In 2009, in the District Court for the Western District of Texas, a jury found MoneyGram had infringed upon four patents owned by Western Union.[1] However, upon appeal by MoneyGram, the Federal Circuit recently reversed that decision and found the four patents were invalid for obviousness in view of prior art presented during the jury trial.[2] The patents, in general, pertained to a system of monetary transfers that do not require the completion of forms.[3] These “formless” transfers were based upon a system developed by a company named Orlandi Valuta in 1997.[4]Subsequently, Orlandi Valuta was acquired by Western Union which, upon determining that the Orlandi Valuta formless transfer system would not work on a larger scale, further developed the system into the four patents at issue in this case.[5] MoneyGram, a direct competitor of Western Union, had been utilizing a system similar to the patents in question. Indeed, the system was so similar that MoneyGram had deemed it necessary to develop a work-around in order to avoid an infringement suit with Western Union.[6]

The Western Union patents essentially describe a system wherein a customer telephones a service representative at a financial institution.[7] The representative obtains the information necessary to transfer the money and stores that information on a host computer.[8] The customer is then able to go to a retail location where the previously entered information can be brought up by an agent using an electronic transaction fulfillment device (“ETFD”).[9] Finally, the customer gives the agent the required amount of money. While the scopes of the patents are “substantially identical,” a later patent adds the use of Internet communication to the system.[10]

While MoneyGram asserted that the patents “simply take a known prior art system and add obvious elements,”[11] Western Union claims that its patents teach three critical elements not found in the prior art: “(1) the ‘code’ that is established for use by the sender during the send transaction; (2) an ETFD; and (3) the use of the Internet.”[12] For its obviousness analysis, the Court turned to the John Deere factors, i.e. the “underlying factual inquiries include (1) the scope and content of the prior art; (2) the differences between the prior art and the claims at issue; (3) the level of ordinary skill in the art; and (4) any relevant secondary considerations, such as commercial success, long felt by unsolved needs, and the failure of others.”[13]

Evaluating each of Western Union’s three claimed elements to determine whether they were within the scope and content of the prior art, the Court concluded that all three could be found within the prior art introduced during the jury trial.[14] Aiding in this conclusion, the Court quoted KSR[15] stating, “[t]he combination of familiar elements according to known methods is likely to be obvious when it does no more than yield predictable results.”[16] For example, the use of a modern personal computer to replace a fax machine to perform the same function would most likely be obvious.[17] On these grounds, the Federal Circuit reversed the lower court’s judgment and found the four patents to be invalid as obvious in light of the prior art.[18]

Among other things, this case illustrates a worst-case scenario. Western Union not only lost their infringement suit against MoneyGram, but they also had all four of their patents declared invalid. Patentees should carefully evaluate the strengths and weaknesses of their case before deciding to litigate, and should only undertake litigation with the clear understanding that invalidation of their patent is a potential outcome.