Mortgage Grader, Inc. v. Costco Wholesale Corp.
89 F. Supp. 3d 1055
C.D. Cal.2015Background
- Mortgage Grader, Inc. sued Costco, First Choice Loan Services, Inc., and NYLX, Inc. for infringement of U.S. Pat. Nos. 7,680,728 and 7,366,694, covering computer-implemented systems/methods for anonymous online mortgage shopping.
- Defendants moved for summary judgment on multiple grounds: patent ineligibility under 35 U.S.C. § 101, noninfringement of asserted claims, no induced infringement by Costco, and no liability for divided infringement.
- The court applied the Alice/Mayo two-step test for § 101 patentable subject matter and summary judgment standards under Rule 56.
- The asserted claims describe receiving borrower info over a network, programmatically generating a lender-based “credit grading,” showing matching loan packages anonymously, and selectively transmitting borrower info to a lender upon authorization.
- The court found the asserted claims directed to anonymous loan shopping and evaluated whether claim limitations supplied an "inventive concept" beyond an abstract idea.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| §101 patentable subject matter | The inventions require computer implementation and remove humans from the loop to prevent conflicts of interest, making them patent-eligible | Claims are directed to the abstract idea of anonymous loan shopping or organizing human activity; computer/Internet recitations are conventional | Claims (ʹ728 claim 6; ʹ694 claims 1,2,19) invalid under §101 — lack an inventive concept beyond an abstract idea (granted) |
| Literal infringement of ʹ728 credit-grading / personal-info limitations | Accused system programmatically generates a credit grading from borrower inputs (LTV, loan amount, FICO) and transmits borrower personal data; overlap between grading and personal info does not defeat infringement | Terms are distinct; accused system does not meet separate "credit grading" and "personal information" elements | Genuine dispute of material fact exists; summary judgment denied as to noninfringement of ʹ728 (denied) |
| Literal infringement of ʹ694 (secure upload; anonymity) | Lenders use credentials to transfer loan-package data (an upload); borrower remains anonymous to lenders until choosing to reveal identity per platform messaging | No true "upload" or "secure" upload; First Choice and Costco have access to borrower data so anonymity is not preserved | Fact issues preclude summary judgment; court denies noninfringement motion on ʹ694 (denied) |
| Induced and divided infringement (Costco involvement) | Costco induces NYLX to perform infringing steps by directing members to NYLX; claim steps are performed by a single third-party evaluator (no divided infringement) | Costco did not encourage direct infringement; method steps are split among multiple actors so no single direct infringer | Inducement claim against Costco may proceed (denied summary judgment); no divided-infringement problem because claims place processing steps on a single party (denied) |
Key Cases Cited
- Alice Corp. v. CLS Bank Int'l, 134 S. Ct. 2347 (2014) (establishing the two-step test for patent eligibility and that generic computer implementation cannot supply an inventive concept)
- Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012) (framework for assessing whether claims add an inventive concept beyond an ineligible law/idea)
- Diamond v. Chakrabarty, 447 U.S. 303 (1980) (broad statement of § 101 scope: patentable subject matter includes "anything made by man")
- Limelight Networks, Inc. v. Akamai Techs., Inc., 134 S. Ct. 2111 (2014) (addresses divided infringement rules and necessity of a single direct infringer for certain indirect-infringement theories)