Evan Schuman's StorefrontBacktalk

A vendor that has made a nice living suing dozens of major retail chains for violating its giftcard process patent was dealt a serious setback on July 1, when a federal judge ruled that much of the patent is too obvious to be enforced.

Indeed, the vendor—Card Activation Technologies (CAT)—probably knew that the 74-page ruling was going against it when the judge wrote on page 33 that “it takes some chutzpah” for CAT to have made some of its arguments. The fact that the judge’s day job is serving as a member of the U.S. Court of Appeals for the Third Circuit probably made it sting all the more. Not that RadioShack, 7-Eleven, Nordstrom, Macy’s, JCPenney, Sears, OfficeMax and the many other retailers that have been sued by CAT would take any pleasure in the ruling.

(Critical Update To This Story: A week after this decision, CAT surrendered on the three elements the judge hadn’t killed. In effect, the case completely collapsed.)

Part of the court’s concerns involved an amendment to the patent CAT filed, one that added that a customer-authorization code must be entered, a clerk-authorization code must be entered by a clerk and a general-authorization code must be entered through a keypad. Kent A. Jordan, a member of that appellate panel who was serving as a circuit judge for this specific matter, wrote that CAT argued it was improper for the judge to have granted another party the ability to amend its complaint to add the new claims. “Since all of the additional labor has been a result of CAT’s decision to amend its claims during reexamination, it takes some chutzpah to mount those objections, but I will address them,” Jordan wrote.

The ruling also dealt with the specifics of the payment system. “CAT asserts that a general-authorization code is disclosed by the terminal ID. CAT’s argument boils down to its claim that the terminal ID is a general-authorization code because ‘it is a precondition for establishing communication with a host computer.’ CAT confuses the ultimate effect of the terminal ID with the purpose of it.”

CAT had argued that the purpose of the terminal ID “is to inform the host data processor from which merchant and terminal the communication is coming.” The judge concluded: “Simply put, the plain language of the claims requires the general-authorization code to be entered for a particular purpose, that is for the computer to initiate communication with a host data processor.”