"Alice" Motion to Dismiss Complaint Denied in Credit Card Personalization Suit

March 2, 2017 — A Colorado federal judge today rejected an attempt to invalidate Osha Liang client Gemalto SA’s patent on improved smart card personalization systems.  After Gemalto sued CPI Card Group for infringement last year, CPI sought to dismiss the case under 35 U.S.C. § 101 based on its argument that the Gemalto patent claimed only unpatentable abstract ideas and was therefore invalid under the U.S. Supreme Court’s Alice v. CLS Bank ruling.  U.S. District Judge R. Brooke Jackson agreed with Gemalto that the patent claims “are directed to specific improvements on existing smart card customization systems and are therefore readily patentable.”  Judge Jackson noted that CPI “largely describe[d] [the patent] claims and what they accomplish at too high a level of generality, and therefore CPI oversimplifie[d]” the patent, a defense strategy increasingly being recognized by the federal courts as an incorrect application of the Alice decision and its progeny.

Judge Jackson applied a two-step inquiry that is often called the Alice inquiry.  First, at step one, a court determines the threshold question of whether the claims at issue are “directed to” one of the patent-ineligible concepts: laws of nature, natural phenomena, and abstract ideas.  If they are not, then the Alice inquiry is over and the claims are not invalid under § 101.  If they are, however, directed to one of the aforementioned concepts, the court then examines the elements of each challenged 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, in accordance with the analysis set forth in the CAFC’s Enfish v. Microsoft ruling.  In this case, Judge Jackson agreed with Gemalto that the patent claims were not “directed to” abstract ideas, and therefore the Alice inquiry here ended at step one.  CPI’s attempt to invalidate the Gemalto patent was denied.

Finally, Judge Jackson noted that there is a split of authority over whether the presumption of validity for issued patents contained within 35 U.S.C. § 282 (which requires proving invalidity by “clear and convincing” evidence) applies to § 101 validity challenges, but determined that resolution of the issue was unnecessary because CPI had “not even shown by a preponderance of the evidence that the [Gemalto] patent and claims in dispute are directed to patent-ineligible subject matter.”

“We look forward to demonstrating the merits of Gemalto’s intellectual property as it relates to modern financial transaction systems involving smart, also called EMV, cards,” said Peter C. Schechter, counsel for plaintiff Gemalto.

This suit is just one part of a multi-faceted legal dispute between Gemalto SA, a global leader in the field of financial transaction cards and payment systems, and CPI Card Group Inc.  Gemalto accuses CPI of infringing a patent relating to countermeasures used in EMV cards to defeat electronic theft of card data; that litigation is stayed while the patent is being reviewed by the USPTO’s Patent Trial and Appeal Board.

The Gemalto patent-in-suit held not invalid under § 101 is U.S. Patent No. 6,786,418.  The case is Gemalto S.A. v. CPI Card Group Inc., Civil Action No. 16-cv-01006-RBJ, in the U.S. District Court for the District of Colorado.

Gemalto is represented by Peter C. Schechter and Monica M. Katthage of Osha Liang LLP and Kris J. Kostolansky and Adam L. Massaro of Lewis Roca Rothgerber Christie LLP.