trials@uspto.gov
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`571-272-7822
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`IPR2016-00529 Paper No. 27
`IPR2016-00530 Paper No. 27
`CBM2016-00034 Paper No. 31
`June 8, 2017
`
`UNITED STATES PATENT AND TRADEMARK OFFICE
`____________________
`
`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`____________________
`
`NAUTILUS HYOSUNG, INC.,
`Petitioner,
`
`v.
`
`DIEBOLD NIXDORF, INC.,
`Patent Owner.
`____________________
`
`Case IPR2016-00529 (Patent 7,229,010)
`Case IPR2016-00530 (Patent 7,229,010)
`Case CBM2016-00034 (Patent 7,314,163)
`____________________
`
`Record of Oral Hearing
`Held: Thursday, May 4, 2017
`
`
`
`
`
`
`
`
`Before BARBARA A. BENOIT, GEORGIANNA W. BRADEN and
`KERRY BEGLEY, Administrative Patent Judges.
`
`
`
`The above-entitled matter came on for hearing on Thursday, May 4, 2017 ,
`commencing at 11:00 a.m. at the U.S. Patent and Trademark Office, 600
`Dulany Street, Alexandria, Virginia.
`
`
`
`
`571-272-7822
`
`
`
`
`
`
`IPR2016-00529 Paper No. 27
`IPR2016-00530 Paper No. 27
`CBM2016-00034 Paper No. 31
`June 8, 2017
`
`UNITED STATES PATENT AND TRADEMARK OFFICE
`____________________
`
`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`____________________
`
`NAUTILUS HYOSUNG, INC.,
`Petitioner,
`
`v.
`
`DIEBOLD NIXDORF, INC.,
`Patent Owner.
`____________________
`
`Case IPR2016-00529 (Patent 7,229,010)
`Case IPR2016-00530 (Patent 7,229,010)
`Case CBM2016-00034 (Patent 7,314,163)
`____________________
`
`Record of Oral Hearing
`Held: Thursday, May 4, 2017
`
`
`
`
`
`
`
`
`Before BARBARA A. BENOIT, GEORGIANNA W. BRADEN and
`KERRY BEGLEY, Administrative Patent Judges.
`
`
`
`The above-entitled matter came on for hearing on Thursday, May 4, 2017 ,
`commencing at 11:00 a.m. at the U.S. Patent and Trademark Office, 600
`Dulany Street, Alexandria, Virginia.
`
`
`
`Case IPR2016-00529 (Patent 7,229,010)
`Case IPR2016-00530 (Patent 7,229,010)
`Case CBM2016-00034 (Patent 7,314,163)
`
`A P P E A R A N C E S
`
`
`
`ON BEHALF OF THE PETITIONER:
`
`TIMOTHY W. RIFFE, ESQUIRE
`NICK JEPSEN, ESQUIRE
`DANIEL A. TISHMAN, ESQUIRE
`KEVIN C. WHEELER, ESQUIRE
`FISH & RICHARDSON
`901 15th Street, Northwest
`Suite 700
`Washington, D.C. 20005
`(202) 783-5070
`
`
`
`ON BEHALF OF THE PATENT OWNER:
`
`CHRISTOPHER B. KELLY, ESQUIRE
`JASON P. COOPER, ESQUIRE
`DAVID S. FRIST, ESQUIRE
`JOSHUA M. WEEKS, ESQUIRE
`ALSTON & BIRD
`One Atlantic Center
`1201 West Peachtree Street
`Atlanta, Georgia 30309
`(404) 881-7000
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`Case IPR2016-00529 (Patent 7,229,010)
`Case IPR2016-00530 (Patent 7,229,010)
`Case CBM2016-00034 (Patent 7,314,163)
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` P R O C E E D I N G S
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` JUDGE BENOIT: Good morning. We are convened for
`
`oral argument in CBM2016 -00034 which challenges US Patent
`
`7,314,163. I'm Judge Benoit. With me in Alexandria is
`
`Judge Begley. And Judge Braden is appearing by video.
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` So let's start with appearances. Petitioner.
`
` MR. RIFFE: Good morning, Your Honor. Tim Riffe,
`
`lead counsel on behalf of petitioner, Nautilus Hyosung. And
`
`with me today and will be speaking is Nick Jepsen.
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`10
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` JUDGE BENOIT: Welcome. Patent Owner.
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`11
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` MR. KELLY: Hi, Your Honor. My name is Chris
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`12
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`Kelly. I'm here on behalf of the patent owner, Diebold
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`Nixdorf.
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` With me I have -- I'm from the firm Alston & Bird.
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`With me I have David Frist, Jason Cooper and Josh Weeks also
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`of Alston & Bird. And we also have Ed Crooks of Diebold
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`Nixdorf here with us today.
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` JUDGE BENOIT: All right. Welcome.
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` MR. KELLY: Thank you.
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` JUDGE BENOIT: So each side will have 45 minutes
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`to argue. Petitioner has the ultimate burden of
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`establishing unpatentability and will argue first and may
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`Case IPR2016-00529 (Patent 7,229,010)
`Case IPR2016-00530 (Patent 7,229,010)
`Case CBM2016-00034 (Patent 7,314,163)
`
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`reserve rebuttal time.
`
` But before we begin arguments we had a couple of
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`administrative matters to take care of. We granted two pro
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`hac -- pro hac motions for Mr. Tishman and Mr. Wheeler. I
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`noticed that as of this morning that PTA B End to End had not
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`been updated.
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` If you could work with trials to take care of that
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`and get counsel information updated. I understand there's
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`some process that requires something from the pe titioner's
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`side and something from the PTAB trials staff to get that
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`done. But if you would take care of it, I'd appreciate
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`that.
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` MR. RIFFE: Point of clarification, Your Honor.
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`Will that prevent those two individuals from making
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`arguments before the board this morning?
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` JUDGE BENOIT: No. They have been admitted.
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`That's just a housekeeping matter.
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` MR. RIFFE: Thank you, Your Honor.
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` JUDGE BENOIT: The panel also would like an update
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`as to the status of the ITC and district court cases
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`involving the challenged patent.
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` Patent owner, can you give us a current status?
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`Case IPR2016-00529 (Patent 7,229,010)
`Case IPR2016-00530 (Patent 7,229,010)
`Case CBM2016-00034 (Patent 7,314,163)
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` MR. FRIST: Good morning, Your Honors. David
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`Frist. The ITC case as to the 163 patent, the ITC
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`administrative law judge found the 163 patent invalid under
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`101. The commission then upheld that ruling. The patent
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`owner did not appeal that to the federal circuit. And the
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`district court is still stayed in light of the other patents
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`in this case.
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` So as to the 163 patent and the ITC, they have
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`made their finding. The district court is still alive. And
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`we're here today, as I'm sure you know, to argue the 101
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`issue in front of Your Honors.
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` JUDGE BENOIT: All right. Thank you.
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`13
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` I also would like to make sure that we understand
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`all the papers that have been filed. You know, we have the
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`new patents and -- and system. I want to make s ure we're
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`not overlooking anything.
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` So, petitioner, I wanted to confirm with you that
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`you had not filed a motion to exclude any observations on
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`cross-examination or declaration testimony in support of
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`your reply.
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` MR. RIFFE: That's correct, Your Honor.
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` JUDGE BENOIT: Thank you. And I'm not implying at
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`Case IPR2016-00529 (Patent 7,229,010)
`Case IPR2016-00530 (Patent 7,229,010)
`Case CBM2016-00034 (Patent 7,314,163)
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`all that any of those papers should have been filed. I just
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`wanted to make sure I understand what has been filed.
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` In terms of patent owner, I understand that you
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`have not filed a motion to exclude or any observations on
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`deposition testimony or a motion to amend. Is that correct?
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` MR. KELLY: That's correct, Your Honor.
`
` JUDGE BENOIT: And, again, I'm not implying that
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`any of those papers should have been filed; just making sure
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`that we have kept track of the administrative papers in the
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`system.
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` MR. KELLY: Understood. Thank you.
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` JUDGE BENOIT: All right. With those
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`administrative matters taken car e of, petitioner, you may
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`begin when ready.
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` MR. RIFFE: May it please the board. Good
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`morning, Your Honors. Again, my name is Tim Riffe. I'm on
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`behalf of petitioner, Nautilus Hyosung, in CBM2016-00034.
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` As Your Honors know, we will be discussing
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`several grounds of unpatentability and ineligibility today.
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`I will be addressing ground one which is the Section 101
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`ineligibility ground. My colleague Nick Jepsen will be
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`addressing the prior art based grounds which are grounds two
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`Case IPR2016-00529 (Patent 7,229,010)
`Case IPR2016-00530 (Patent 7,229,010)
`Case CBM2016-00034 (Patent 7,314,163)
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`through five. And I'll be also giving a short technology
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`overview for Your Honors.
`
` If Your Honors can direct your attention to slide
`
`five of petitioner's demonstratives, here you see a
`
`reproduction of the cover sheet of the 163 patent and the
`
`abstract.
`
` The abstract notes the 163 patent is directed to
`
`generating a digital image of a received check and then
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`modifying the check image data to produce a modified check
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`image data that excludes certain sensitive information that
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`was on the check such as the user's personal account number
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`or the routing number.
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` Referring now to slide seven, we see claim 20 of
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`the 163 patent. I just wanted to note for the record that
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`Diebold, patent owner, d id not challenge or contest claims
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`one through 19. So we'll be focused today on claims 20
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`through 24 of the --
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` JUDGE BENOIT: And you understand that petitioner
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`still has the burden to prove un patentability for claims one
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`20
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`through 19?
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` MR. RIFFE: That's correct, Your Honor. And we
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`address those in our -- in our papers. But for the time
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`7
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`Case IPR2016-00529 (Patent 7,229,010)
`Case IPR2016-00530 (Patent 7,229,010)
`Case CBM2016-00034 (Patent 7,314,163)
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`frame we have here today, Your Honor, we 're going to be
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`focused on claims 20 through 24 primarily.
`
` With respect to claim 20, that is the independent
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`claim. It has three steps; an operating step, a generating
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`check image step and a modifying check image dat a step.
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` The first two steps that are labeled (a) and (b)
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`are directed towards collecting data through scanning of
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`that document which in this case is a check. Again, step
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`(a) is directed to imaging the check data. And (b) is
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`directed to generating check image data.
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` Looking at slide eight, we see step (c) which is
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`the modifying step. And that step is directed to removing
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`information from the check image that's been created. That
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`data can include what's known as the micr line data. That's
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`the magnetic ink character recognition data that's at the
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`bottom of the check generally, sort of the weird numbers
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`that show your account number and tracking number on the
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`check.
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` And the patent talks about moving or modifying the
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`20
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`image that's been created to make sure that that data is not
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`available to the public at large for security purposes.
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` And that leads into slide nine. As Dr. Alexander,
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`Case IPR2016-00529 (Patent 7,229,010)
`Case IPR2016-00530 (Patent 7,229,010)
`Case CBM2016-00034 (Patent 7,314,163)
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`petitioner's expert, noted, this problem of providing
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`security for personal information from financial records has
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`been a long-standing business issue.
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` Again, as Dr. Alexander noted, businesses have
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`long redacted financial information to prevent misuse and
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`fraud. Removing sensitive financial information by
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`redaction or other means is a fundamenta l economic practice
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`that's been widely used long before ATMs even existed.
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` JUDGE BENOIT: And where is there evidence in the
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`record of that long-standing business practice? I
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`understand that you filed the Federal Register e xhibit as to
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`the business practice regarding ATMs, but is there evidence
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`in the record of the long -standing business practice that he
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`speaks of?
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` MR. RIFFE: Well, Your Honor, we also point and
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`cited to another patent -- it's in the record -- that
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`discusses that as well as noted additional information with
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`respect to the practice of scratching out debit card and
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`credit card authorizations and transactions to remove that
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`financial information from that.
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` When we spoke about how this had been done in the
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`past by humans, removing that sensitive information from
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`Case IPR2016-00529 (Patent 7,229,010)
`Case IPR2016-00530 (Patent 7,229,010)
`Case CBM2016-00034 (Patent 7,314,163)
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`documents either by masking it with a simple piece of tape
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`or scratching it out on the credit card transaction receipt,
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`those are the types of long -standing practices that have
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`been in place.
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` And, as Your Honor noted, the Federal Reserve
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`itself noted with respect to ATM receipts how important it
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`was to protect the user's financial information.
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` And they actually implemented changes to the
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`banking regulations to truncate that account information so
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`that the public at large when they -- I'm sure Your Honors
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`have seen ATMs with a bundle of receipts that have been left
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`by -- by various consumers at the ATM. They wanted to make
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`sure that that personal information wasn 't available to
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`them.
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` As Your Honors knows, I just noted there are five
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`grounds. We'll skip to slide 16 in the interest of time.
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`Now, again, I'm going to be addressing the 101 i ssue for
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`ineligibility.
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` As Your Honors know, the Supreme Court in the
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`Alice v. CLS Bank case set up a two -step framework that
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`would -- which the courts must look at to determine whether
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`a patent claim is eligible under 101.
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`Case IPR2016-00529 (Patent 7,229,010)
`Case IPR2016-00530 (Patent 7,229,010)
`Case CBM2016-00034 (Patent 7,314,163)
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` The first step of that is to determine whether the
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`claims at issue are directed to a patent ineligible concept
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`such as in this case, an abstract idea.
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` The second step if an abstract idea is found, then
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`you consider the elements of each claim individually and as
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`what's called an ordered combination to see if the claims
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`themselves add anything to transform that abstract idea into
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`a patent eligible concept.
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` As Dr. Alexander notes at slide 17 that we've
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`reproduced, the 163 patent is intended to provide -- or
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`improve security by not disclosing that sensitive
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`information that I talked about earlier. And in particular
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`the claims are each directed to the abstract idea of
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`removing information from a check image. Again, the problem
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`that was trying to be solved her e was safeguarding that
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`personal information from public accessibility.
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` If we then turn to slide 18, this is where we want
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`to focus on steps (a) and (b) of the 163 patent, claim 20.
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`If we look at claims (a) and (b), what a re they talking
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`about? They're related to data collection. They're
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`collecting. They're scanning that check. And they're
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`taking data from that check and creating this check image
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`Case IPR2016-00529 (Patent 7,229,010)
`Case IPR2016-00530 (Patent 7,229,010)
`Case CBM2016-00034 (Patent 7,314,163)
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`data. So they're collecting data.
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` Now, the federal circuit has told us in the
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`Electric Power Group case from 2016 that collecting
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`information including when limited to particular content is
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`within the realm of abstract ideas. Moreover, at slide 20
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`we have reproduced a portion of the federal circuit's
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`decision in the Content Extraction case.
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` Now, what's interesting about the Content
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`Extraction case is that case was in -- related to ATM
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`technology. And patent owner, Diebold, was related -- was a
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`part of that -- I think the district court case in that --
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`in this case.
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` Now, with respect to the Content Extraction case,
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`the federal circuit noted that the concept of data
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`collection, recognition and storage is undisputedly well
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`known. Humans have been performing these functions. And in
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`particular banks have fo r some time reviewed checks,
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`recognized relevant data from those checks such as the
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`amount, the account number -- again, that's part of that
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`micr line data -- and the identity of the account holder and
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`stored that information or did s omething with that
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`information to further the financial transaction.
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`Case IPR2016-00529 (Patent 7,229,010)
`Case IPR2016-00530 (Patent 7,229,010)
`Case CBM2016-00034 (Patent 7,314,163)
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` Turning to slide 20 -- sorry, Your Honors. Let's
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`move forward to slide 23. And I apologize. We had a few
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`more demonstratives than I'm using today, but I believe Your
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`Honors have the full set. So I appreciate your -- your
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`patience.
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` With respect to slide 23, we can see here -- and,
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`Judge Benoit, this is related to the question yo u asked me
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`earlier -- the fundamental business practice of removing
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`information, in particular personal information from
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`financial documents such as checks. The Federal Register,
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`as I mentioned, recognized this in the context of ATMs in
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`particular and changed their regulations to make that
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`accommodation.
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` Interestingly, Dr. Sorensen who is Diebold, patent
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`owner's expert actually testified during deposition that the
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`problem the patent was directed toward solving related to
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`the customer's experience with the ATM not the actual
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`technology of the ATM in and of itself. And this is what we
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`termed the business problem.
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` Indeed, in Dr. Sorensen's case he noted and agreed
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`that the operation of the ATM or its components, the claims
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`didn't go to the improvement of those. Otherwise, it went
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`Case IPR2016-00529 (Patent 7,229,010)
`Case IPR2016-00530 (Patent 7,229,010)
`Case CBM2016-00034 (Patent 7,314,163)
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`to how a person confirme d their check was deposited and was
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`their personal information on there; a long -standing issue
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`that had been recognized in the financial industry.
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` Again, Dr. Sorensen agreed that there was no
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`change pointed out in the claims or recited in the claims to
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`the processing of the ATM, how it processed or how the
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`processor -- or the speed or efficiency, how it went through
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`that process.
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` Again, looking at slide 25, ag ain, removing
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`information from a check image, from financial records, et
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`cetera, and receipts in particular, a fundamental business
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`practice that existed before deposit automation in contrast
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`--
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` JUDGE BRADEN: But, Counsel, I mean, isn't it one
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`of the -- when I'm looking at this, this specifically says
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`eliminates the requirement that the receipt discloses a
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`number or code. Whereas when I look at the claim, it
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`specifically says in (c) modifying the check image data to
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`produce a modified check image so that you only have a
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`portion of the micr line image data included.
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` I don't see how not requiring banks or financial
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`institutions to include information on a receipt is the same
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`Case IPR2016-00529 (Patent 7,229,010)
`Case IPR2016-00530 (Patent 7,229,010)
`Case CBM2016-00034 (Patent 7,314,163)
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`as modifying an image so that you only include a portion of
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`image data.
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` MR. RIFFE: Well, Your Honor, I think what's being
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`talked about here is the modification that happens to that
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`image data is the same modification that happened and
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`occurred prior to this invention in the context of either
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`masking, altering that d ata in some way such as -- and I'm
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`not discussing the prior art. My colleague Nick Jepsen
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`will.
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` But discussing how that data was removed from a
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`check image, that -- that information and that technology
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`had been present --
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` JUDGE BRADEN: But I thought you were answering
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`Judge Benoit's question when she asked you about a
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`long-standing business practice.
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` If you're showing here that you had a business
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`practice of disclosing a number or code on a receipt and now
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`the Federal Register is saying that they're amending the
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`regulation so that you no longer -- it eliminates the
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`requirement for that disclosure, how is that the same and
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`how is that showing a long -standing business practice of
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`modifying check image data?
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`Case IPR2016-00529 (Patent 7,229,010)
`Case IPR2016-00530 (Patent 7,229,010)
`Case CBM2016-00034 (Patent 7,314,163)
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` MR. RIFFE: Well, Your Honors, the check image
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`data that's being modified was that account information. A
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`portion of that is the account information.
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` And part of the long -standing issue that was being
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`addressed by some of these manual manipulations or in the
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`case of the Federal -- the Federal Reserve's change changing
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`the receipt to include a modified version of that account
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`information, that was all going -- and -- and in the case of
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`Riach and Graf which are the prior art references, two of
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`the main prior art references we rely upon, those pieces of
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`prior art were all going to the concept of removing some
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`portion of the user's account information so that the public
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`at large could not get t o that. That fundamental problem of
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`--
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` JUDGE BRADEN: I'm sorry. I guess I'm reading
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`this incorrectly then or can you point me to the slide or
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`where in the record it says that the amendment eliminates
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`the requirement for the complete disclosure or that it only
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`requires a portion or a modified disclosure of the account
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`number or code?
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` Because what I see on slide 23 is that the
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`amendment eliminates the requirement that an electronic
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`Case IPR2016-00529 (Patent 7,229,010)
`Case IPR2016-00530 (Patent 7,229,010)
`Case CBM2016-00034 (Patent 7,314,163)
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`terminal receipt discloses a number or code that uniquely
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`identifies the consumer.
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` MR. RIFFE: Well, Your Honor, as we no ted in our
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`-- and I'll go back to slide 23. We noted in our reply and
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`in the petition that the Federal Reserve change to the
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`banking regulations allowed the ATM to only include a
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`truncated amount of that account number.
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` So I am hopeful that answers your question. So
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`that there wasn't a complete elimination of the account
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`number, but it was a truncation.
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` And I don't know if Your Honor recalls; but on
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`older ATM receipts you would sometimes just see the last
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`four digits of your account number with maybe some X's or
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`something along those lines, dashes. But that was a known
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`security risk at the time.
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` So when the Federal Reserve did this they were
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`only looking at a portion of that truncated account number.
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`So they weren't requiring the full account number be
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`eliminated but just they were allowing for portions of that
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`such as the last four digits to be shown. And, again, all
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`of this is going --
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` JUDGE BRADEN: All right. I think I understand
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`Case IPR2016-00529 (Patent 7,229,010)
`Case IPR2016-00530 (Patent 7,229,010)
`Case CBM2016-00034 (Patent 7,314,163)
`
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`your position.
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` MR. RIFFE: Okay. Thank you, Your Honor.
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` With step one being established as an abstract
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`idea under the Supreme Court's guidance in Alice, again, we
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`turn to whether or not the claims indivi dually or as that
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`ordered combination add more to this abstract idea of
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`removing images from checks.
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` JUDGE BENOIT: Mr. Riffe --
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` MR. RIFFE: Yes.
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` JUDGE BENOIT: -- before you go onto that step
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`could you answer a couple questions I had about slides 26
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`and 27 --
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` MR. RIFFE: Yes, Judge.
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` JUDGE BENOIT: -- regarding step one. So in slide
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`26 you talk about the idea that the claims can be performed
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`in the mind. Can you tell me a little bit more what you
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`mean by that?
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` MR. RIFFE: Well, Your Honor, if you can -- if you
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`can imagine that if you look at a check, a check image could
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`be formed in the mind of a user. And so that is something
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`that I think other federal circuit cases have looked at to
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`see whether or not this is something that had been human
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`Case IPR2016-00529 (Patent 7,229,010)
`Case IPR2016-00530 (Patent 7,229,010)
`Case CBM2016-00034 (Patent 7,314,163)
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`activity prior to -- prior to the claimed invention.
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` JUDGE BENOIT: So the human activity would be I
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`form the image of the ch eck in my mind and then I modify and
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`don't think about and remove in my mind some of the account
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`information?
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` MR. RIFFE: That's part of our argument in
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`addition to our argument that's in our papers. We talked
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`about the ability to trace certain portions of that check
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`image to create check image data. And then you could modify
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`certain portions of that check image data by either crossing
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`it out, removing it, masking over it in certain instances.
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` JUDGE BENOIT: So that's your pen and ink
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`argument.
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` MR. RIFFE: So that's -- that's our ultimate
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`argument, Your Honor, yes. The formation of the mind, if
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`you will, would be a secondary argument admittedly.
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` JUDGE BENOIT: And regarding using the pen and
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`paper, I can understand what you're saying in terms of one
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`could do that. Is there any evidence in the record that
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`that practice was used, that people did mask out or mark out
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`or use a pen and ink to obscure some of that information on
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`a check?
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`
`
`
`Case IPR2016-00529 (Patent 7,229,010)
`Case IPR2016-00530 (Patent 7,229,010)
`Case CBM2016-00034 (Patent 7,314,163)
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` MR. RIFFE: Yes, Your Honor. With the court's
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`indulgence I'll just get a citation for you. Again, I had
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`mentioned that there was a prior art patent. I believe it's
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`the Zarrow patent. And we'll get the number for Your Honor
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`in just a minute hopefully.
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` JUDGE BENOIT: Thank you.
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` MR. RIFFE: The exhibit number, Your Honor, is
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`Exhibit 1024. And the full patent number is US Patent
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`Number 4,645,701. And, again, that was to Zarrow.
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` JUDGE BENOIT: Thank you.
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` MR. RIFFE: And, Your Honor, my colleague just
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`reminded me that that may be Exhibit 1025 due to
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`administrative oversight on the numbering. So I apologize.
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`We will track that down for Your Honors and address that.
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` Did you have further questions --
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` JUDGE BENOIT: So that's all --
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` MR. RIFFE: -- Your Honor?
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` JUDGE BENOIT: That's all I had of questions on
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`step one.
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` MR. RIFFE: Thank you, Your Honor.
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` JUDGE BENOIT: So please proceed to st ep two.
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` JUDGE BEGLEY: Can you explain what that prior art
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`
`Case IPR2016-00529 (Patent 7,229,010)
`Case IPR2016-00530 (Patent 7,229,010)
`Case CBM2016-00034 (Patent 7,314,163)
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`patent that you just referenced discloses specifically?
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` MR. RIFFE: Yes, Your Honor. It goes to the --
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`thank you for your indulgence, Your Honor. There was a
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`physical credit card receipt that was generated in that
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`technology. And it talked about actually physically
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`changing portions of that receipt so that the personal
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`information was not available on that particular receipt.
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` Does that answer your question, Your Honor?
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` JUDGE BEGLEY: Yes.
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` MR. RIFFE: Okay. Now, with respect to the second
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`step of the Alice test -- and I'm going to turn our
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`direction to slide 30. That's where we have claim 20
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`reproduced again.
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` As the Alice court told us, claims merely reciting
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`the field of use -- in this case I think Diebold spends a
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`lot of time in their brief talking about the cash dispensing
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`machine. Merely reciting the field of use in which that
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`abstract idea is implemented is not enough according to
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`Alice.
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` Again, in the Accenture case following Alice the
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`federal circuit noted that simply reciting implementatio
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