Patent assertion companies Walker Digital LLC and ITUS Corp. both recently had patent infringement cases dismissed and patents invalidated based on the U.S. Supreme Court’s recent decision in CLS Bank International v. Alice Corp. Pty. Ltd.

CLS Bank, a provider of cash settlement services to the foreign exchange market, sued Alice, a Victoria, Australia-based company that claimed rights to intellectual property for the operation of electronic markets, in U.S. District Court in Washington, seeking a declaratory judgment that Alice's patents were invalid and unenforceable.

Alice had sought licensing fees from CLS since 2002 for a risk-mitigation product that Alice claimed used its intellectual property.

The patents involved schemes for mitigating risk that only one party to an agreed-upon financial exchange will satisfy its obligations. Alice counter-claimed, alleging infringement. In 2011, the district court granted CLS Bank's motion. That decision was reversed by a panel of the Federal Circuit, but was later upheld by the full appellate court.

In June, the Supreme Court affirmed the appellate court's ruling. It held that the claims at issue were drawn from an abstract idea of an intermediated settlement that was not eligible to be patented.

The ruling also was cited by a panel of the Court of Appeals for the Federal Circuit on Aug. 15 when it invalidated patents related to filtering of Internet search queries at issue in a patent infringement case brought by Vringo Inc. against Google Inc. The invalidation of the patents also resulted in the overturning of a jury verdict giving Vringo a $30.5 million award and royalty of 3.5%, which could have amounted to hundreds of millions of dollars more from Google.

The Alice decision is highly controversial in the world of software patent monetization. Erich Spangenberg, the owner and founder of IP Nav in Dallas, said that the decision may be the death knell for software patents.

"I hope that companies who have a large number of software patents are talking to their auditors because they need to take substantial write downs," Spangenberg said in an email. "If they do not, it will not be IP lawyers they will be talking with, it will be shareholder class action lawyers."

Walker Digital, a privately-held Stamford, Connecticut-based computer research lab had sued Google Inc. in U.S. District Court in Wilmington, Delaware in July 2011 for infringement of two patents after reaching licensing agreements with other companies.

Walker asserted that Google infringed on U.S. Patent Nos. 5,884,270 and 5,884,272. Both patents concerned systems for facilitating an employment search incorporating, establishing and maintain user-controlled anonymous communications.

Google contended that the patents in suit were invalid because the claims were directed at “a purely mental process that could be performed without the aid of a computer.

Further more Google argued that the “claimed invention is directed to nothing more than the abstract idea of an exchange of information about people, long practiced by human matchmakers, simply appended to a general computer system to accelerate the process.”

In approving Google’s motion for a summary judgment invalidating the patents, Judge Leonard Stark ruled that “the ‘abstract ideas’ category embodies the longstanding rule that an idea itself is not patentable.”

While Judge Stark cited the Alice decision, he noted that “as early as Le Roy v. Tatham, 55 U.S. 156, 175 (1852), the Supreme Court explained that [a] principle, in the abstract, is a fundamental truth; an original cause; a motive; these cannot be patented, as no one can claim in either of them an exclusive right.’ Since then, the unpatentable nature of abstract ideas has repeatedly been confirmed.”

“Similarly, in Alice, the Supreme Court found that the claims were drawn to the patent-ineligible abstract idea of ‘intermediate settlement,’ which was also a ‘fundamental economic practice. In both cases, the Supreme Court  found that the additional steps delineated in the claims did not embody an ‘inventive concept’ sufficient to ensure that the patents amounted to more than patents upon the ineligible fundamental concepts themselves.”

To make its case, Google provided the court with two hypotheticals involving a headhunter named Carol who receives a resume from an employment candidate named Alice, who instructs the recruiter to disclose her education and sales experience to companies with open sales positions but not her name unless the position pays at least $75,000.

In the hypothetical, Carol is also asked by a software employer named Bob to find him an experienced salesperson. He tells her the open position pays $100,000 a year and that the name of his company is Bob’s Software.

Bob also instructs Carol that she can disclose information about the job to any applicant with sales experience and that she can disclose the salary information but not the name of the company unless the candidate has more than 5 years experience.

Carol is then allowed to check if Alice’s credentials match Bob’s requirements. Once Carol determines that Alice has the necessary sales experience for Bob, she can provide Alice’s college degree and years of sales experience to Bob, but not Alice’s name. She also can provide to Alice information about the salary Bob is offering but not the name of his company.

After determining that Alice’s experience matches Bob’s needs, and that Bob’s offer matches Alice’s needs, Carol is free to share the names to the prospective employee and employer.

Judge Stark found Google’s hypotheticals with their echoes of the 1969 film Bob & Carol & Ted & Alice with Natalie Wood, Robert Culp, Elliott Gould and Dyan Cannon, and the Alice decision quite convincing.

“Even after carefully reviewing the parties’ briefs and the patents, and questioning parties about Google’s hypothetical at the hearing, the court is unable to discern any reason why in Google’s hypothetical, Carol would not be liable for infringement of Walker’s ‘270  patent. Based on the undisputed evidence, and drawing all reasonable inferences in Walker’s favor, the court concludes that every step of claim 1 of the ‘270 patent is performed in Google’s routine headhunting hypothetical. It follows that that all steps of the ‘270 patent are routine and [sic] unconventional. To allow the claim to survive would disproportionately risk preempting a building block of human interaction, retarding rather than promoting progress, contrary to the very purpose patents are granted.”

Judge Stark said his analysis of the ‘272 patent “is largely the same” as his analysis of the ‘270 patent.

“As with the ‘270 patent hypothetical, here again Walker has no persuasive response to the suggestion that Carol is practicing all the steps of the ‘272 patent.”

Finally, Judge Stark said “the court fails to see anything ‘more’ in the asserted claims than the abstract idea, implemented in a conventional manner using a general purpose computer, and is compelled to conclude that the patents risk ‘disproportionately tying up the use of the underlying ideas.’ Accordingly, the asserted claims of the patents-in-suit are invalid due to lack of patentable subject matter and Google’s motion must be granted.”

Walker Digital officials couldn’t be reached for comment.

The company was founded by the financier, inventor and entrepreneur Jay Walker who is perhaps most famous for founding Priceline.com, the website that allows people to make airline and hotel reservations over the Internet. Its ads feature the actor William Shatner, from Star Trek fame.

Walker Digital says on its website that it has started several operating companies in addition to Priceline to commercialize its inventions in e-commerce, gaming, publishing, retailing and education.

Richard D. Kirk, a Wilmington, Delaware-based attorney for Walker, didn’t respond to a telephone message and email request for comment.

Google officials couldn't be reached for comment. Richard L. Horwitz, a Wilmington, Delaware-based attorney for Google, also couldn’t be reached.

The Alice decision also played a prominent role in a ruling in a U.S. District Court in Marshall, Texas, that invalidated several patents at issue in a case brought by Loyalty Conversion Systems Corp. against nine airlines including American Airlines Inc.

Loyalty is now a unit of ITUS Corp, a publicly traded company that recently changed its name from Copytele Inc.

ITUS develops and acquires patented technologies for the purposes of patent monetization and patent assertion. The company currently has 10 patent portfolios in the areas of Key Based Web Conferencing Encryption, Encrypted Cellular Communications, E-Paper Electrophoretic Display, Nano Field Emission Display, Micro Electro Mechanical Systems Display, Loyalty Conversion Systems, J-Channel Window Frame Construction, VPN Multicast Communications, Internet Telephonic Gateway, and Enhanced Auction Technologies. ITUS says its management team has over 30 years of combined experience in patent monetization and patent assertion, and has generated more than $150 million of patent licensing revenue.

The company alleged that the airlines had infringed on two of its patents U.S. Patent Nos. 8,313,023 and 8,511,550, whose common specifications explained a system by which non-negotiable credits are earned in an awards program such as airline frequent flyer miles or hotel loyalty award points.

In dismissing Loyalty’s case against American Airlines and other defendants, Judge William C. Bryson ruled “that the invention claimed in the ‘023 and ‘550 patents is not fundamentally different from the kinds of commonplace financial transactions that were the subject of the Supreme Court’s recent decisions” in Bilski v. Kappos and CLS v. Alice.

In Alice, Judge Bryson said the high court “held that the claims at issue were drawn to the abstract idea of intermediated settlement and that ‘merely requiring generic computer implantation fails to transform that abstract idea into a patent-eligible invention.’”

Officials of Melville, N.Y.-based ITUS couldn’t be reached for comment.

The company said in a statement on Sept. 3 that it was studying the decision, the prospects for an appeal, and the impact of the ruling on the other 22 patents in the Loyalty portfolio.

To reach the reporter responsible for this story, please call Dan Lonkevich at 707 318-7899 or email him at dan@thepatentinvestor.com.