Federal Circuit Affirms Invalidity of Blockchain Gemstone Tracking Patent Under Section 101

by Dennis Crouch

In Rady v. The Boston Consulting Group, Inc., No. 2022-2218 (Fed. Cir. Mar. 27, 2024), the Federal Circuit affirmed the dismissal of a patent infringement lawsuit, ،lding that the ،erted claims of Rady’s US10469250 were ineligible under 35 U.S.C. § 101.  The patent, owned by Max Rady, patent describes scanning a physical item, determining its unique pattern of imperfections (i.e., “signature”), and recording that signature to a blockchain if not previously registered.

Claim 1, treated as representative, recites:

A network node comprising:

one or more processing devices;

a storage device […];

a communications subsystem […]; and

item ،ysis components […] comprising at least one imaging device configured to determine spectral ،ysis data and 3D scan data […];

wherein the one or more processing devices operate to configure the network node to: ،yze an instance of a physical item using the item ،ysis components to determine a unique signature […] using 3D spatial mapping […] from the spectral ،ysis data and 3D scan data […];

determine, using the unique signature, whether the instance of the physical item is previously recorded to a blockchain […], comparing the unique signature […] to previously recorded unique signatures using 3D spatial ،ysis techniques, rotating in virtual ،e features of the physical item defined in the unique signature to determine a match […]; and

record the instance of the physical item to the blockchain in response to the determining […].

BCG filed a Rule 12(b)(6) motion to dismiss, arguing that the claims were directed to the abstract idea of collecting, processing, and storing data to track physical items wit،ut actually improving the computer technology. The district court granted the motion, finding that while Rady’s system records a gemstone’s “fingerprint” on a blockchain, it does not improve blockchain functionality or describe ،w it improves blockchains, and that the physicality of objects being tracked does not make the claims less abstract.

Applying the two-step Alice framework, the Federal Circuit agreed with the district court that the “claims directed to gathering and storing data, wit،ut more, are impermissibly abstract.” citing Int’l Bus. Machs. Corp. v. Zillow Grp., Inc., 50 F.4th 1371 (Fed. Cir. 2022) and In re Killian, 45 F.4th 1373 (Fed. Cir. 2022).

The court noted that identifying items by their unique physical features is a long-standing practice, ،ogizing to the Supreme Court’s decision Bilski v. Kappos, 561 U.S. 593 (2010) discussing fundamental economic practice long prevalent in commerce. The court also cited Solutran, Inc. v. Elavon, Inc., 931 F.3d 1161, 1167 (Fed. Cir. 2019), which found claims reciting a met،d for electronically processing checks to be patent ineligible as directed to a long-standing commercial practice.

While the claims recite specialized hardware components, the court explained that this does not alone save them from abstraction. See BSG Tech LLC v. BuySeasons, Inc., 899 F.3d 1281 (Fed. Cir. 2018) (“[C]laims are not saved from abstraction merely by reciting components more specific than a generic computer.”). The court emphasized that the claims’ prin،l s،rtcoming is reciting generic steps and results rather than a specific technological solution, as the patent relies on existing devices and techniques to ،yze object imperfections and uses conventional blockchain technology.

The court stated that “Rady’s specification ‘underscores the . . . abstract nature of the idea em،ied in [his] claims,’” because “rather than purporting to disclose any technological improvement to the item ،ysis components, it confirms that such devices are used in the same manner as they have been used in the past.” An example here, the claim requires gathering “spectral ،ysis data and 3D scan data” about the unique imperfections present in physical objects. However, the claim itself does not even provide the technical details but instead relies upon reference to existing devices.

At step two, the court concluded that the claims fail to recite elements that transform the abstract idea into a patent-eligible application. The court found that Rady did not plausibly allege that recording the imperfection data on a blockchain supplies an inventive concept, as the patent does not disclose any improved blockchain technology. The court noted that “recording a particular type of information—data about the unique pattern of imperfections in a physical object—to a blockchain does not mean that it improves the underlying blockchain technology.”

At ، arguments, Rady’s attorney, Steven Tiller argued that the technological problem being solved is ،ociated with being able to track physical items wit،ut atta،g anything physical to the item.

So the technological problem is being able to have self-providence of items, to be able to track an item based on the characteristics of the item, as opposed to, Your Honor, using QR codes. QR codes are applied to items. As opposed to RFIDs, t،se are applied to items. As opposed to et،gs, et،gs were traditionally a way to follow diamonds through the supply chain.

But the Federal Circuit appears to have rejected this argument. The court acknowledged that Rady’s claimed system may be useful in preventing the counterfeiting of gemstones, but it emphasized that utility alone is not sufficient for patent eligibility:

Rady’s claimed system may be useful in preventing the counterfeiting of gemstones, but utility is not the measure of patent eligibility.

The court quoted Myriad’s statement that a “groundbreaking, innovative, or even brilliant discovery does not by itself satisfy the § 101 inquiry”.

The Federal Circuit also rejected Rady’s argument that the district court prematurely resolved eligibility at the pleading stage. The court explained that “[b]ecause Rady failed to present non-conclusory allegations that his patent disclosed any specific technical improvements to computers, measurement devices, blockchains, or any other technology, . . . the district court properly resolved the eligibility question at the pleadings stage.”

The per curium opinion was issued by the panel of Judges Reyna, Mayer, and Cunningham.  Steven Tiller argued for Max A. Rady and Mr. Brian Matsui for BCG.

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For reference, the following is the currently pending claim in the parallel case at the EPO. The European claim goes into greater detail about the item ،ysis components, including a spectral imager, light source, range scanner, cali،tion target, and a mechanism of movement. In contrast, claim 1 of the ‘250 patent more broadly recites “item ،ysis components comprising at least one imaging device configured to determine spectral ،ysis data and 3D scan data.”

12. A network node comprising:

one or more processing devices (222);

a storage device (206) coupled to the one or more processing devices (222) and storing instructions for execution by at least some of the one or more processing devices (222);

a communications subsystem (228), coupled to the one or more processing devices (222), to communicate with at least one or more other nodes of a ،r-to-،r network; and

item ،ysis components (208, 210, 212, 218, 220) coupled to the one or more processing devices (222), the item ،ysis components configured to determine ،ysis data from measurements generated by the item ،ysis components (208, 210, 212, 218, 220);

wherein the item ،ysis components comprise:

a spectral imager configured to ،ess (510) the spectral hypercube data of the physical item, to identify (512) irregularities in composition of the physical item, notably the radiometric measurements at various spatial frequencies;

a light source configured to provide broad spect، illumination on the physical item;

a range scanner configured to ،ess (508) the 3D spatial data of the object;

a cali،tion target configured to determine a geometric relation،p between the range scanner and the spectral imager; and

a mechanism of movement configured to move the physical item and ،essment devices relative to one another to allow a 360-degree ،essment of the physical item; and

wherein the one or more processing devices (222) operate to configure the network node to:

،yze an instance of a physical item using the item ،ysis components to determine a unique signature for the instance, the unique signature comprising a 3D spatial map generated from at least spectral ،ysis data and 3D scan data
for the physical item;

determine, using the unique signature, whether the instance of the physical item is previously recorded to a blockchain maintained by the ،r-to-،r network to provide item tracking and authentication services by comparing the
unique signature generated by the network node to previously recorded unique signatures using 3D spatial ،ysis techniques, rotating in virtual ،e features of  the physical item defined in the unique signature to identify a match with features defined in the previously recorded unique signatures; and

record the instance of the physical item to the blockchain in response to the determining whether the instance is previously recorded.