Patent Invalidation Paves The Way For Automated Fare Collection Systems

Jacob Schneider and Dipti Ramnarain are Associates at our Holland & Knight's Boston office.

Next generation automated fare collection systems (AFC) typically characterized by open architecture designs, open payment approaches, and contactless card readers, are being installed in an increasing number of public transportation systems throughout the world1. Transit agencies' traditional payment model for accessing public transit services include the use of cash or a refillable magnetic strip card that is swiped through a card reader. This traditional payment model often relies on vendor-specific solutions, which limits an agency's ability to substitute or expand existing system components with third party hardware or software, and ultimately may lead to vendor lock-in. Moreover, magnetic strip cards are often "closed-loop" in that they are only usable to pay for access to a specific transit system. In other words, a rider could not use her or his magnetic strip ticket for multiple transit agencies or in general retail.

Modern AFC systems are generally designed to avoid the above shortcomings by utilizing open architecture and open payment approaches. A system designed using an open architecture eliminates reliance on a single source by allowing for the adding, removing, and modifying of components offered by multiple vendors. Open payments allow riders to pay for access to public transportation using a variety of payment methods, such as a debit card, credit card, or mobile wallet, in lieu of an agency-issued card that has no use outside of fare payment. Moreover, a key component of AFC systems is the use of an open wireless technology called near field communication, which allows riders to simply wave a cell phone, credit card, or fare card in front of a reader to pay their fare.

Unfortunately, AFC system implementations have been somewhat impeded by Smart Systems Innovations, LLC (Smart Systems), a non-practicing entity (i.e., an entity holding a patent for a product or process but does not develop the same). Smart Systems claimed that AFC systems read on several Smart Systems-owned patents, and it demanded licensing fees or initiated litigation against entities either using or planning to use AFC systems. Smart System's demands have forced its targets to incur significant costs or otherwise not implement an AFC system.

Recently however, the Federal Circuit dealt Smart Systems a major setback in Smart Systems Innovations, LLC v. Chicago...