On July 25, 2016, three appellate judges in the United States held that a popular online marketplace lender’s patents were invalid because they merely reflected an “abstract idea” that is not entitled to be patented or otherwise eligible for exclusive protection under American intellectual-property laws. The practical effect of this decision is that the lender could not sue its competitors for patent infringement where those competitors allegedly used the same techniques to match borrowers with lenders on their own marketplace lending platforms.
The judges from the Federal Circuit Court of Appeals likened the claimed inventions to a “fundamental economic concept” (i.e., an abstract idea) that served as the basis for the consumer-loan industry. They ruled that simply implementing this concept with “generic technology” to automate the process does not then make it patentable.
The court compared the claimed invention to the one the U.S. Supreme Court found invalid in its 2014 Alice decision, where the Supreme Court held that otherwise-unpatentable abstract ideas do not become patentable after “generic computer implementation.” At least in this particular case, the court found that the online and technology-driven platform differs from traditional consumer lending in degree, rather than kind.
The ruling that this popular platform’s business model is a “fundamental economic concept” may encourage more competition among potential online lenders, with the threat of a successful patent lawsuit seemingly reduced. K&L Gates will continue to monitor this evolving issue.
To read the full opinion of the Federal Circuit panel, click here.