filed this patent infringement action on May 21, 2017, asserting claims for
infringement regarding the patents-in-suit. (D.1. 1 at ,r 2) The '813 and '539 patents are both
entitled "Universal Secure Registry" and list Dr. Kenneth P. Weiss as the sole inventor. (Id. at

,r,r 25-26)

The '813 patent issued on November 5, 2013, and the '539 patent was granted on

October 7, 2014. (Id.) The '826 and '137 patents are both entitled "Method and Apparatus for
Secure Access Payment and Identification," and list Dr. Weiss as the sole inventor. (Id. at ,r,r 272

28) The '826 patent issued on August 14, 2015, and the' 137 patent issued on December 27,
2016. (Id.)

C. Procedural History
In 2010, USR sent Apple multiple letters describing its patented technology and seeking
to partner with Apple to jointly develop a payment method involving a software-modified
payment phone and the use of biometric identity authentication. (D.I. 1 at 133) USR also
pursued a partnership with Visa during this time, engaging in a series of confidential discussions
with senior Visa representatives which included detailed presentations of the patented
technology under the protection of a non-disclosure agreement. (Id. at 134) Instead of
partnering with USR, Apple and Visa ultimately partnered with each other and other payment
networks and banks as early as January 2013 to allegedly incorporate the patented technology
into the Apple Pay service. (Id. at 135) Apple publicly launched Apple Pay on September 9,
2014. (Id. at 136)

III.

DISCUSSION
A. Venue
1. Legal standard

Section 1404(a) of Title 28 of the United States Code grants district courts the authority
to transfer venue "[f]or the convenience of parties and witnesses, in the interests of justice ... to
any other district or division where it might have been brought." 28 U.S.C. § 1404(a). Much has
been written about the legal standard for motions to transfer under 28 U.S.C. § 1404(a). See,
e.g., In re Link_A_Media Devices Corp., 662 F.3d 1221 (Fed. Cir. 2011); Jumara v. State Farm
Ins. Co., 55 F.3d 873 (3d Cir. 1995); Helicos Biosciences Corp. v. Illumina, Inc., 858 F. Supp. 2d
367 (D. Del. 2012).
3

Referring specifically to the analytical framework described in Helicos, the court starts
with the premise that a defendant's state of incorporation has always been "a predictable,
legitimate venue for bringing suit" and that "a plaintiff, as the injured party, generally ha[s] been
'accorded [the] privilege of bringing an action where he chooses."' 858 F. Supp. 2d at 371
(quoting Norwood v. Kirkpatrick, 349 U.S. 29, 31 (1955)). Indeed, the Third Circuit in Jumara
reminds the reader that "[t]he burden of establishing the need for transfer ... rests with the
movant" and that, "in ruling on defendants' motion, the plaintiffs choice of venue should not be
lightly disturbed." 55 F.3d at 879 (citation omitted).
The Third Circuit goes on to recognize that,
[i]n ruling on§ 1404(a) motions, courts have not limited their consideration to the
three enumerated factors in§ 1404(a) (convenience of parties, convenience of
witnesses, or interests of justice), and, indeed, commentators have called on the
courts to "consider all relevant factors to determine whether on balance the
litigation would more conveniently proceed and the interests of justice be better
served by transfer to a different forum."

Id. (citation omitted). The Court then describes some of the "many variants of the private and
public interests protected by the language of§ 1404(a)." Id.
The private interests have included: plaintiffs forum of preference as manifested
in the original choice; the defendant's preference; whether the claim arose
elsewhere; the convenience of the parties as indicated by their relative physical
and financial condition; the convenience of the witnesses - but only to the extent
that the witnesses may actually be unavailable for trial in one of the fora; and the
location of books and records (similarly limited to the extent that the files could
not be produced in the alternative forum).
The public interests have included: the enforceability of the judgment; practical
considerations that could make the trial easy, expeditious, or inexpensive; the
relative administrative difficulty in the two fora resulting from court congestion;
the local interest in deciding local controversies at home; the public policies of
the fora; and the familiarity of the trial judge with the applicable state law in
diversity cases.

Id. (citations omitted).
4

Considering these "jurisdictional guideposts," the court turns to the "difficult issue of
federal comity" presented by transfer motions. E.E.O.C. v. Univ. of Pa., 850 F.2d 969,976 (3d
Cir. 1988). USR has not challenged defendants' assertion that venue would also be proper in the
Northern District of California. (D.I. 31 at 3) As such, the court does not further address the
appropriateness of the proposed transferee forum. 1 See 28 U.S.C. § 1404(a).

2. Private Interests
(a) Plaintiff's forum preference
Plaintiffs have historically been accorded the privilege of choosing their preferred venue
for pursuing their claims. See C.R. Bard, Inc. v. AngioDynamics, Inc., 156 F. Supp. 3d 540, 545
(D. Del. 2016). "It is black letter law that a plaintiffs choice of a proper forum is a paramount
consideration in any determination of a transfer request, and that choice 'should not be lightly
disturbed."' Shuttle v. Armco Steel Corp., 431 F .2d 22, 25 (3d Cir. 1970) (internal citation
omitted). However, the Federal Circuit has recognized that "[w]hen a plaintiff brings its charges
in a venue that is not its home forum ... that choice of forum is entitled to less deference, In re

Link_A_Media Devices Corp., 662 F.3d 1221, 1223 (Fed. Cir. 2011), andjudges within this
district have defined a party's "home forum" as its principal place of business, see Mite!

Networks Corp. v. Facebook, Inc., 943 F. Supp. 2d 463, 469-70 (D. Del. 2013).
In the present action, USR does not allege that it has facilities, employees, or operations
in Delaware. USR's choice of Delaware as a forum weighs in USR's favor, but not as strongly

1

The first step in the transfer analysis is to determine whether the movant has demonstrated that
the action could have been brought in the proposed transferee venue in the first instance. See
Mallinckrodt, Inc. v. E-Z-Em, Inc., 670 F. Supp. 2d 329, 356 (D. Del. 2009). This issue is not
disputed. (D.I. 31 at 3)
5

as it would ifUSR had a place of business in Delaware. See Ip Venture, Inc. v. Acer, Inc., 879 F.
Supp. 2d 426,431 (D. Del. 2012); see also Symantec Corp. v. Zscaler, Inc., C.A. No. 17-806MAK, D.I. 25 at 3-4 (D. Del. July 31, 2017) (citing Memory Integrity, LLC v. Intel Corp., C.A.
No. 13-1804-GMS, 2015 WL 632026, at *3 (D. Del. Feb. 13, 2015) (concluding that a nonpracticing entity's choice of forum should receive limited deference because it had no physical
presence in Delaware)). Consequently, USR's forum preference weighs slightly against transfer.
(b) Defendant's forum preference
Defendants' preference to litigate in the Northern District of California, where defendants
maintain their principal places of business, weighs in favor of transferring venue. However,
defendants' preference is accorded less weight than USR's preference. See Stephenson v. Game

Show Network, LLC, 933 F. Supp. 2d 674,678 (D. Del. 2013) (citing Cradle IP, LLC v. Texas
Instruments, Inc., 923 F. Supp. 2d 696, 699-700 (D. Del. 2013)).
(c) Where the claim arose
A claim for patent infringement arises wherever someone has committed acts of
infringement. See generally 35 U.S.C. § 271(a); Red Wing Shoe Co., Inc. v. Hockerson-

Halberstadt, Inc., 148 F.3d 1355, 1360 (Fed. Cir. 1998) (an infringement claim "arises out of
instances of making, using, or selling the patented invention"). Because defendants' allegedly
infringing products are sold and used nationwide, the asserted patent claims may be said to
arise in Delaware. See C.R. Bard, Inc. v. AngioDynamics, Inc., 156 F. Supp. 3d 540, 547 (D.
Del. 2016) (finding that a patent claim arose in Delaware when the defendant sold products
there); Scientific Telecomm., LLC v. Adtran, Inc., C.A. No. 15-647-SLR, 2016 WL 1650760, at
*1 (D. Del. Apr. 25, 2016) (holding that, despite ties to Alabama, the defendant operated on a
global basis, and its incorporation in Delaware precluded arguments that the forum was
6

inconvenient absent a showing of a unique or unexpected burden). This factor is neutral.

(d) Convenience of the parties
In evaluating the convenience of the parties, a district court should focus on the parties'
relative physical and financial condition. See C.R. Bard, 2016 WL 153033, at *3 (citing Jumara

v. State Farm Ins. Co., 55 F.3d 873, 879 (3d Cir. 1995)). When a party "accept[s] the benefits of
incorporation under the laws of the State of Delaware, 'a company should not be successful in
arguing that litigation' in Delaware is 'inconvenient,' 'absent some showing of a unique or
unexpected burden."' Scientific Telecomm., LLC v. Adtran, Inc., C.A. No. 15-647-SLR, 2016
WL 1650760, at *1 (D. Del. Apr. 25, 2016) (quoting ADE Corp. v. KLA-Tencor Corp., 138 F.
Supp. 2d 565, 573 (D. Del. 2001)). "Unless the defendant 'is truly regional in character' - that
is, it operates essentially exclusively in a region that does not include Delaware - transfer is
almost always inappropriate." Checkpoint, 797 F. Supp. 2d at 477 (quoting Praxair, Inc. v.

ATM!, Inc., 2004 WL 883395, at *1 (D. Del. Apr. 20, 2004)).
The record before the court reveals that USR is a small company with negative cash flow
and no income, funded out of the savings of its founder, Dr. Weiss. (D.I. 36 at ,r 11) The USR
entities collectively have six full-time employees, two part-time employees, and three
consultants located in Massachusetts. (Id. at ,r 9) USR's records are kept in six storage boxes in
Massachusetts. (Id. at ,r 10) In contrast, there is no dispute that Apple and Visa are large,
wealthy corporations who engage in business throughout the United States. (D.1. 38 at 6)
Defendants have not shown a unique or unexpected burden as required to support transfer under
the relevant standard. See Cornerstone Therapeutics Inc. v. Exela Pharma Scis., LLC, C.A. No.
13-1275-GMS, 2014 WL 12597625, at *1 (D. Del. June 16, 2014) ("[T]he decision of two out of

7

three defendants to incorporate in Delaware casts doubt on their arguments that litigating in this
state is inconvenient.").
Defendants point out that USR has no connections to Delaware, yet has accepted the
costs of travel to Delaware by choosing to litigate here. (D.I. 22 at 15) (quoting Blackbird Tech

LLC v. TujjStuff Fitness, International, Inc., C.A. No. 16-733-GMS, 2017 WL 1536394, at *5
(D. Del. Apr. 27, 2017) ("The court believes that Blackbird, given its location, structure of its
company, and lack of substantial connections in Delaware, would suffer little added
inconvenience were this case transferred away from its preferred forum.")). However, the
distance between Massachusetts and the Northern District of California is substantially greater
than the distance between Massachusetts and Delaware. Focusing on the significant difference
in the parties' relative financial positions, as well as USR's proximity to Delaware in comparison
to the Northern District of California, the court concludes that the present record does not
support transfer of venue. 2 This factor weighs slightly against transfer.

(e) Location of books and records
The Third Circuit in Jumara advised that the location of books and records is only
determinative if "the files c[an] not be produced in the alternative forum." 55 F.3d at 879.
However, the Federal Circuit has explained that "[i]n patent infringement cases, the bulk of the
relevant evidence usually comes from the accused infringer. Consequently, the place where the
defendant's documents are kept weighs in favor of transfer to that location." In re Genentech,

Inc., 566 F.3d 1338, 1345 (Fed. Cir. 2009). Nevertheless, courts within the District of Delaware
2

The court recognizes that the analysis of this factor typically focuses on the size and financial
position of the defendant, as opposed to the plaintiff, given that the defendant does not choose to
commence the litigation. Nonetheless, the disparity between the parties' size and financial
condition is evident in the instant case, and litigating in the Northern District of California is
likely to be more expensive and burdensome for USR.
8

have repeatedly recognized that technological advances have reduced the weight of this factor.

See, e.g., Intellectual Ventures I LLC, v. Checkpoint Software Techs. Ltd., 797 F. Supp. 2d 472,
485 (D. Del. 2011); Affymetrix, Inc. v. Synteni, Inc., 28 F. Supp. 2d 192,208 (D. Del. 1998);

Nihon Tsushin Kabushiki Kaisha v. Davidson, 595 F. Supp. 2d 363, 372 (D. Del. 2009). Today,
"virtually all businesses maintain their books and records in electronic format readily available
for review and use at any location." C.R. Bard, 2016 WL 153033, at *3; see also Quest Integrity

USA, LLC v. Clean Harbors Indus. Servs., Inc., 114 F. Supp. 3d 187, 191 (D. Del. 2015).
Defendants designed and developed the allegedly infringing technology in the Northern
District of California, and much of the documentary evidence is located there. (D .I. 23 at ,i,i 7-9)
Defendants have not shown that relevant documents cannot be transported to Delaware. See

Cruise Control Techs. LLC v. Chrysler Group LLC, C.A. No. 12-1755-GMS, 2014 WL 1304820,
at *4 (D. Del. Mar. 31, 2014) (concluding that location of books and records is only relevant
"where the Defendants show that there are books and records that cannot be transported or
transmitted to Delaware."). This factor weighs slightly in favor of transfer.

(t) Convenience of the witnesses
The relevant inquiry with respect to convenience of the witnesses is not whether
witnesses are inconvenienced by litigation, but rather, whether witnesses "actually may be
unavailable for trial in one of the fora." Jumara, 55 F.3d at 879. The inconvenience of travel
does not demonstrate that witnesses would "actually be unavailable for trial," as required by

Jumara. 55 F.3d 873, 879 (3d Cir. 1995). The court has previously found that
travel expenses and inconveniences incurred for that purpose, by a Delaware
defendant, [are] not overly burdensome. From a practical standpoint, much of the
testimony presented at trial these days is presented via recorded depositions, as
opposed to witnesses traveling and appearing live. There certainly is no obstacle
to [a party] embracing this routine trial practice.
9

Oracle Corp. v. epicRealm Licensing, LP, No. Civ. 06-414-SLR, 2007 WL 901543, at *4 (D.
Del. Mar. 26, 2007).
Defendants identify six prior art witnesses who reside in or near the Northern District of
California and are named inventors on patent applications. (D.I. 24 at 113) Defendants do not
identify former employees or other third party witnesses. Other third party witnesses involved in
the prosecution of the patents-in-suit are located in Massachusetts and have affirmatively
expressed their willingness to testify at trial in Delaware, despite residing beyond the subpoena
power of both this court and the proposed transferee district. (D.I. 32 at 113-6; D.I. 34 at 113-6)
An independent technology consultant to USR residing in Massachusetts also indicated that he
will voluntarily travel to Delaware to testify at trial in this matter. (D.I. 33 at 112-5) Because
defendants have not identified any specific witnesses who cannot appear in Delaware for trial,
this factor is neutral.

3. Public interests 3
(a) Practical considerations
Defendants reiterate their arguments regarding private interest factors such as the
convenience of the parties and witnesses, and the location of evidence, in support of their
position on practical considerations. (D.I. 22 at 18) Courts in this district have declined to
"double-count" a defendant's arguments in such cases. Contour IP Holding, LLC v. GoPro, Inc.,
C.A. No. 15-1108-LPS-CJB, 2017 WL 3189005, at *13 (D. Del. July 6, 2017). This factor is
neutral.
Turning to the Jumara factors, the court notes that the parties do not dispute several of the
public interest factors: (1) the enforceability ofthejudgment; (2) the public policies of the fora;
and (3) the familiarity of the trial judge with the applicable state law in diversity cases. (D.I. 22
at 17-20; D.I. 31 at 15-19) These factors are therefore neutral.
10
3

(b) Court congestion

Defendants allege that this factor weighs in favor of transfer due to the judicial vacancies
on this court, citing statistics4 regarding the number of open patent cases and the rates at which
new patent cases are filed in each jurisdiction. (D.I. 22 at 18-19; D.I. 38 at 10) However, "the
case management orders [in this district] always start with the schedules proposed by the litigants
.... [I]f there is a need to expedite proceedings, that need is generally accommodated by the
court." Godo Kaisha IP Bridge Iv. Omni Vision Techs., Inc., 246 F. Supp. 3d 1001, 1003-04 (D.
Del. 2017). Defendants' reliance on MEC Resources, LLC v. Apple, Inc. is inapposite because
the court's finding that considerations of court congestion weighed in favor of transfer was based
largely on the prospect of avoiding an allocation of Delaware's judicial resources to resolve a
dispute between citizens of California and North Dakota. C.A. No. 17-223-MAK, 2017 WL
4102450, at *5 (D. Del. Sept. 15, 2017). In contrast, Visa is a Delaware corporation. This factor
is neutral.
(c) Local interest

The local interest factor is generally neutral in patent litigation because patent cases
"implicate[] constitutionally protected property rights, [are] governed by federal law reviewed by
a court of appeals of national (as opposed to regional) stature, and affect[] national (if not global)
markets." C.R. Bard, Inc. v. Angiodynamics, Inc., 156 F. Supp. 3d 540,547 (D. Del. 2016)
(citing Cradle IP v. Texas Instruments, Inc., 923 F. Supp. 2d 696, 700-01 (D. Del. 2013)); see

4

USR counters with statistics of its own, stating that the Northern District of California has 622
pending actions per judge to 515 per judge in this district, and noting that the average time to
trial in civil cases is faster in Delaware than it is in the Northern District of California. (D.1. 35,
Ex.B)
11

also Tessera, 2017 WL 1065865, at *11. Because USR brings only federal patent law claims,
the local interest factor is neutral.

4. Transfer analysis summary
As a whole, the Jumara factors weigh against transfer. Although USR's forum
preference is given slightly less deference because USR does not maintain a place of business in
Delaware, it is accorded more weight than defendants' choice of forum. Defendants have shown
that most of the relevant evidence and witnesses are located in the Northern District of
California, but have not shown that the evidence and witnesses would be unavailable if the case
is not transferred. USR has established that it is a small company with limited financial
resources in comparison to Apple and Visa, and Delaware is a more convenient forum for it as a
party to the action. The remaining factors are neutral. For these reasons, I recommend that the
court deny defendants' motion to transfer venue.

B. Patentability Under§ 101
1. Legal standard

Defendants move to dismiss the pending action pursuant to Rule 12(b)(6), which permits
a party to seek dismissal of a complaint for failure to state a claim upon which relief can be
granted. Fed. R. Civ. P. 12(b)(6). When considering a Rule 12(b)(6) motion to dismiss, the
court must accept as true all factual allegations in the complaint and view them in the light most
favorable to the plaintiff. Umlandv. Planco Fin. Servs., 542 F.3d 59, 64 (3d Cir. 2008).
According to defendants, USR's complaint fails to state a claim because the patents-in-suit are
ineligible for patent protection under 35 U.S.C. § 101.
Section 101 provides that patentable subject matter extends to four broad categories,
including "new and useful process[es], machine[s], manufacture, or composition[s] of matter."
12

35 U.S.C. § 101; see also Bilski v. Kappas, 561 U.S. 593,601 (2010) ("Bilski IF'); Diamond v.
Chakrabarty, 447 U.S. 303,308 (1980). The Supreme Court recognizes three exceptions to the

statutory subject matter eligibility requirements: "laws of nature, physical phenomena, and
abstract ideas." Bilski II, 561 U.S. at 601. In this regard, the Supreme Court has held that "[t]he
concepts covered by these exceptions are 'part of the storehouse of knowledge of all men ...
free to all men and reserved exclusively to none."' Id at 602 (quoting Funk Bros. Seed Co. v.
Kala lnoculant Co., 333 U.S. 127, 130 (1948)). At issue in the present case is the third category

pertaining to abstract ideas, which "embodies the longstanding rule that an idea of itself is not
patentable." Alice Corp. Pty. Ltd v. CLS Bank Int'!, 134 S. Ct. 2347, 2355 (2014) (internal
quotations omitted).
In Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U.S. 66 (2012),
the Supreme Court articulated a two-step "framework for distinguishing patents that claim laws
of nature, natural phenomena, and abstract ideas from those that claim patent-eligible
applications of those concepts." Alice, 134 S. Ct. at 2355. In accordance with the first step of
the Alice test, the court must determine whether the claims at issue are directed to a patentineligible concept. See id If so, the court must tum to the second step, under which the court
must identify an '"inventive concept'-i. e., an element or combination of elements that is
sufficient to ensure that the patent in practice amounts to significantly more than a patent upon
the [ineligible concept] itself." Id (certain quotation marks omitted). The two steps are "plainly
related" and "involve overlapping scrutiny of the content of the claims." Elec. Power Grp., LLC
v. Alstom S.A., 830 F.3d 1350, 1353 (Fed. Cir. 2016).

At step 1, "the claims are considered in their entirety to ascertain whether their character
as a whole is directed to excluded subject matter." Internet Patents Corp. v. Active Network,
13

Inc., 790 F.3d 1343, 1346 (Fed. Cir. 2015); see also Affinity Labs of Texas, LLC v. DIRECTV,
LLC, 838 F.3d 1253, 1257 (Fed. Cir. 2016) ("The 'abstract idea' step of the inquiry calls upon us
to look at the 'focus of the claimed advance over the prior art' to determine if the claim's
'character as a whole' is directed to excluded subject matter."). However, "courts must be
careful to avoid oversimplifying the claims by looking at them generally and failing to account
for the specific requirements of the claims." McRO, Inc. v. Bandai Namco Games Am. Inc., 837
F.3d 1299, 1313 (Fed. Cir. 2016) (internal quotation marks omitted). "Whether at step one or
step two of the Alice test, in determining the patentability of a method, a court must look to the
claims as an ordered combination, without ignoring the requirements of the individual steps."

Enfish, 822 F.3d at 1338.
At step 2, the Federal Circuit instructs courts to "look to both the claim as a whole and
the individual claim elements to determine whether the claims contain an element or
combination of elements that is sufficient to ensure that the patent in practice amounts to
significantly more than a patent upon the ineligible concept itself." McRO, 83 7 F .3d at 1312
(internal brackets and quotation marks omitted). Under the step 2 inquiry, the court must
consider whether claim elements "simply recite 'well-understood, routine, conventional
activit[ies]."' Bascom Glob. Internet Servs., Inc. v. AT&T Mobility LLC, 827 F.3d 1341, 1350
(Fed. Cir. 2016) (quoting Alice, 134 S. Ct. at 2359). "Simply appending conventional steps,
specified at a high level of generality, [is] not enough to supply an inventive concept." Alice,
134 S. Ct. at 2357 (internal quotation marks omitted).
The Federal Circuit looks to the claims as well as the specification in performing the
"inventive concept" inquiry. See Affinity Labs ofTexas v. Amazon.com Inc., 838 F.3d 1266,
1271 (Fed. Cir. 2016) ("[N]either the claim nor the specification reveals any concrete way of
14

employing a customized user interface."). "The inventive concept inquiry requires more than
recognizing that each claim element, by itself, was known in the art." Bascom, 827 F.3d at 1350.
In Bascom, the Federal Circuit held that "the limitations of the claims, taken individually, recite
generic computer, network and Internet components, none of which is inventive by itself," but
nonetheless determined that the patent adequately alleged an ordered combination of these
limitations to be patent-eligible under step 2 at the pleading stage. Id. at 1349.
The "mere recitation of a generic computer cannot transform a patent-ineligible abstract
idea into a patent-eligible invention" under step 2. Alice, 134 S. Ct. at 2358. "Given the
ubiquity of computers ... wholly generic computer implementation is not generally the sort of
additional feature that provides any practical assurance that the process is more than a drafting
effort designed to monopolize the abstract idea itself." Id. (internal citation and quotation marks
omitted). For the second step of the Alice framework, the machine-or-transformation test may
provide a "useful clue," although it is not determinative. Ultramercial, Inc. v. Hulu, LLC, 772
F.3d 709, 716 (Fed. Cir. 2014) (citing Bilski II, 561 U.S. at 604 and Bancorp Servs., L.L.C. v.
Sun Life Assurance Co. of Canada, 687 F.3d 1266, 1278 (Fed. Cir. 2012)). A claimed process
can be patent-eligible under § 101 consistent with the machine-or-transformation test if it "uses a
particular machine or apparatus" and does not "pre-empt 5 uses of the principle that do not also

5

At both steps 1 and 2 of the Alice inquiry, the Federal Circuit considers the issue of preemption
to determine whether a patent is not directed to a specific invention and instead would
monopolize "the basic tools of scientific and technological work," thereby "imped[ing]
innovation more than it would tend to promote it" and "thwarting the primary object of the patent
laws." Alice, 134 S. Ct. at 2354; see also McRO, 837 F.3d at 1315 (applying the doctrine of
preemption and concluding that a claim was patent-eligible at step 1); Bascom, 827 F.3d at 1350
(applying the doctrine of preemption and concluding that a claim was patent-eligible at step 2).
"[T]he focus of preemption goes hand-in-hand with the inventive concept requirement." Jedi
Techs., Inc. v. Spark Networks, Inc., C.A. No. 16-1055-GMS, 2017 WL 3315279, at *8 n.2 (D.
Del. Aug. 3, 2017) (quoting Tenon & Groove, LLC v. Plusgrade S.E.C., C.A. No. 12-1118-GMS,
15

use the specified machine or apparatus in the manner claimed." In re Bilski, 545 F.3d 943, 954
(Fed. Cir. 2010), aff'd sub nom., Bilski v. Kappas, 561 U.S. 593 (2010).
Patent eligibility under § 101 is a question of law suitable for resolution on a motion to
dismiss for failure to state a claim under Rule 12(b)(6). See In re TLI Commc 'ns LLC Patent

Litig., 823 F.3d 607,610 (Fed. Cir. 2016) (applying regional circuit law to the de novo review of
a district court's patent eligibility determination under§ 101 on a Rule 12(b)(6) motion to
dismiss). However, the Federal Circuit recently emphasized that, "like many legal questions,
there can be subsidiary fact questions which must be resolved en route to the ultimate legal
determination." Aatrix Software, Inc. v. Green Shades Software, Inc., 882 F.3d 1121, 1128 (Fed.
Cir. 2018). "The question of whether a claim element or combination of elements is wellunderstood, routine and conventional to a skilled artisan in the relevant field is a question of
fact[]" that goes beyond what was simply known in the prior art. Berkheimer v. HP Inc., 881
F.3d 1360, 1368 (Fed. Cir. 2018). On a motion to dismiss, this question of fact, like all questions
of fact, must be resolved in the plaintiffs favor. Aatrix Software, Inc., 882 F.3d at 1128.

2.

Analysis

As a preliminary matter, the court addresses the parties' disagreement as to whether the
claims addressed in the briefs are adequately representative of the remaining 107 asserted claims
across the four patents-in-suit. Defendants address one claim from each patent-in-suit described
by USR as "exemplary" in the complaint. (D.I. 1 at ,-i,-i 43, 65, 84, 106) Defendants contend that
USR's use of the word "exemplary" and the fact that "all of the claims effectively cover the
same core system with some variations[]" indicate that the chosen claims are representative.
2015 WL 1133213, at *4 (D. Del. Mar. 11, 2015)). However, "the absence of complete
preemption does not demonstrate patent eligibility." Ariosa Diagnostics, Inc. v. Sequenom, Inc.,
788 F.3d 1371, 1379 (Fed. Cir. 2015).
16

(12/13/17 Tr. 15:4-8) USR charges defendants with failing to meet their burden to establish how
the four claims are representative of the 107 asserted claims which are not discussed, drawing a
semantic distinction between "exemplary" and "representative." (D.1. 30 at 20)
While defendants bear the burden of proof to establish the exemplary nature of an
asserted claim, USR's representations in the complaint itself support defendants' position that
the identified claims are sufficiently representative. At oral argument, USR denied that the
claims relied upon by defendants are representative of the remaining 107 claims, but offered no
support for its position. (12/13/17 Tr. 56:20-23, 57:6-8) ("Those representations and allegations
in our complaint are not meant to take the place of detailed infringement allegations and we
submit they do not. ... Do we think [the example in the complaint is] representative of
infringement for every claim of every asserted patent? Absolutely not."). Having considered the
parties' positions and the facts before the court, I recommend that the court treat the claims
addressed in the briefing as adequately representative of the remaining 107 asserted claims
across the patents-in-suit for purposes of the pending motion.

(a)

'539 patent
(i) Alice Step 1

Applying the first step of the Alice framework to the asserted claims, the court concludes
that exemplary claim 22 of the '539 patent is not directed to an abstract idea because "the plain
focus of the claims is on an improvement to computer functionality itself, not on economic or
other tasks for which a computer is used in its ordinary capacity." Visual Memory LLC v.

NVIDIA Corp., 867 F.3d 1253, 1258 (Fed. Cir. 2017) (quoting Enfish, 822 F.3d at 1336). The
preamble of claim 22 recites "[a] method for providing information to a provider to enable
transactions between the provider and entities who have secure data stored in a secure registry in
17

which each entity is identified by a time-varying multicharacter code." ('539 patent, col. 20:4-7)
Claim 22 subsequently lists the following requirements: (1) receiving a transaction request
including a time-varying multicharacter code; (2) mapping the time-varying multicharacter code
to the identity of the user; (3) determining compliance with access restrictions to secure data; (4)
accessing information of the entity required to perform the transaction based on access
restrictions; (5) providing the account identifying information to a third party without providing
such information to the provider to enable or deny the transaction; and (6) enabling or denying
the provider to perform the transaction without the provider's knowledge of the account
identifying information. (Id., col. 20:9-31)
Verifying account information to enable a transaction is a well-known practice, as
"determination/verification of a person's identity will typically dictate extension of credit,
granting access to information, allowing entry to a restricted area, or the granting of numerous
other privileges." (' 539 patent, col. 1:46-52) However, the '539 patent is directed to an
improvement in computer functionality by enabling anonymous identification, which secures the
transaction without giving the merchant identifying information such as a credit card number.
(' 539 patent, col. 2: 17-22, 2:64-3: 1) The time-varying multicharacter code claimed in the '539
patent obviates the need for encryption of the identifying data, (id., col. 13:43-51), and the
anonymous identification system protects the credit card information from theft or fraud by the
merchant, (id., col. 2:17-22; 12:11-18). The '539 patent specification confirms that
"conventional identification devices require that at least some personal information be
transmitted to complete a transaction." (Id., col. 2:24-27) Consequently, the claims of the '539
patent represent a technological improvement sufficient to distinguish the invention from an
unpatentable abstract idea. See Visual Memory, 867 F.3d at 1259.
18

(ii) Alice Step Two

Having determined that claim 22 of the '539 patent is not directed to an abstract idea, the
court need not proceed to the second step of the Alice test to determine whether the patent
describes an inventive concept. 6 As previously stated, the '539 patent claims the inventive
concept of enabling anonymous identification to secure a transaction without giving the
merchant identifying information such as a credit card number. (' 539 patent, col. 2: 17-22, 2:643: 1); see also Elec. Power Grp., LLC v. Alstom SA., 830 F.3d 1350, 1353 (Fed. Cir. 2016)
(acknowledging significant overlap between step 1 and step 2 of the Alice inquiry).

(b)

'826 patent
(i) Alice Step 1

Applying the first step of the Alice framework, the court concludes that exemplary claim
10 of the '826 patent is not directed to an abstract idea because "the plain focus of the claims is
on an improvement to computer functionality itself, not on economic or other tasks for which a
computer is used in its ordinary capacity." Visual Memory LLC v. NVIDIA Corp., 867 F.3d
1253, 1258 (Fed. Cir. 2017) (quoting Enjish, 822 F.3d at 1336). The preamble of claim 10
recites "[a] computer implemented method of authenticating an identity of a first entity." ('826
patent, col. 45 :30-31) Claim 10 subsequently identifies the following requirements: (1)
authenticating the user of a first handheld device; (2) retrieving or receiving the user's biometric
information; (3) determining a first authentication information from the first biometric
information; (4) receiving with a second device the first authentication information; (5)
6

The court has considered the recent supplemental authority from the Federal Circuit which was
submitted by USR at D.I. 49 and D.I. 50. However, the Federal Circuit's decisions in both
Aatrix and Berkheimer focused on the district court's analysis under the second step of the Alice
inquiry, which the court does not reach in the present analysis. See Aatrix, 882 F.3d at 1128;
Berkheimer, 881 F.3d at 1367-68.
19

retrieving or receiving second authentication information for the user; and (6) authenticating the
identity of the user based on both the first and second authentication information. (Id., col.
45:32-47) Like the '539 patent, the '826 patent provides a more secure authentication system.
The '826 patent adds requirements pertaining to biometric information and implementation on a
handheld mobile device, representing a technological improvement as opposed to an abstract
idea.
Although limiting the claimed method to handheld devices is not sufficient, by itself, to
avoid categorization as an abstract idea, Alice requires the court to consider the claim's elements
"both individually and as an ordered combination" to determine whether the nature of the claim
is transformed into a patent-eligible application. Alice, 134 S. Ct. at 2350; see also Bascom, 827
F.3d at 1349 (concluding that claims contained an inventive concept even though the limitations
recited generic, non-inventive computer, network, and Internet components). The '826 patent is
directed to an improvement in computer functionality, as it requires biometric information to
locally authenticate the user as well as a second level of remote user authentication. (' 826
patent, col. 32:43-56; col. 34:7-25) While certain elements of claim 10 recite generic steps of
authenticating a user based on biometric information, the claim as a whole describes an
improved distributed authentication system with increased security. Thus, the facts presently
before the court are distinguishable from those before the Northern District of Illinois in IQS US
Inc. v. Calsoft Labs Inc., because the '826 patent presents "an unconventional technological

solution ... to a technological problem." 2017 WL 3581162, at *5 (N.D. Ill. Aug. 18, 2017)
(quoting Amdocs (Israel) Ltd. v. Openet Telecom, Inc., 841 F.3d 1288 (Fed. Cir. 2016)).

20

(ii) Alice Step Two

Having determined that claim 10 of the '826 patent is not directed to an abstract idea, the
court need not proceed to the second step of the Alice test to determine whether the patent
describes an inventive concept. As previously stated, the '826 patent claims the inventive
concept of a more secure mobile authentication system to resolve security issues specific to
remote authentication. See Elec. Power Grp., LLC v. Alstom S.A., 830 F.3d 1350, 1353 (Fed.
Cir. 2016) (acknowledging significant overlap between step 1 and step 2 of the Alice inquiry).

(c)

'137 patent
(i) Alice Step 1

Applying the first step of the Alice framework to the asserted claims, the court concludes
that exemplary claim 12 of the '13 7 patent is not directed to an abstract idea because "the plain
focus of the claims is on an improvement to computer functionality itself, not on economic or
other tasks for which a computer is used in its ordinary capacity." Visual Memory LLC v.
NVIDIA Corp., 867 F.3d 1253, 1258 (Fed. Cir. 2017) (quoting Enjish, 822 F.3d at 1336). The
preamble of claim 12 recites "[a] system for authenticating a user for enabling a transaction."
(' 137 patent, col. 46:55-56) Claim 12 subsequently lists the elements of a system comprising:
(1) a first device with a biometric sensor; (2) a first processor programmed to authenticate the

user of the first device, retrieve or receive the user's biometric information, authenticate the user
of the first device based on the biometric, and generate a signal; (3) a first wireless transceiver
coupled to the first processor and programmed to wirelessly transmit the signals to a second
device; and (4) the first processor is programmed to receive an enablement signal indicating an
approved transaction from the second device based on acceptance of the biometric authentication
as well as the first and second authentication information to enable the transaction. (Id., col.
21

46:57-47:14) The claimed system generates a time variant or other type of code which can only
be used for a single transaction, preventing the merchant from retaining information that could
be fraudulently used in subsequent transactions. (Id, col. 18:14-34) The' 137 patent thus
provides a more secure mobile transaction authentication system with both local and remote
authentication, addressing a problem specific to the security of mobile devices.
Although limiting the claimed system to mobile device transactions is not sufficient, by
itself, to avoid categorization as an abstract idea, Alice requires the court to consider the claim's
elements "both individually and as an ordered combination" to determine whether the nature of
the claim is transformed into a patent-eligible application. Alice, 134 S. Ct. at 2350; see also
Bascom, 827 F.3d at 1349 (concluding that claims contained an inventive concept even though
the limitations recited generic, non-inventive computer, network, and Internet components). The
'137 patent is directed to an improvement in the security of mobile devices by using biometric
information to generate a time varying or other type of code that can be used for a single
transaction, preventing the merchant from retaining identifying information that could be
fraudulently used in subsequent transactions. ('137 patent, col. 18:14-34) While certain
elements of claim 12 recite generic computer components, the claim as a whole describes an
improved authentication system with increased security. The facts presently before the court are
distinguishable from those before the court in Walker Digital, LLC v. Google, Inc., because the
'13 7 patent is not a computerization of a preexisting transaction approval process, but instead
teaches the use of a predetermined algorithm at both the user's device and at the USR. 66 F.
Supp. 3d 501, 511 (D. Del. 2014).

22

(ii) Alice Step Two

Having determined that claim 12 of the ' 13 7 patent is not directed to an abstract idea, the
court need not proceed to the second step of the Alice test to determine whether the patent
describes an inventive concept. As previously stated, the '13 7 patent claims the inventive
concept of a more secure mobile authentication system to resolve security issues specific to
remote authentication. See Elec. Power Grp., LLC v. Alstom S.A., 830 F.3d 1350, 1353 (Fed.
Cir. 2016) (acknowledging significant overlap between step 1 and step 2 of the Alice inquiry).

(d)

'813 patent
(i) Alice Step 1

Applying the first step of the Alice framework to the asserted claims, the court concludes
that exemplary claim 1 of the '813 patent is not directed to an abstract idea because "the plain
focus of the claims is on an improvement to computer functionality itself, not on economic or
other tasks for which a computer is used in its ordinary capacity." Visual Memory LLC v.
NVIDIA Corp., 867 F.3d 1253, 1258 (Fed. Cir. 2017) (quoting En.fish, 822 F.3d at 1336). The
preamble of claim 1 recites "[a]n electronic ID device configured to allow a user to select any
one of a plurality of accounts associated with the user to employ in a financial transaction."
(' 813 patent, col. 51 :65-67) Claim 1 subsequently lists the elements of the device comprising:
(1) a biometric sensor; (2) a user interface; (3) a communication interface; and (4) a processor
coupled to the biometric sensor. (Id., col. 52: 1-23) The claimed invention describes several
means of authenticating user information to prevent unauthorized use of the electronic ID device.
(Id., col. 45:55-46:67; 50:1-22; 51:7-26) The '813 patent thus provides a series of claim
elements operating together in a specific way to provide a more secure mobile transaction
authentication system with both local and remote authentication, addressing a problem specific
23

to the security of mobile devices without covering, and preempting, every "way[ ] you can
authenticate a mobile device payment transaction[.]" (12/13/17 Tr. 39:8-14); see McRO, Inc. v.
Bandai Namco Games Am. Inc., 837 F.3d 1299, 1313 (Fed. Cir. 2016) ("Whether at step one or
step two of the Alice test ... a court must look to the claims as an ordered combination, without
ignoring the requirements of the individual steps. The specific, claimed features of these rules
allow for the improvement realized by the invention.").
Although limiting the claimed system to verifying an account holder's identity with code
and identifying information before enabling a transaction is not sufficient, by itself, to avoid
categorization as an abstract idea, Alice requires the court to consider the claim's elements "both
individually and as an ordered combination" to determine whether the nature of the claim is
transformed into a patent-eligible application. Alice, 134 S. Ct. at 2350; see also Bascom, 827
F.3d at 1349 (concluding that claims contained an inventive concept even though the limitations
recited generic, non-inventive computer, network, and Internet components). The '813 patent is
directed to an improvement in the security of mobile devices by using a biometric sensor, a user
interface, a communication interface, and a processor working together to generate a time
varying or other type of code that can be used for a single transaction, preventing the merchant
from retaining identifying information that could be fraudulently used in subsequent transactions.
(' 813 patent, col. 52: 1-29) While certain elements of claim 1 recite generic computer
components, the claim as a whole describes an improved authentication system with increased
security. The facts presently before the court are distinguishable from those before the Federal
Circuit in Digitech Image Technologies, LLC v. Electronics for Imaging, Inc., because the '813
patent claims are tied to a tangible device with a biometric sensor, user interface, processor, and
other elements. 758 F.3d 1344, 1350 (Fed. Cir. 2014).
24

The present case is also distinguishable from the Federal Circuit's recent decisions in
Secured Mail Solutions LLC and Smart Systems Innovations, LLC, which defendants raised at
oral argument. (12/13/17 Tr. 43:2-21) The '813 patent claims a series of specific elements
operating together in a specific way to provide a tangible device that provides a more secure
authentication system. In contrast, the patent claims in Secured Mail Solutions LLC v. Universal
Wilde, Inc., which provided a method for generation and mailing of a barcode, were "not limited
to any particular technology of generating, printing, or scanning a barcode, of sending a mail
object, or of sending the recipient-specific information over a network. Rather, each step of the
process is directed to the abstract process of communicating information about a mail object
using a personalized marking." 873 F.3d 905, 911 (Fed. Cir. 2017). Similarly, in Smart Systems
Innovations, LLC v. Chicago Transit Authority, the Federal Circuit concluded that the asserted
claims were not "directed to specific rules that improve a technological process, but rather
invoke computers in the collection and arrangement of data." 873 F.3d 1364, 1372-73 (Fed. Cir.
2017). Claim 1 of the '813 patent is distinguishable from these abstract ideas because the
claimed electronic ID device is limited to a particular technology comprising a biometric sensor,
a user interface, a communication interface, and a processor, each of which is narrowly
configured to the claimed invention as an improvement to the technology. ('813 patent, col.
51 :65-52:29)
According to defendants, four pending patent applications that are continuations of the
'813 patent also support their position that the patents-in-suit are invalid under 35 U.S.C. § 101.
(D.I. 44 at 1) At oral argument, defendants argued that the non-final rejection of U.S.
Application No. 14/071, 126 ("the '126 application") for patent ineligibility is significant because
its claims have substantial similarities to the claims of the '813 patent. (12/13/17 Tr. 6:9-16)
25

However, consistent with the representations made by the court during the oral argument, the
court does not consider the non-final rejection of the' 126 application to be "outcome
determinative." (12/13/17 Tr. at 8:13-19)
(ii) Alice Step Two

Having determined that claim 1 of the '813 patent is not directed to an abstract idea, the
court need not proceed to the second step of the Alice test to determine whether the patent
describes an inventive concept. As previously stated, the '813 patent claims the inventive
concept of a more secure mobile authentication system to resolve security issues specific to
remote authentication. See Elec. Power Grp., LLC v. Alstom SA., 830 F.3d 1350, 1353 (Fed.
Cir. 2016) (acknowledging significant overlap between step 1 and step 2 of the Alice inquiry).

IV.

CONCLUSION
For the foregoing reasons, I recommend that the court deny defendants' motion to

transfer (D.I. 21), and deny defendants' motion to dismiss pursuant to Rule 12(b)(6) (D.I. 16).
This Report and Recommendation is filed pursuant to 28 U.S.C. § 636(b)(l)(B), Fed. R.
Civ. P. 72(b)(l), and D. Del. LR 72.1. The parties may serve and file specific written objections
within fourteen (14) days after being served with a copy of this Report and Recommendation.
Fed. R. Civ. P. 72(b)(2). The objections and responses to the objections are limited to ten (10)
pages each. The failure of a party to object to legal conclusions may result in the loss of the right
to de novo review in the District Court. See Sine avage v. Barnhart, 171 F. App 'x 924, 925 n. l
(3d Cir. 2006); Henderson v. Carlson, 812 F.2d 874, 878-79 (3d Cir. 1987).

26

The parties are directed to the court's Standing Order For Objections Filed Under Fed. R.
Civ. P. 72, dated October 9, 2013, a copy of which is available on the court's website,
http://www.ded.uscourts.gov.

Dated: September 19, 2018
GISTRATE JUDGE

27