The “ancient” concept of patronage invalidates crowd-funding patent

  • Sep 10 2015
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  • Category: News

By Thomas Keely

Old concepts performed on a computer still are not patent eligible, as reinforced by the Southern District of New York’s decision in Kickstarter, Inc. v. Fan Funded, LLC.

After four years of litigation, the U.S. District Court in Kickstartergranted Kickstarter’s motion for summary judgment invalidating ArtistShare’s U.S. Patent No. 7,885,887 (“the ‘887 Patent”) under 35 U.S.C. § 101.  Kickstarter, a web-based crowdfunding platform, filed a declaratory judgment action against competing crowdfunding platform ArtistShare (litigating as Fan Funded, LLC) seeking to invalidate the ‘887 Patent.  The ‘887 Patent, entitled “Method and Apparatuses for Financing and Marketing a Creative Work,” is directed to “a system and method for raising financing and/or revenue by [an] artist for a project, where the project may be a creative work of the artist.”  The Court held that “the ‘887 Patent claims only the abstract and time-honored concept of patronage, and even the addition of an element of computer use is insufficient to render it valid under Section 101 of the Patent Act, 35 U.S.C. § 101.” (Slip op. at 1.)     

To reach its decision, the district court applied the two-step framework set forth in Alice Corp. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014).  Applying the first step of the Alice framework, the Court held that the claims of the ‘887 Patent were directed to the abstract concept of “crowd-funding or fan-funding.”  (Slip op. at 25.)  The Court then explained that “[t]hese claims are squarely about patronage – a concept that is ‘beyond question of ancient lineage’,” (Slip op. at 25) and “[m]oreover, this concept of incentive-based funding is incontestably similar to other ‘fundamental economic concepts,’ and to other types of ‘organizing human activity,’ both of which have been found to be abstract ideas by the Supreme Court and the Federal Circuit.” (Slip op. at 26.) 

Applying the second step of the Alice framework and foreshadowing the July 2015 guidance from the USPTO, the court reasoned that “[j]ust because the claims do not preempt all crowd-funding does not make them any less abstract.”  (Slip op. at 26.)  In addition to the preemption argument, ArtistShare asserted that even if the claims of the ‘887 Patent are directed to an abstract concept, their elements – when considered as an ordered combination – transform its claims into patent-eligible applications of that idea.  (Slip op. at 24.)  Again, the court disagreed, stating that “[n]othing about the ‘887 Patent transforms the concept of crowd-funding into patent-eligible subject matter.”  (Slip op. at 27.)  The court went on to equate the claims of the ‘887 Patent to “conventional computer activities or routine data-gathering steps,” which, “[j]ust as in Alice, ‘…are well-understood, routine, conventional activities previously known to the industry.”  The court concluded by noting that “[w]hile the concept of fan-funding may have been made a more realistic and fruitful endeavor with the advent of widespread Internet access, ‘cloaking [that] otherwise abstract idea in the guise of a computer-implemented claim’ does not bring it within Section 101.”

This decision is not surprising, and provides yet another nail in the coffin of the once common “do it on a computer” patent.  Given this trend, both in-house and outside counsel are well cautioned to take an “historical” view of the subject matter of a patent’s claims.  Absent a clear distinction from “the way it’s always been done,” neither the USPTO nor district courts have been kind to such claims.