One of the inventors
told OUT-LAW today that his company spent over £100,000 trying to
enforce and defend the patent before passing the rights to another
company, which he described as a 'patent troll'. He believes that
company will appeal this month's ruling.
At the time the patent was filed, in 2001, the payment system
used by most restaurants was ‘off-line,’ requiring an authorisation
request to a customer's bank when the customer presented his or her
card. The request checked whether there were sufficient funds in
the account and no actual payment transaction occurred at that
point. The transaction was held within the terminal and was only
completed when the bank host dialled the payment terminal (usually
at night) and up-lifted the transactions. That process is known as
polling.
Before chip and PIN became ubiquitous, a restaurant had to
remove a customer's card, swipe it at a terminal and take a
signature slip to the customer. Typically the customer then had the
option to add a gratuity on the signature slip. To avoid
authorising the tip as a separate transaction, the polling process
tolerated a 15% variation between the actual amount debited
overnight and the amount authorised at the terminal. That variation
presented a risk of fraud: a waiter could charge more to a card
than was written on the signature slip to boost his pay. If that
sum was small, say 5%, the cardholder might never notice it or
bother to report it.
The invention of Jeremy Nielsen and Hugh O'Donnell removed that
risk by authorising a sum that included the tip. That also removed
the need for overnight polling – a service that typically cost
restaurants between £10 and £15 per month for each of their
terminals.
Their patent described a process of generating and handling an
electronic online authorisation and uploading request relating to a
payment transaction. The customer would be offered the chance to
add a gratuity and a request for authorisation of the total would
be constructed. A request would then be made over a telecoms
network and a receipt generated for the customer.
Payment solutions firm Ingenico challenged the patent's
validity.
A Hearing Officer of the IPO threw out Ingenico's complaint
about obviousness: "to people in the hospitality industry, using a
combined authorize and pay system would not have occurred," he
wrote. He also threw out an allegation that the patent lacked
inventiveness.
But a third challenge succeeded, in which Ingenico argued that
the process was not a patentable invention. The Patents Act
excludes methods of doing business and computer programs as
such.
A landmark ruling in 2006 in the cases of Aerotel and Macrossan
changed the way the UK-IPO assesses whether inventions are
patentable. A new
four-step test was introduced for the assessment of
patentability:
- Properly construe the Claim;
- Identify the actual contribution;
- Ask whether it falls solely within the excluded matter;
- Check whether the contribution is actually technical in
nature.
Step 3 caused the patent to fall. The patent can cut fraud and
enable gratuities to be paid by card at the same time as the
principal sum; but the Hearing Officer wrote: "while they may be
advantages of the invention, they are not achieved by technical
means …They are achieved by changing the business process – i.e.
changing the sequence of steps – in which the terminals are used.
The claim is to how a business uses a known system."
"The contribution falls squarely within the business method
exclusion. It also falls within the computer program exclusion
given its implementation by means of a computer program," he
concluded.
Jeremy Nielsen told OUT-LAW that the entire experience with the
patent has been an awful one. "Patents in the UK are a joke," he
said. "We spent £100,000 trying to enforce this patent before we
had to pull out because it was too expensive. We never managed to
sell a licence – it was simply stolen."
"It's not a business method and I still believe in it," said
Nielsen. "But I wouldn't recommend that anyone in the UK takes out
a patent unless they're a huge company."
The patent rights were transferred to a company called Pendawell
before the revocation claim was heard. Nielsen expects Pendawell to
appeal the ruling. He said Pendawell also holds the US rights for
his invention. The US patent has withstood a similar challenge, he
said.
Pendawell declined to comment for this story.
Editor's note, 26/11/2007: A spokesman for
Ingenico provided the following comment today:
"Ingenico's view is that this patent represented
an attempted ‘land grab’ for a business process that should be
freely usable in the card transaction industry. The patent has
rightly been revoked as relating to a non-patentable business
method and computer program.
"While the revocation decision by the UK IPO also held that this
inherently unpatentable business process was not 'obvious' as such,
Ingenico would disagree with that conclusion. The advent of Chip
and PIN (which significantly pre-dates the patent application)
allows for interaction between the cardholder and the terminal
device. This was previously not the case. It is an obvious and
natural process to allow the cardholder to enter any gratuity
directly on the terminal, prior to the terminal gaining
authorisation for the total amount."
