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