Case 2:12-cv-04229-RGK-FFM Document 27 Filed 09/18/12 Page 1 of 6 Page ID #:301
`JS-6
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
` CIVIL MINUTES - GENERAL
`
`Case No. CV 12-04229 RGK (FFMx)
`Title
`VACATION EXCHANGE, LLC v. WYNDHAM EXCHANGE & RENTALS, INC.
`
`Date September 18, 2012
`
`R. GARY KLAUSNER, UNITED STATES DISTRICT JUDGE
`
`Present: The
`Honorable
`S. Williams (Not Present)
`Deputy Clerk
`Attorneys Present for Plaintiffs:
`Not Present
`
`N/A
`Not Reported
`Tape No.
`Court Reporter / Recorder
`Attorneys Present for Defendants:
`Not Present
`
`Proceedings:
`
`(IN CHAMBERS) Order Re: Defendants’ Motion to Dismiss Under
`Rule 12(b)(6) (DE 12)
`
`I.
`
`INTRODUCTION
`
`This is a patent infringement suit brought by Vacation Exchange, LLC (“Plaintiff”)
`against Wyndham Exchange and Rentals, Inc. and RCI, LLC (collectively, “Defendants”) for
`alleged infringement of U.S. Patent No. 5,926,793 (filed Sept. 10, 1996) (“the ‘793 Patent”).
`Because the Court finds that the ‘793 Patent does not cover patentable subject matter, it
`GRANTS Defendants’ Motion to Dismiss under Rule 12(b)(6).
`
`II.
`
`FACTUAL BACKGROUND
`
`The ‘793 Patent claims an invention for trading timeshare properties over a network. In
`particular, the ‘793 Patent discloses a method and a system for allowing a user to
`automatically and electronically trade timeshare properties by communicating with a central
`computer system that has access to a database.
`
`Timesharing of vacation properties is not a new idea. In fact, the specification of the
`‘793 Patent acknowledges that “in the 1970’s the ideas and procedures [of timesharing]
`became well known.” ‘793 Patent col.1 l.13-14. However, when the patent was filed, the major
`timeshare exchange companies still required members to use a telephone or write a letter to
`manually make trades. ‘793 Patent col.1 l.26-28. The ‘793 Patent addresses this problem.
`
`The two independent claims of the ‘793 Patent are claims 1 and 5. Claim 1 discloses a
`“computer-implemented method and database for trading vacation timeshare property time
`interests,” comprising the steps of: (1) a user establishing communication with a central
`computer system with a database of accounts; (2) the user storing its timeshare interest into
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`the database; (3) the computer system crediting that user’s account; (4) the user searching the
`database for timeshare interests by specifying desirability criteria; (5) the computer system
`retrieving from the database and remotely displaying timeshare interests meeting the user’s
`criteria; (6) the user selecting a timeshare interest from those displayed; (7) the computer
`system debiting the user’s account in response to the user’s selection; and (8) the computer
`system notifying property management personnel of the user’s selected timeshare interest.
`
`Claim 5 essentially rewrites claim 1 as a system claim using means-plus-function
`language. It discloses a “computer system for trading vacation timeshare property time
`interests,” comprising: (1) a database for storing accounts; (2) communication means for a
`user to communicate with a central computer; (3) storage means for storing timeshare
`interests in the database; (4) credit means for crediting an account for a timeshare interest; (5)
`search means for remotely searching the database according to user indicated search criteria;
`(6) selection means for selecting a timeshare interest; (7) debit means for debiting a timeshare
`interest from an account; and (8) notification means for notifying property management of a
`user’s timeshare selection. Each of the system means in claim 5 mirrors an equivalent method
`step in claim 1.
`
`Dependent claims 2-4 add steps to claim 1 while dependent claims 6-8 add functionality
`to claim 5 that mirrors those steps. For example, claim 3 discloses the step of “said user
`indicating a geographic region in which said user desires to vacation” while claim 7 discloses a
`“means for searching said database in response to said user indicating a geographic region in
`which said user desires to vacation.”
`
`III.
`
`JUDICIAL STANDARD
`
`A party may move to dismiss for failure to state a claim upon which relief can be granted
`under Federal Rule of Civil Procedure 12(b)(6). In deciding a Rule 12(b)(6) motion, the Court
`must assume that the plaintiff’s allegations are true and construe the complaint in the light
`most favorable to the non-moving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38
`(9th Cir. 1996). Dismissal is appropriate only where the complaint lacks a cognizable legal
`theory or sufficient facts to support a cognizable legal theory. Mendiondo v. Centinela Hosp.
`Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008). “While a complaint attacked by a Rule 12(b)(6)
`motion to dismiss does not need detailed factual allegations, a plaintiff’s obligation to provide
`the ‘grounds’ of his ‘entitlement to relief’ requires more than labels and conclusions, and a
`formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic Corp. v.
`Twombly, 550 U.S. 544, 555 (2007) (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)).
`The court need not accept as true unreasonable inferences, unwarranted deductions of fact, or
`conclusory legal allegations cast in the form of factual allegations. W. Mining Council v. Watt,
`643 F.2d 618, 624 (9th Cir. 1981).
`
`IV.
`
`DISCUSSION
`
`Defendants seek dismissal of Plaintiff’s Complaint on the basis that Plaintiff’s ‘793
`Patent does not claim patentable subject matter. Specifically, Defendants contend that the ‘793
`Patent is abstract because it merely claims a method for trading vacation timeshares using
`general computer components. This Court agrees.
`
`A.
`
`Claim Construction Is Not Necessary to Decide this Motion
`
`As an initial matter, where claim construction is not required for a full understanding of
`the basic character of the claimed subject matter, a district court may resolve patentable
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`subject matter eligibility on a motion to dismiss. See Bancorp Servs., L.L.C. v. Sun Life
`Assurance Co. of Canada, 687 F.3d 1266, 1273-74 (Fed. Cir. 2012) (affirming that there is no
`“bright line rule requiring district courts to construe claims before determining subject matter
`eligibility”); see also Ultramercial, LLC v. Hulu, LLC, No. CV-09-06918 RGK (PLAx), 2010 WL
`3360098, at *1 (C.D. Cal. Aug. 13, 2010) (granting motion to dismiss for unpatentable subject
`matter), vacated on other grounds, 657 F.3d 1323 (Fed. Cir. 2011), vacated sub nom.
`Wildtangent, Inc. v. Ultramercial, LLC, 132 S. Ct. 2431 (2012). Here, claim construction would
`not clarify the Court’s understanding of the claimed subject matter. The relevant terms are
`clear, and Plaintiff failed to show any construction that would dictate a different analysis
`regarding patentable subject matter. Therefore, it is appropriate for the Court to hear this
`motion without first construing the claims.
`
`B.
`
`Claims 1-4 Are Not Patent Eligible
`
`Section 101 of the Patent Act defines patentable subject matter as “any new and useful
`process, machine, manufacture, or composition of matter, or any new and useful improvement
`thereof.” 35 U.S.C. § 101. The Supreme Court has long held that Section 101 implicitly
`excludes “laws of nature, natural phenomena, and abstract ideas.” See Mayo Collaborative
`Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289, 1298 (2012); Bilski v. Kappos, 130 S. Ct.
`3218, 3225 (2010).
`
`Though abstract ideas are clearly unpatentable, courts have struggled to define a test
`for determining whether a subject matter is abstract. See CLS Bank Intern. v. Alice Corp. Pty.
`Ltd., 685 F.3d 1341, 1348-49 (Fed. Cir. 2012) (noting that the test for abstract ideas has
`become “a serious problem, leading to great uncertainty”). In Bilski, the Supreme Court broadly
`defined an abstract idea as “a fundamental truth; an original cause; a motive; these cannot be
`patented, as no one can claim in either of them an exclusive right.” Bilski, 130 S. Ct. at 3230.
`Using that definition, the Supreme Court held that a method claim directed to “the basic
`concept of hedging” was abstract and unpatentable because “[h]edging is a fundamental
`economic practice long prevalent in our system of commerce.” Id. at 3231. Similarly, the
`Federal Circuit has explained that “abstract ideas constitute disembodied concepts or truths
`which are not ‘useful’ … until reduced to some practical application.” In re Alappat, 33 F.3d
`1526, 1542 n.18 (Fed. Cir. 1994).
`
`Even under these obscure guidelines, it is clear that the mere idea of vacation
`timeshare trading, without more, is abstract. Just like the vague, unapplied concept of hedging
`in Bilski, the idea of timeshare trading is also basic, widely-known, and long prevalent in our
`system of commerce. Even the ‘793 Patent itself acknowledges that “in the 1970’s the ideas
`and procedures [of timesharing] became well known” and that “over 3 million timeshares have
`been sold since 1980.” ‘793 Patent col.1 l.13-16. The question, then, is whether there is more
`to claim 1 and its dependent claims (claims 2-4) than the bare idea of vacation timeshare
`trading.
`
`While the law has not precisely defined what constitutes “more” for purposes of
`patentability, the Supreme Court has endorsed the “machine-or-transformation test” as an
`“important and useful clue” to abstractness. The Court, however, clarified that it is not the only
`test. Bilski, 130 S. Ct. at 3225-27. Several decisions have additionally looked to the notion of
`preemption as another indication of patentability. See Id. at 3231; CLS Bank, 685 F.3d at
`1349. Using both of these approaches, the Court finds that independent claim 1 of the ‘793
`Patent is abstract and not patent eligible. Also, claim 1’s dependent claims, claims 2-4, merely
`add minor steps that do not dictate a different result. Therefore, the Court finds that claims 1-4
`are abstract and unpatentable.
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`1.
`Machine-or-Transformation Test
`
`The machine-or-transformation test indicates that a process is likely to be patentable if it
`(1) is tied to a particular machine or apparatus; or (2) transforms a particular article into a
`different state or thing. Bilski, 130 S. Ct. at 3225. Plaintiff contends that its claims satisfy the
`machine prong of the test because they require a computer and a database, using electronic
`data transmissions on a machine. The Court finds Plaintiff’s arguments unavailing.
`
`Not every patent that simply recites a method performed on a machine passes the test;
`the machine must “impose meaningful limits on the claim’s scope” to impart patent eligibility.
`Fort Props., Inc. v. Am. Master Lease LLC, 671 F.3d 1317, 1323 (Fed. Cir. 2012) (holding that
`a requirement of “using a computer” does not suddenly render an abstract idea patentable).
`Recent Supreme Court decisions have similarly held that adding well-understood, routine, and
`conventional means—such as a general purpose computer or database—does not limit an
`idea in any meaningful way. See Prometheus, 132 S. Ct. at 1298 (2012) (concluding that a
`process for calibrating drug dosage fell outside Section 101 because its purported limitations
`were merely conventional steps that “add[ed] nothing of significance” to the application of a law
`of nature); Bilski, 130 S. Ct. at 3231 (rejecting an application because it did not “add” anything
`to the otherwise abstract idea of minimizing economic risk). Instead, “[t]o salvage an otherwise
`patent-ineligible process, a computer must be integral to the claimed invention, facilitating the
`process in a way that a person making calculations or computations could not.” Bancorp, 687
`F.3d at 1278 (quoting SiRF Tech, Inc. v. Int’l Trade Comm’n, 601 F.3d 1319, 1333 (Fed. Cir.
`2010)). “In order for the addition of a machine to impose a meaningful limit on the scope of a
`claim, it must play a significant part in permitting the claimed method to be performed, rather
`than function solely as an obvious mechanism for permitting a solution to be achieved more
`quickly, i.e., through the utilization of a computer for performing calculations.” SiRF Tech, 601
`F.3d at 1333.
`
`Here, the computer components in independent claim 1 do not play a significant part in
`permitting the method to be performed. A computer is required only for performing basic, high-
`level tasks like crediting and debiting accounts, and notifying property management. Likewise,
`the database is only used to search, store, and select timeshares. None of these steps are
`intrinsic to a computer. They are indistinguishable from the tasks that a human would perform
`manually, which was how the vacation timeshare industry functioned for nearly 30 years before
`the ‘793 Patent was filed. Like in SiRF, the computer and database here are used only to
`facilitate faster trades. A computer is not integral to the claimed invention.
`
`In support of its position, Plaintiff relies on CLS Bank, a Federal Circuit case upholding a
`method for performing financial trading escrows on a computer. CLS Bank is inapposite. The
`claimed method in CLS Bank required special programming to implement a “data file in a data
`storage unit” called a “shadow record,” a detailed computer-based implementation that cannot
`be performed by a human. CLS Bank, 685 F.3d at 1354. In contrast, nothing in claim 1
`requires special computer programming that cannot be performed by a human. Adding the
`words “apply it to a computer” cannot transform an abstract idea into a patentable claim, yet
`Plaintiff’s bare recitations of a computer and a database attempt to do just that. Therefore,
`claim 1 is not tied to a machine.
`
`Finally, it is undisputed that claim 1 does not transform an article. Thus, this Court finds
`that the claim 1 does not satisfy either prong of the machine-or-transformation test.
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`2.
`Preemption
`
`Under the notion of “preemption,” a claim likely covers an abstract idea if it would
`foreclose every future innovation in the art. See Bilski, 130 S. Ct. at 3231 (invalidating an
`abstract method for hedging because it “would pre-empt use of this approach in all fields”);
`Gottschalk v. Benson, 409 U.S. 63, 72 (1972) (invalidating a process because the “practical
`effect would be a patent on the algorithm itself”). A claim drawn to a specific way of doing
`something with a computer likely does not “preempt much in the way of innovation” because it
`leaves “broad room for other methods.” CLS Bank, 685 F.3d at 1355-56; Alappat, 33 F.3d at
`1544-45 (holding that claims directed to a specially-programmed computer were patent eligible
`subject matter). But a claim to nothing more than performing an abstract idea on a computer
`could preempt innovation by precluding all uses of the inventive idea and, therefore, is not
`patent eligible. See CLS Bank, 685 F.3d at 1351 (“a claim to nothing more than the idea of
`doing that thing on a computer may not [be patent eligible]”); see also Mark A. Lemley et al.,
`Life After Bilski, 63 Stan. L. Rev. 1315, 1345 (2011). Moreover, the Supreme Court has
`emphasized that limiting an abstract idea to one field of use or adding token “postsolution”
`activity—conventional steps, specified at a high level of generality—is not sufficient to avoid
`preemption. Bilski, 130 S. Ct. at 3231; Flook, 437 U.S. at 590.
`
`Plaintiff argues, to no avail, that claim 1 does not preempt innovation because it is tied
`to a specific way of timesharing trading using a computer and database. However, the fact that
`claim 1 is limited to the field of timeshare trading does not help it avoid preemption, nor does
`its incorporation of token “postsolution” components, such as a computer or database. In CLS
`Bank, the method claim was limited to a specific way of performing escrows on a computer
`using “shadow records.” CLS Bank, 685 F.3d at 1355. In contrast, claim 1 is not limited to a
`specific way of trading timeshares, as any electronic timeshare exchange would likely use a
`computer and a database and, therefore, be precluded by claim 1. Claim 1 simply does not
`“leave broad room for other methods of [performing the idea], whether with the aid of a
`computer or otherwise.” Id.
`
`The Court heeds the Federal Circuit’s warning to evaluate claims with all limitations
`intact, rather than “hunting for abstractions by ignoring the concrete, palpable, tangible, and
`otherwise not abstract invention the patentee actually claims.” CLS Bank, 685 F.3d at 1351.
`Still, this Court finds that the broad and general limitations in claim 1 are more similar to the
`“using a computer” limitations in Fort Properties than to the limitations in CLS Bank, which
`required specific implementation on a computer. Therefore, claim 1 is invalid under Section
`101.
`
`Similarly, claim 1’s dependent claims, claims 2-4, simply add conventional steps,
`specified at a high level of generality, to the abstract method in claim 1. Claim 2 adds a step for
`checking account balances, while claims 3 and 4 add steps for specifying search criteria.
`Therefore, claims 2-4 are also not patent eligible.
`
`B.
`
`For Patentable Subject Matter Purposes, Claims 5-8 is a Method Claim that
`is not Patent Elgible
`
`While the parties agree that claim 1 and its dependent claims are method claims,
`Plaintiff argues that claim 5 and its dependent claims (hereinafter referred to generally as
`“claim 5”) are system claims. Because a system claim literally invokes a machine, a category
`enumerated in Section 101, claim 5 appears on its face to be directed to patentable subject
`matter. See Alappat, 33 F.3d at 1542. But when “the claim is really to the method or series of
`functions itself,” courts have treated system claims as method claims to avoid “exalt[ing] form
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`over substance.” CyberSource Corp. v. Retail Decisions, Inc., 654 F.3d 1366, 1374 (Fed. Cir.
`2011). For the following reasons, the Court finds that claim 5, though written as a system
`claim, should be analyzed as a method claim for the purpose of determining patentable subject
`matter eligibility.
`
`The Supreme Court has held that the determination of patentable subject matter should
`not depend simply on the draftsman’s art, and thus the form of the claims should not trump
`basic issues of patentability. See Parker v. Flook, 437 U.S. 584, 593 (1978). Following that
`guidance, the Federal Circuit has also stated that “a machine, system, medium, or the like may
`in some cases be equivalent to an abstract mental process for purposes of patent ineligibility.”
`Bancorp, 687 F.3d at 1277. Even if a claim is written as a system claim, a court must “look to
`the underlying invention for patent-eligibility purposes.” CyberSource, 654 F.3d at 1374.
`
`Here, the equivalence between claim 1 and claim 5 is readily apparent. For example,
`claim 1 includes the step of “said computer system crediting an account associated with said
`user,” whereas claim 5 includes “credit means for crediting an account associated with said
`user.” Similarly, claim 1 also includes the step of “said user selecting a timeshare interest from
`among timeshare interests,” whereas claim 5 includes “selection means for selecting a
`timeshare interest.” Thus, for every step in claim 1, claim 5 simply recites a means for
`performing the exact same function, nearly word for word. The underlying invention, however,
`is the same. Since there is no material difference between claims 1 and 5, the Court’s analysis
`and findings for claim 1 apply equally to claim 5 and its dependent claims. Accordingly, claims
`5-8 are also not patent eligible.
`
`Because none of the claims in the ‘793 Patent are directed towards patent eligible
`subject matter, this Court need not address Defendants’ other invalidity arguments.
`
`V.
`
`CONCLUSION
`
`For the foregoing reasons, the Court GRANTS Defendants’ Motion to Dismiss.
`
`IT IS SO ORDERED.
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