IP Team Prevails at Federal Circuit for Kroger in Membership Rewards Patent Dispute

The dispute relates to U.S. Patent No. 5,924,080, which describes a real-time system for applying in-store checkout discounts for predetermined products and thereby allegedly eliminates the need for coupons. The patent issued in July 1999 and 16 years later, in the summer of 2015, NexusCard brought suit against a number of major grocery and drugstore retailers over their respective rewards programs. In April 2016 U.S. District Judge Rodney Gilstrap of the Eastern District of Texas decided in favor of Kroger, finding that NexusCard’s patents reflected an abstract idea not eligible for protection under the Supreme Court’s precedent-setting Alice decision.  Full briefing took place at the Federal Circuit, starting in August of 2016.  In March of this year, the PTAB reached the same conclusion, deeming the patent ineligible and deciding in favor of Kroger.

That PTAB decision played an especially important role in Kroger’s eventual victory before the U.S. Court of Appeals, with the Pillsbury team submitting it to the Federal Circuit as a “pertinent,” but not precedential, legal authority. While not a commonly successful approach—higher courts routinely decline to consider lower court rulings in support of an argument—the PTAB’s increasing importance in patent issues led the Federal Circuit to accept the submission of the Board’s ruling and likely contributed meaningfully to the Appeals Court’s favorable decision.

On May 9, 2017, the Federal Circuit issued a Rule 36 affirmance in favor of Kroger. Such decisions are widely viewed as the ideal outcome in a Federal Circuit appeal, as they are issued quickly and without opinion, and thus very difficult to challenge. To achieve one for Kroger, when so many of the other companies targeted by NexusCard had long since settled, is a significant accomplishment.

The Pillsbury team advising Kroger was led by Intellectual Property partner William Atkins and counsel Brian Nash. Partners Michael Chibib and Raymond Sweigart (now retired) also played critical roles in the matter.

“This was an important outcome for Kroger,” said Atkins. “From the very beginning, it was clear that ineligibility under Section 101 was the strongest path in this nuisance suit. This comprehensive victory confirms that Kroger was acting in good faith and also clearly demonstrates their willingness to stand firm in the face of adversity.”