We will be discussing one California appellate case involving the availability of insurance coverage for intellectual property claims and a Federal Circuit case discussing patentable subject matter.  We will discuss these cases in our weekly SoCal IP Institute meeting on Monday, September 12, 2011.  Brief synopses are presented below.

Aroa Marketing, Inc. v. Hartford Ins. Co., Case No. B228051 (Cal. App. Div. 4 August 23, 2011) (attached). Hartford had issued a commercial general liability insurance policy to Aroa for the policy period September 9, 2006 to November 1, 2007. The policy covered “personal and advertising injury” arising out of Aroa’s business. “Personal and advertising injury” was defined to include, “oral or written or electronic publication of material that violates a person’s right of privacy,” but specifically excluded, “personal and advertising injury” arising out of, “any violation of any intellectual property rights, such as copyright, patent, trademark, trade name, trade secret, service mark, or other destination of origin or authenticity.”

Aroa hired actress Tara Radcliffe to take part in an exercise video that, it was said, would be used in promotions at the Consumer Electronics Show (CES).  Aroa later used the video (including her likeness) to sell other products and at locations other than CES.  She requested they compensate her for that use and they refused.  She sued for various claims stemming from the use of her likeness and the parties eventually settled.  Aroa sought indemnity from its insurer, Hartford who refused.  Eventually, Aroa brought suit against Hartford in an effort to enforce the terms of the insurance policy.  The trial court granted Hartford’s demurrer on the complaint without leave to amend.

Aroa argued that the suit was a violation of a California “right of privacy” covered by the policy.  Hartford disagreed.  The appellate court agreed with Aroa.  However, the policy’s specific exclusion of “intellectual property” related claims included expansive language including “such as” and “any intellectual property rights.” This was sufficient to remove right of publicity-related claims from the coverage provided by the policy.  The court concluded that the decision to grant the demurre without leave to amend was proper because under no circumstances could Aroa succeed.

CyberSource Corp. v. Retail Decisions, Inc., Case No. 2009-1358 (Fed. Cir. August 16, 2011 (attached).  CyberSource is the owner of a U.S. Pat. No. 6,029,154 which claims a “method and system for detecting fraud in credit card transactions between [a] consumer and a merchant over the Internet.”  In particular, the claims seek to detect fraud by determining whether the current internet address matches one of a number of prior internet addresses from which legitimate purchases have originated.

CyberSource brought suit against Retail Decisions in 2004.  Retail Decisions immediately requested a reexamination of the patent.  The district court resumed proceedings after the reexamination ended in 2008.  After the Federal Circuit’s In re Bilski decision, Retail Decisions was granted summary judgment under 35 U.S.C. Section 101. 545 F.3d 943 (Fed. Cir. 2008).  The district court found that claims 2 and 3 of the patent were invalid.  The Federal Circuit stayed the appeal until the Supreme Court’s Bilski v. Kappos decision was handed down. 129 S. Ct. 2735 (June 1, 2009).

The at issue claim 3 reads:

3. A method for verifying the validity of a credit card transaction over the Internet comprising the steps of:
a) obtaining information about other transactions that have utilized an Internet address that is identified with the credit card transaction;
b) constructing a map of credit card numbers based upon the other trans-actions and;
c) utilizing the map of credit card numbers to determine if the credit card transaction is valid.

Claim 2 recites “computer readable media” for performing those same steps.  On appeal, the Federal Circuit agreed that the steps recited by claim 3 could not meet the machine-or-transformation test.  In addition, the Federal Circuit found that claim 3 was merely a “mental process.”  The inclusion of “the Internet” did not take the claim out of the realm of purely mental steps and, therefore, it was not patent-eligible subject matter.  The court also noted that no specific algorithm was disclosed in either the claims or the specification.

Asserted claim 2 was a so-called “Beauregard claim” drawn to a “computer readable medium containing program instructions for a computer to perform” a particular process.  The court disregarded CyberSource’s argument that this claim defines an article of “manufacture,” and was thus clearly-patentable subject matter under Section 101.  Instead, the Federal Circuit looked to the “underlying invention for patent-eligibility purposes” and found that it was a method claim directed to purely mental processes.  The court suggested that if a specific algorithm were disclosed that was beyond practical application by a human mind, then claim 2 (and presumably claim 3) might define patentable subject matter.  This was not the case in claim 2.  The district court’s invalidity decision was, therefore, affirmed.

All are invited to join us in our discussion during the SoCal IP Institute meeting on Monday, September 12, 2011 at Noon in our Westlake Village office. This activity is approved for 1 hour of MCLE credit. If you will be joining us, please RSVP to Amanda Jones by 9 am Monday morning.