A Federal Court today overturned an earlier verdict in a patent suit that awarded Western Union (NYSE: WU) $19.5 Million in damages against MoneyGram (NYSE:MGI). Today’s ruling, by the United States Court of Appeals for the Federal Circuit, found that the Western Union patents were obvious over a prior system offered by Orlandi Valuta (a company now owned by Western Union).

The patent suit between Western Union and MoneyGram dates back to 2007 when Western Union sued MoneyGram alleging infringement of claims of a number of Western Union patents relating to money transfer techniques (some of which relate to prepaid debit cards in money transfer systems). Western Union won an award of $19.5 Million last year, but on appeal to the Federal Circuit, MoneyGram prevailed in having the award reversed.

In particular, the claims of the Western Union patents were found by the court to be obvious over a system that existed prior to the filing of the patents by Western Union. The prior system was the “Red Phone” system operated by Orlandi Valuta, a money transfer company that focuses on the hispanic market. The “Red Phone” system was used as early as 1997, and required a customer to use a telephone to initiate a money transfer transaction with a customer service agent. The telephone used by the customer was typically a red telephone in a retail location that would connect with an Orlandi Valuta telephone agent. The agent would enter information about the transaction into a computer system, and the system would fax an invoice to the retail location where the customer was located. On receipt of the fax, an agent at the retailer would call out the name of the customer, who would give the amount of the money transfer to the agent.

Shortly after Orlandi Valuta launched the system, Western Union acquired Orlandi Valuta.

The Western Union patents were filed shortly thereafter, and were intended to address deficiencies in the “Red Phone” system.

MoneyGram argued, before the Federal Circuit, that the Western Union patents were obvious over the Red Phone system. The Federal Circuit agreed, stating that the patents “would have been obvious as a matter of law” and that the damages award against MoneyGram is reversed.

You can read the full text of the Federal Circuit opinion here.