Jonathan Bilyk Jul. 13, 2015, 3:34pm

A federal judge has decided a New York-based company specializing in the development of technology similar to that on which Chicago's Ventra fare system is based will not be able to press forward with claims the CTA and its contracted Ventra developers violated at least four of five patents the company holds.

On July 10, U.S. District Judge Edmond E. Chang ruled in favor of the Chicago Transit Authority and the Cubic Corporation and its affiliated companies, upholding their challenges to four patents held by Smart Systems Innovations, which had sued the transit agency and the companies for allegedly infringing on its intellectual property rights in implementing the Ventra system in Chicago beginning in 2013.

Chang’s ruling, however, did not touch on the validity of Smart Systems’ complaint regarding a potential violation of a fifth patent, which he noted the CTA and Cubic companies did not yet challenge.

Seeking to improve efficiency and upgrade operations, the CTA, along with suburban bus service Pace and Metra commuter rail, contracted with Cubic Transportation Systems to develop the Ventra system. According to published reports, that contract is now believed to have been worth more than $500 million.

In October 2014, about a year after Ventra was first used by the CTA, Smart Systems filed its complaint in federal court, alleging the agency and the companies with which it had contracted to develop and roll out Ventra had improperly deployed technology and concepts Smart Systems had invented and developed to help U.S. transit agencies achieve what transit systems in other parts of the world had done for their customers:

To use contactless bankcards to process fares digitally and more efficiently move masses of people through turnstiles to board public transit.

According to court documents, Smart Systems held patents for various technologies to enable transit systems to use radio transmission and readers to “validate entry into a transit network” and correctly processing payment from a range of potential transit pass options, from regular fares to time-sensitive daily, weekly or monthly passes, among others.

The court documents note the CTA and Cubic companies have not yet challenged Smart Systems’ paten, issued in 1998 to a South Korean company, Kookmin Credit Card Co., for a “Non-Contacting Type Radio Frequency Recognizing Credit Card System.” Kookmin transferred the rights to that patent to Smart Systems in 2004.

That patent covers “technology that transmits card numbers through ‘radio frequency’ to a ‘card terminal,’ which then sends the number data ‘to a wire-connected computer’ that checks against ‘a black list to make a decision for issuing an approval of a transaction.”

The CTA and Cubic, however, did challenge the validity of the remaining patents for the remaining aspects of the system, noting, among other arguments, those patent claims pertain to “abstract concepts” rather than true, patentable inventions upon which Ventra may infringe.

Chang agreed, saying the four challenged patent violation claims fall short of the legal standard.

“Stripped of the technical jargon that broadly describe non-inventive elements (e.g. the ‘interfaces’ and ‘processing systems’), and further shorn of the typically obtuse syntax of patents, the patents here really only cover an abstract concept: Paying for a subway or bus ride with a credit card,” Chang said.

Chang noted Smart Systems claims its technology improves the payment system, by reducing “latency,” or the lag created by computers processing credit card payments, which, while almost unnoticed at many retail locations, could produce horrific results if attempted when moving millions through subway gates at rush hour.

But Chang said a solution to latency is not enough to maintain those four patent claims.

“Smart Systems does not really explain how these features actually add anything new to the basic function of authorizing a purchase on a credit card,” Chang wrote. “Invoking ‘various computer hardware elements,’ which save time by carrying out a validation function on site rather than remotely, does not change the fact that ‘in substance’ the claims are still ‘directed to nothing more than’ running a bankcard sale.”

Smart Systems is represented in the action by the firms of Rachis Duff Adler Peel & Kaplan, of Chicago, Calvo Fisher & Jacob, of New York, and Mauriel Kapouytian Woods, of New York and San Francisco.

Representing the CTA is Sheppard Mullin Richter & Hampton, of Chicago, and Kilpatrick Townsend & Stockton, of Denver.

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