Upaid Systems, Ltd. v. Card Concepts, Inc.

Filing 80

MEMORANDUM Opinion and Order written by the Honorable Gary Feinerman on 3/25/2019.Mailed notice.(jlj, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
UPAID SYSTEMS, LTD.,
Plaintiff,
vs.
CARD CONCEPTS, INC.,
Defendant.

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17 C 8150
Judge Gary Feinerman

MEMORANDUM OPINION AND ORDER
Upaid Systems, Ltd. brought this suit against Card Concepts, Inc. (“CCI”), alleging
infringement of U.S. Patent No. 8,976,947 (“’947 Patent”). Doc. 32. CCI moves under Civil
Rule 12(c) for judgment on the pleadings, arguing that the ’947 Patent is invalid under 35 U.S.C.
§ 101. Doc. 35. The motion is denied.
Background
As on a Rule 12(b)(6) motion, the court on a Rule 12(c) motion assumes the truth of the
complaint’s well-pleaded factual allegations, though not its legal conclusions. See Bishop v. Air
Line Pilots Ass’n, Int’l, 900 F.3d 388, 397 (7th Cir. 2018). The court must also consider
“documents attached to the complaint, documents that are critical to the complaint and referred
to in it, and information that is subject to proper judicial notice,” along with additional facts set
forth in Upaid’s opposition papers, so long as those additional facts “are consistent with the
pleadings.” Phillips v. Prudential Ins. Co. of Am., 714 F.3d 1017, 1019-20 (7th Cir. 2013)
(internal quotation marks omitted); see also N. Ind. Gun & Outdoor Shows, Inc. v. City of S.
Bend, 163 F.3d 449, 452 (7th Cir. 1998). The facts are set forth as favorably to Upaid as those
materials allow. See Brown v. Dart, 876 F.3d 939, 940 (7th Cir. 2017). In setting forth the facts

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at this stage, the court does not vouch for their “objective truth.” See Goldberg v. United States,
881 F.3d 529, 531 (7th Cir. 2018).
Upaid is the assignee and owner of the ’947 Patent. Doc. 32 at ¶ 75; Doc. 32-1 at 2-45.
Although the patent was filed in October 2007 and issued in March 2015, Doc. 32 at ¶ 58, the
technology was developed in the late 1990s, id. at ¶ 18. At that time, a telephone carrier’s
network capability depended substantially on the type of its switches (e.g., analog or digital) and
the functionality of its software (e.g., whether it supported a certain service feature). Doc. 32-1
at 31, 1:39-2:18. As a result, the range of communication services each carrier could offer was
limited by the sophistication of its network’s technology. Ibid.; Doc. 32 at ¶ 70. Upgrading the
network’s hardware and software to achieve interoperability—meaning the ability to interface
with other networks to provide enhanced telecommunications services—required significant
time, money, and effort. Doc. 32-1 at 31, 2:1-28. This lack of interoperability restricted the
availability of call forwarding, call conferencing, voicemail, and other advanced communication
services. Id. at 1:56-67; Doc. 32 at ¶ 12.
The ’947 Patent set out to address these problems by providing an enhanced platform that
makes communication services available to subscribers while remaining external to the carrier’s
network. Doc. 32 at ¶¶ 13, 34; Doc. 43 at 35. The platform is constructed on an industrystandard computer that interfaces with older “legacy” switches on the carrier’s network. Doc.
32-1 at 31, 2:19-28; id. at 41, 22:35-56. The platform enables advanced communication
services, also called “pre-authorized communication services and transactions,” over external
networks even where individual network switches are not configured to support such services.
Doc. 32 at ¶¶ 14-15, 68, 76. The patented technology thus expands the availability of advanced
communication services across different types of networks while providing carriers a less

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burdensome means to control access to and collect payment for those services. Id. at ¶ 76; Doc.
32-1 at 41, 22:35-56; id. at 44, 27:37-56.
Upaid alleges that CCI’s pre-authorized payment systems for laundromat services
infringe on several of the ’947 Patent’s claims. Doc. 32 at ¶¶ 85-90, 92-98, 100-106. Upaid
seeks monetary and injunctive relief. Id. at pp. 34-35, ¶¶ A-G.
Discussion
As noted, CCI seeks a Rule 12(c) judgment on the ground that the ’947 Patent is invalid
under § 101. Under Alice Corp. v. CLS Bank International, 573 U.S. 208 (2014), and Mayo
Collaborative Services v. Prometheus Laboratories, Inc., 566 U.S. 66 (2012), the § 101 inquiry
has two steps. First, the court “determine[s] whether the claims at issue are directed to [an
abstract idea].” Alice, 573 U.S. at 217. If so, the court proceeds to consider the elements of each
claim “both individually and as an ordered combination to determine whether the additional
elements transform the nature of the claim into a patent-eligible application.” Ibid. (internal
quotation marks omitted).
In that second step, the court searches for “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. at 217-18 (alteration and
internal quotation marks omitted). “If the elements involve ‘well-understood, routine, and
conventional activity previously engaged in by researchers in the field,’ they do not constitute an
‘inventive concept’” and thus fail Alice step two. Aatrix Software, Inc. v. Green Shades
Software, Inc., 882 F.3d 1121, 1128 (Fed. Cir. 2018) (quoting Mayo, 566 U.S. at 72-73)
(alteration omitted). By contrast, the elements satisfy the second step “when the claim

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limitations involve more than performance of ‘well-understood, routine, [and] conventional
activities previously known to the industry.’” Ibid. (quoting Alice, 573 U.S. at 221).
Upaid contends that it would be premature to conduct a step-two Alice analysis at the
pleading stage given the facts and circumstances of this case. Doc. 43 at 32-35. As the Federal
Circuit observed in Aatrix, “patent eligibility can be determined at the [pleading] stage.” 882
F.3d at 1125. The Federal Circuit took pains to note, however, that “[t]his is true only when
there are no factual allegations that, taken as true, prevent resolving the eligibility question as a
matter of law.” Ibid.; see also Data Engine Techs. LLC v. Google LLC, 906 F.3d 999, 1007
(Fed. Cir. 2018). Thus, “plausible factual allegations may preclude dismissing a case under
§ 101 where, for example, nothing on the record … refutes those allegations as a matter of law or
justifies dismissal.” Aatrix, 882 F.3d at 1125 (citations and internal quotation marks omitted).
Of particular relevance here, “resolution at the … Rule 12(c) stage is … inappropriate where
claim elements are adequately alleged to be more than well-understood, routine, or
conventional”—for such allegations allow the patent to survive the second step of Alice. Interval
Licensing LLC v. AOL, Inc., 896 F.3d 1335, 1342 n.4 (Fed. Cir. 2018); see also Aatrix, 882 F.3d
at 1126-27 (“We have held that patentees who adequately allege their claims contain inventive
concepts survive a § 101 eligibility analysis under Rule 12(b)(6).”); Berkheimer v. HP Inc., 881
F.3d 1360, 1369 (Fed. Cir. 2018) (“While patent eligibility is ultimately a question of law, …
there are … factual [aspects] to the § 101 inquiry. Whether something is well-understood,
routine, and conventional to a skilled artisan at the time of the patent is a factual determination.”)
(citation omitted).
Aatrix exemplifies the circumstances where conducting a step-two Alice analysis is
premature at the pleading stage. The patents in Aatrix were “directed to systems and methods for

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designing, creating, and importing data into a viewable form on a computer so that a user can
manipulate the form data and create viewable forms and reports.” Aatrix, 882 F.3d at 1123. The
patentee’s allegations “describe[d] the development of the patented invention, including the
problems present in prior art computerized form file creation,” and then “present[ed] specific
allegations directed to improvements and problems solved by the … patented inventions.” Id. at
1127 (internal quotation marks omitted). Those allegations, Aatrix explained, established for
pleading purposes that the patents’ “individual elements and the claimed combination are not
well-understood, routine, or conventional activity.” Id. at 1128. Because “[w]hether the claim
elements or the claimed combination are well-understood, routine, conventional is a question of
fact,” and because the patentee’s allegations did not allow that question to “be answered
adversely to the patentee” on the pleadings, Aatrix concluded that a § 101 dismissal was
inappropriate because the patentee’s allegations, “if accepted as true, establish[ed] that the
claimed combination contains inventive components and improves the workings of the
computer.” Id. at 1125, 1128; see also Natural Alternatives Int’l, Inc. v. Creative Compounds,
LLC, __ F.3d __, 2019 WL 1216226, at *5 (Fed. Cir. Mar. 15, 2019) (“While a fact-finder may
ultimately determine that the [claim] limitation was well-understood, routine, and conventional,
absent a clear statement to that effect in the specification, complaint, or other material properly
before the court, when disputed such a determination may not be made on a motion for judgment
on the pleadings.”).
The same result obtains here. Like the pleadings in Aatrix, Upaid’s allegations and the
’947 Patent’s specification “describe the development of the patented invention, including the
problems present in prior art.” Id. at 1127; see Doc. 32 at ¶¶ 10-27; Doc. 32-1 at 31, 1:39-2:28.
Upaid’s allegations also describe how the inventions “disclosed in the ’947 Patent are

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improvements over the prior art” and “enable[] the operation of advanced communications
services regardless of equipment or network hardware limitations.” Doc. 32 at ¶ 68; see also id.
at ¶¶ 27, 69-71; Doc. 32-1 at 31-32, 2:29-3:42 (detailing how the patent was an improvement
over prior art). In this regard, Upaid alleges:
The invention(s) disclosed in the ’947 patent enable advanced communication
services, which are normally dependent on the carriers’ (e.g., network)
equipment and thus restricted by the carriers’ equipment, to operate over the
carriers’ equipment which the advanced communication services cannot
normally operate. The ability to utilize advanced communication services,
regardless of the user’s location, is highly desirable. For example, a user may
have access depending on the city or country [where] they are located, or may
have access at their place of business, but not their residence. At the time of
the invention, the industry solution to this problem was to upgrade operating
systems, software and hardware that can facilitate the operation of the
advanced communication services. The industry solution was time
consuming, took substantial effort and was very expensive. However, instead
of upgrading and replacing the operating systems, hardware and software, the
’947 patent improved the operation of the carriers’ equipment and networks
by enabling the advanced communication services to operate on the carrier’s
equipment and networks via Upaid’s enhanced platform.
Doc. 32 at ¶ 70; see also Doc. 32-1 at 31-32, 1:24-3:42 (explaining in the specification how the
invention expands access to advanced communication services previously limited by the
hardware and software used by individual telecommunications networks). Given all this, the
court “[can]not conclude at the [pleading] stage that the [’947 Patent’s] claimed elements [are]
well understood, routine, or conventional,” and therefore cannot presently resolve the step-two
Alice inquiry in CCI’s favor. Aatrix, 882 F.3d at 1129; see also Natural Alternatives, 2019 WL
1216226, at *8 (“[T]he specification does not contain language supporting the idea that this
limitation was well-understood, routine and conventional. [Because t]he language in the
specification does not support this proposition, … such a determination may not be made on a
motion for judgment on the pleadings.”).

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CCI retorts that the pleadings provide a sufficient basis to determine that the ’947 Patent
fails the second step of Alice. Doc. 47 at 14-17. Specifically, CCI emphasizes Upaid’s
admission in the patent that “[a] preferred embodiment of the invention is readily implemented
on a network by presently available communication apparatuses and electronic components.” Id.
at 15 (emphasis omitted) (quoting Doc. 32-1 at 34, 7:45-47). Yet “[an] invention’s ability to run
on a general-purpose computer” does not mean that it lacks an “inventive concept” where, as
here, the patent allegedly “[was] directed to an improvement in the functioning of” an existing
technology. Enfish, LLC v. Microsoft Corp., 822 F.3d 1327, 1336, 1338 (Fed. Cir. 2016); see
also Aatrix, 882 F.3d at 1127 (“These allegations suggest that the claimed invention is directed
to an improvement in the computer technology itself and not directed to generic components
performing conventional activities.”); Amdocs (Israel) Ltd. v. Openet Telecom, Inc., 841 F.3d
1288, 1303 (Fed. Cir. 2016) (reversing a Rule 12(c) judgment based on patent ineligibility
where, “[w]hile some individual [claim] limitations arguably may be generic, … [t]he claim
recites a technological solution to a technological problem specific to computer networks—an
unconventional solution that was an improvement over the prior art”).
In sum, given CCI’s failure to identify a “clear statement … in the specification,
complaint, or other material properly before the court” that undermines Upaid’s allegations that
its invention was not “well-understood, routine, and conventional,” Natural Alternatives, 2019
WL 1216226, at *5, the court cannot resolve the step-two Alice analysis in CCI’s favor on a Rule
12(c) motion.

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Conclusion
CCI’s motion for judgment on the pleadings is denied. The denial is of course without
prejudice to CCI renewing its § 101 challenge to the ’947 Patent at the appropriate juncture.

March 25, 2019

United States District Judge

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