Federal Circuit Invalidates Patent Directed to Customer Loyalty and Rewards System

In cxLoyalty Inc. v. Maritz Holdings Inc., 986 F.3d 1367, 1380 (Fed. Cir. 2021), Patent No. 7,134,087 explained that loyalty programs often issue points to customers as a reward for certain activities and allow the customers to redeem the points for goods or services.

After a covered business method (CBM) review, the Patent Trial and Appeal Board (PTAB) concluded that claims 1-15 were ineligible for patenting under Section 101 but that proposed substitute claims 16-23 were patent eligible. Both parties to the covered business method (CBM) appealed to the U.S. Court of Appeals for the Federal Circuit.

The Patent

The purported invention eliminated the "human intervention" needed to redeem such rewards – specifically a "system and method for permitting a customer of a loyalty program to redeem loyalty points for rewards offered by vendors without the need for human intervention." The patent explained that a graphical user interface (GUI) "provides the interface for the participant (customer) to communicate with a web-based vendor system…"

As mentioned, the patent owner provided substitute claims. Most relevant to the Section 101 discussion, the substitute claims added that the GUI communicated with multiple application programming interfaces (APIs) having corresponding vendor systems and allowed participants to use the GUI to make points-based purchases directly from multiple third-party vendor systems. 

The Board's Decision

Looking first at the original claims, the PTAB concluded that they recite "facilitating or brokering a commercial transaction (i.e., the sale and purchase of goods and services) between a purchaser" using a using a first form of value (e.g., points) and a seller transacting in a second form of value (e.g., currency). The Board determined that this activity amounted to a fundamental economic practice long prevalent in commerce and, therefore, was directed to an abstract idea.

While the Board concluded that the substitute claims were directed to the same abstract idea, the Board held that these new claims contained an inventive concept. The Board focused heavily on the fact that the CBM petitioner did not submit any new evidence to support its argument that the substitute claims were ineligible, and the patent owner provided expert testimony related to the substitute claims.

The Federal Circuit's Discussion

On the original claims, the Federal Circuit agreed with the Board that the representative claim was directed to facilitating or brokering a commercial transaction, something humans have long intermediated by collecting and relaying information. The court agreed with the Board that the GUI in the representative claim takes the place of the human acting as an intermediary, communicating with both the participant and the vendor via the API.

At Alice step two, the original claims amounted to nothing more than applying the abstract idea using techniques that are well-understood, routine and conventional. The claims applied the abstract idea on a computer by replacing the human intermediary with a GUI and API, but the original claims merely recite generic components like a processor, GUI and API.

The patent owner argued that connecting loyalty award systems with third-party vendors while keeping the overall nature of the transaction hidden constituted a solution for a technological problem. The Federal Circuit dismissed this argument. The patent owner "does not contend that the claimed invention improves the use of computers as a tool by reciting a new technological way for computers to conceal such information … the claims solve this purported problem by applying an abstract idea using conventional techniques."

Importantly, the original claims provided no useful guidance as to how this function is achieved and, therefore, cannot be directed to a technological solution.

The Federal Circuit came to the same conclusion for the substitute claims. Again, the patent owner did not contend that the claimed invention improved the use of computers as a tool nor do the claims provide any guidance as to how this purported function is achieved. And while the patent owner's expert invoked the words "well-understood, routine, or conventional," the testimony described the subject matter as a whole in the sense that it was novel. As the court often says, a novel abstract idea is still an abstract idea.

Accordingly the Federal Circuit found that neither the original claims nor the substitute claims recite patent-eligible subject matter under Section 101.

The representative claim of the substitute claims follows:

16 (replaces claim 1): A computerized system for use by [[a]] participants of a program which awards points to the participants, wherein the awarded points for each participant are maintained in a point account for the respective participant, said system for permitting [[the]] each participant to transact a purchase using the respective awarded points with a vendor system which transacts purchases in currency, said system comprising a processor including instructions for defining:

an application programming interface (API) for interfacing with the vendor system;

a program account hidden from the participants connected to the program for use in currency transactions;

a program database storing information about the program including a listing of the point accounts of the participants;

a graphical user interface (GUI) for providing an interface between the participants and the API and for communicating with the program, wherein the GUI is configured so that the participants can connect to the GUI using an internet connection;

wherein said GUI includes instructions for receiving participant-related information from [[the]] each participant via *1373 the internet connection and providing the received participant-related information to the API;

wherein said GUI includes instructions for receiving information regarding the program account hidden from the participants and for providing the received program account information to the API;

wherein said API is adapted to receive the participant-related information and the program account information from the GUI and adapted to provide the received participant-related information and the received program account information to the vendor system;

wherein said API is adapted to receive vendor-related information from the vendor system in a format of the vendor system and adapted to provide the received vendor-related information to the GUI; [and]

wherein said GUI includes instructions for receiving vendor-related information from the API, for converting the received vendor-related information from the format of the vendor system into a format of the GUI, and for providing the received vendor-related information to the participants in the format of the GUI via the internet connection;

wherein the computerized system is configured to use the program account to complete purchase transactions with the vendor system based on participant-related information received from the participants via the internet connection including purchase requests based on points; and

wherein in response to each completed purchase transaction, the computerized system is configured to store an indication of the completed purchase transaction in the program database and display an order message indicating the completion of the purchase transaction to the respective participant;

such that from the perspective of the participants, the participants use[s] the GUI to conduct [a] the purchase transactions with the vendor system based in whole or in part on the points in [the] each participant's point account; and

such that from the perspective of the vendor system, the vendor system conducts the purchase transactions with the participants as [a] currency transactions based on the program's program account hidden from the participants whereby the participants [is] are not aware that the purchase transactions with the vendor system [is] are being transacted using the program account.

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