The Latest Threat To E-Commerce : The PanIP Patent Litigation

The PanIP Patents

Both the '951 and '319 patents arise out of a common chain of patent applications filed by the inventor, stretching back as far as 1984 ' long before the Internet became widely known or used. Moreover, several of the prior issued patents in the chain have previously been found to be invalid by a district court, in whole or in part, during prior litigation in which Lockwood asserted that those patents were infringed by American Airlines' computerized reservation system ' which findings were later upheld by the United States Court of Appeals for the Federal Circuit.13

The '951 Patent

The '951 patent discloses three preferred embodiments of the invention, respectively directed to 1) a tool for “augmentation of sales and marketing capabilities of travel agency personnel in conjunction with computerized airline reservation systems;” 2) financial service application processing; and 3) “interactive delivery of informative, educational and recreational audio-visual programs to the home, school or office.”14 Claim 10, which PanIP asserts as purportedly covering the defendants' e-commerce activities, is directed to the third embodiment.15

In describing the preferred embodiment of claim 10, the specification of the '951 patent discloses a data processing center linked to various remote sites, including one or more information and sales stations, a credit reporting service terminal, and data processing terminals of various goods and services providers. The stations and terminals are disclosed as being linked to the central data processing center by remote links, such as phone line data and cable television communications. The providers' terminals are disclosed as being indirectly linked to the data processing center “via a computerized telecommunications network service such as TELENET(r).” The specification further provides that the sales and information stations are provided at a series of locations such as homes or offices, and are all remotely linked to the data processing center. The information and sales terminals are disclosed as comprising a CRT monitor, audio-speaker device, and controller, for example a television receiver and a dial tone telephone that functions as an entry device.

The mode of operation of the preferred embodiment, as disclosed by the specification, requires that a voice communication first be established between the telephone handset and the data processing center. The user uses the telephone keypad to send a request for information to the processor by way of the telephone network. After viewing the requested information on his television set, the customer can then use the telephone keypad to order goods or services selected among those displayed on the television receiver, and can transmit a credit account number to which the purchase can be charged. The data processing center receives the customer's selections in audio signal form, and converts the signals to messages that are transmitted to the central processor. The data processing center contacts a credit information service to verify the credit data provided by the customer, and then transmits to the customer's station and confirmation number and order fulfillment information, which is displayed on the video screen. Finally, customer orders for goods or services are then transmitted to the provider for order fulfillment.

The '319 Patent

The '319 patent discloses a system utilizing a plurality of remote terminals for use by banking institutions for the automatic processing of loan applications. The automatic loan processing terminal system links a financial institution, a plurality of self-service terminals at various remote sites, and a credit rating service by telephone lines or other means of telecommunication. The financial institution is provided with a central processor having a communication interface which allows it to access the terminals at the remote sites. Information regarding various loans that are available to customers is stored in the memory of the central processor.

The preferred embodiment of the invention operates by periodically sending loan information from the central processor to the terminals at the various remote sites, which information is stored in the various terminals and can be reviewed by an applicant in need of a loan. An applicant using a terminal selects a type of loan in which he is interested, and then is asked to provide the pertinent personal information necessary to process his loan application. The information provided by the applicant is then supplemented by a financial profile obtained directly by the terminal from the credit rating service, at which point the terminal is able to compute the credit worthiness of the applicant and to approve or disapprove the loan. Once the loan has been approved, the applicant is requested to accept it or reject it. Accepted loan information is transmitted to the central processor of the financial institution and stored in an active case file, while information about loans which have not been accepted on the spot is also transmitted to the central processor and stored in a quoted case file. The customer can then return to one of the terminals at a later time to accept a previously-approved loan.

Claim 1 of the '319 patent is directed to an “automatic data processing system for processing business and financial transactions between entities from remote sites,” and generally requires 1) a central processor and 2) a plurality of remote sites linked thereto.16 Like claim 10 of the '951 patent, claim 1 also includes multiple “means-plus-function” elements that serve to further limit the scope of the claim.

Issues Relating to the Court's Construction of the Asserted Claims

While PanIP has alleged that the defendants' Internet-based sales activities constitute infringement of the asserted claims, the language of the claims and respective specifications raises a number of questions that may frustrate such a proposed claim construction. First, the repeated use of “means plus function” elements throughout both claims appears to significantly limit the scope thereof. In order for an accused structure to literally meet a means-plus-function limitation, the accused structure must either be the same as the disclosed structure, or must perform the identical function and be otherwise insubstantially different with respect to structure.17 The application of “means-plus-function” language to an accused structure requires both identification of the claimed function and identification of the structure in the written description necessary to perform that function.18

In order to obtain a finding of infringement, PanIP will have to establish, by way of a favorable claim construction, that the Internet-based sales mechanisms alleged to infringe its patent claims perform the identical function as the claim elements designated by means-plus-function language. For example, PanIP will have to show that an Internet user's computer performs the identical function as the telephone keypad-based ordering system disclosed by the '951 patent, and is insubstantially different in structure. This appears, on its face, to be a significant burden for PanIP in establishing infringement of the asserted claims.

Additionally, while beyond the scope of this article, PanIP may be subject to prosecution history estoppel with regard to important elements of the claims. The doctrine of prosecution history estoppel forbids the patentee's reliance on the doctrine of equivalents in establishing infringement, if that reliance would be inconsistent with amendments or arguments made by the patentee during prosecution of the patent.19 Indeed, during Lockwood's previous attempt to enforce his family of patents, the United States Court of Appeals for the Federal Circuit upheld the district court's finding of prosecution history estoppel with respect to certain means-plus-function elements in the claims there at issue.20 Indeed, the same issue may arise in the four currently-pending consolidated lawsuits, particularly in view of the fact that the specification of the patents in suit – which limits the scope of the numerous means-plus-function elements in the claims – does not even mention the Internet, much less the e-commerce methods which PanIP alleges infringe upon its patents. Accordingly, there appear to be a number of significant hurdles for PanIP to overcome in order to obtain a sufficiently broad interpretation of its asserted patent claims that would cover the allegedly infringing conduct.

Conclusion

At this point, it is difficult to speculate as to whether the district court will enter a claim construction that supports PanIP's allegations of infringement, as the cases are still at a preliminary stage. However, in light of the broad scope of coverage asserted by PanIP, and the implications that a favorable claim construction might have for e-commerce as a whole, companies using the Internet to sell their products and services certainly may wish to keep a close eye on the ongoing progress of this litigation.

Endnotes

1 Patrick Thibodeau, Online businesses face increase in patent-infringement claims, COMPUTERWORLD, December 2, 2002, available at www.computerworld.com/governmenttopics/government/legalissues/story/0,10801,76297,00.html.

2 U.S. Patent No. 5,576,951 (“the '951 patent”), entitled “Automated Sales and Services System,” filed on March 16, 1994, and issued to Lawrence B. Lockwood on November 19, 1996.

3 U.S. Patent No. 6,289,319 (“the '319 patent”), entitled “Automatic Business and Financial Transaction Processing System,” filed on November 30, 1994, and issued to the same inventor on September 11, 2001.

4 Don Bauder, Distant e-tailer defendants unite vs. PanIP suits, San Diego Union Tribune, November 5, 2002, available at www.signonsandiego.com/news/business/bauder/200211059999_1b5bauder.html.

5 Id.

6 Id.

7 Information obtained through PACER database, U.S. Party/Case Index. The default judgment was sought in PanIP LLC v. CP Industries, Inc., No. 02-CV-0530.

8 Bauder, supra.

9 Lynne McKenna Frazier, DeBrand's co-owner tangled in patent Web, Fort Wayne News-Sentinel, November 4, 2002, available at:

www.fortwayne.com/mld/newsse tinel/4441222.html.

10 See www.youmaybenext.com/why.html.

11 See www.youmaybenext.com/news.html for a listing of articles that have been published in various publications regarding the lawsuits.

12 As the U.S. Supreme Court held in Markman v. Westview Instruments, Inc., the district court must first construe the claims as a matter of law, before the claims can be compared to the accused articles by the finder of fact in order to determine whether infringement has occurred. 517 U.S. 370 (1996).

13 Lockwood v. American Airlines, Inc., 877 F.Supp. 500 (S.D.Cal. 1994), aff'd. 107 F.3d 1565 (Fed. Cir. 1997).

14 '951 patent, at Col. 1, lines 34-40.

15 'Claim 10 in full can be found on www.youmaybenext.com, click on “US Patent No. 5,76,951.”

16 Claim 1 in full can be found on www.youmaybenext.com, click on “US Patent No. 6,289, 319.”

18 Micro Chemical, Inc. v. Great Plains Chemical Co., Inc., 194 F.3d 1250, 1258 (Fed. Cir. 1999).

19 Lockwood, 834 F.Supp. at 1252 (citing Standard Oil Co. v. American Cyanamid Co., 774 F.2d 448, 452 (Fed. Cir. 1985)).

20 Lockwood, 107 F.3d at 1574-75.

As if the recent attacks on the tax-exempt status of Internet transactions were not enough for e-commerce vendors to worry about, a new problem has come to light for companies that sell goods or services via an Internet Web site. PanIP, LLC (PanIP), a company based in San Diego, has initiated lawsuits in the U.S. District Court for the Southern District of California against over 50 companies transacting business over their Internet Web sites, alleging that such activity constitutes infringement of two patents owned by PanIP.1 The patents asserted by PanIP are generally directed to “data processing systems designed to facilitate commercial, financial and educational transactions between multimedia terminals”2 and to “a system for filing applications with an institution from a plurality of remote sites, and for automatically processing said applications in response to each applicant's credit rating obtained from a credit reporting service.”3

PanIP first asserted its patent infringement claims against eleven companies in a series of lawsuits brought in March, 2002.4 At the time of filing, PanIP offered the defendants in those suits a license under the patents at issue, initially demanding $30,000, which amount was later reduced to as little as $5,000.5 Most of the defendants in the first group of suits accepted PanIP's settlement offer.6 As a result, each of the original suits has been dismissed ' with the exception of one suit where PanIP has moved for a default judgement against a defendant that did not file an answer.7 Subsequently, starting in August, 2002, PanIP filed a series of four additional suits, each of which named exactly ten defendants8 ' for a total of 51 companies that have been sued overall.

The PanIP suits have received significant media exposure, due in large part to a Web site created by a number of defendants in the second group of lawsuits, www.youmaybenext.com, in order to publicize the lawsuits and to raise funds for a common defense initiative.9 The defendants allege on their Web site that PanIP, rather than file suit against major corporations that allegedly infringe the patents (via a technique previously made famous in complaints filed by inventor Jerome Lemelson), has instead chosen to target “small, hometown businesses with moderate gross earnings [and] limited financial resources and legal experience.”10 While these lawsuits have been reported on in various media outlets,11 the prior coverage has, for the most part, not addressed the issue of whether the asserted claims actually cover the allegedly infringing conduct. While the claims at issue have yet to be construed by the district court hearing the cases,12 a brief analysis of the claim language itself raises a number of questions as to whether the claims are capable of being construed so as to cover the e-commerce activities that PanIP alleges to constitute infringement.

The PanIP Patents

Both the '951 and '319 patents arise out of a common chain of patent applications filed by the inventor, stretching back as far as 1984 ' long before the Internet became widely known or used. Moreover, several of the prior issued patents in the chain have previously been found to be invalid by a district court, in whole or in part, during prior litigation in which Lockwood asserted that those patents were infringed by American Airlines' computerized reservation system ' which findings were later upheld by the United States Court of Appeals for the Federal Circuit.13

The '951 Patent

The '951 patent discloses three preferred embodiments of the invention, respectively directed to 1) a tool for “augmentation of sales and marketing capabilities of travel agency personnel in conjunction with computerized airline reservation systems;” 2) financial service application processing; and 3) “interactive delivery of informative, educational and recreational audio-visual programs to the home, school or office.”14 Claim 10, which PanIP asserts as purportedly covering the defendants' e-commerce activities, is directed to the third embodiment.15

In describing the preferred embodiment of claim 10, the specification of the '951 patent discloses a data processing center linked to various remote sites, including one or more information and sales stations, a credit reporting service terminal, and data processing terminals of various goods and services providers. The stations and terminals are disclosed as being linked to the central data processing center by remote links, such as phone line data and cable television communications. The providers' terminals are disclosed as being indirectly linked to the data processing center “via a computerized telecommunications network service such as TELENET(r).” The specification further provides that the sales and information stations are provided at a series of locations such as homes or offices, and are all remotely linked to the data processing center. The information and sales terminals are disclosed as comprising a CRT monitor, audio-speaker device, and controller, for example a television receiver and a dial tone telephone that functions as an entry device.

The mode of operation of the preferred embodiment, as disclosed by the specification, requires that a voice communication first be established between the telephone handset and the data processing center. The user uses the telephone keypad to send a request for information to the processor by way of the telephone network. After viewing the requested information on his television set, the customer can then use the telephone keypad to order goods or services selected among those displayed on the television receiver, and can transmit a credit account number to which the purchase can be charged. The data processing center receives the customer's selections in audio signal form, and converts the signals to messages that are transmitted to the central processor. The data processing center contacts a credit information service to verify the credit data provided by the customer, and then transmits to the customer's station and confirmation number and order fulfillment information, which is displayed on the video screen. Finally, customer orders for goods or services are then transmitted to the provider for order fulfillment.

The '319 Patent

The '319 patent discloses a system utilizing a plurality of remote terminals for use by banking institutions for the automatic processing of loan applications. The automatic loan processing terminal system links a financial institution, a plurality of self-service terminals at various remote sites, and a credit rating service by telephone lines or other means of telecommunication. The financial institution is provided with a central processor having a communication interface which allows it to access the terminals at the remote sites. Information regarding various loans that are available to customers is stored in the memory of the central processor.

The preferred embodiment of the invention operates by periodically sending loan information from the central processor to the terminals at the various remote sites, which information is stored in the various terminals and can be reviewed by an applicant in need of a loan. An applicant using a terminal selects a type of loan in which he is interested, and then is asked to provide the pertinent personal information necessary to process his loan application. The information provided by the applicant is then supplemented by a financial profile obtained directly by the terminal from the credit rating service, at which point the terminal is able to compute the credit worthiness of the applicant and to approve or disapprove the loan. Once the loan has been approved, the applicant is requested to accept it or reject it. Accepted loan information is transmitted to the central processor of the financial institution and stored in an active case file, while information about loans which have not been accepted on the spot is also transmitted to the central processor and stored in a quoted case file. The customer can then return to one of the terminals at a later time to accept a previously-approved loan.

Claim 1 of the '319 patent is directed to an “automatic data processing system for processing business and financial transactions between entities from remote sites,” and generally requires 1) a central processor and 2) a plurality of remote sites linked thereto.16 Like claim 10 of the '951 patent, claim 1 also includes multiple “means-plus-function” elements that serve to further limit the scope of the claim.

Issues Relating to the Court's Construction of the Asserted Claims

While PanIP has alleged that the defendants' Internet-based sales activities constitute infringement of the asserted claims, the language of the claims and respective specifications raises a number of questions that may frustrate such a proposed claim construction. First, the repeated use of “means plus function” elements throughout both claims appears to significantly limit the scope thereof. In order for an accused structure to literally meet a means-plus-function limitation, the accused structure must either be the same as the disclosed structure, or must perform the identical function and be otherwise insubstantially different with respect to structure.17 The application of “means-plus-function” language to an accused structure requires both identification of the claimed function and identification of the structure in the written description necessary to perform that function.18

In order to obtain a finding of infringement, PanIP will have to establish, by way of a favorable claim construction, that the Internet-based sales mechanisms alleged to infringe its patent claims perform the identical function as the claim elements designated by means-plus-function language. For example, PanIP will have to show that an Internet user's computer performs the identical function as the telephone keypad-based ordering system disclosed by the '951 patent, and is insubstantially different in structure. This appears, on its face, to be a significant burden for PanIP in establishing infringement of the asserted claims.

Additionally, while beyond the scope of this article, PanIP may be subject to prosecution history estoppel with regard to important elements of the claims. The doctrine of prosecution history estoppel forbids the patentee's reliance on the doctrine of equivalents in establishing infringement, if that reliance would be inconsistent with amendments or arguments made by the patentee during prosecution of the patent.19 Indeed, during Lockwood's previous attempt to enforce his family of patents, the United States Court of Appeals for the Federal Circuit upheld the district court's finding of prosecution history estoppel with respect to certain means-plus-function elements in the claims there at issue.20 Indeed, the same issue may arise in the four currently-pending consolidated lawsuits, particularly in view of the fact that the specification of the patents in suit – which limits the scope of the numerous means-plus-function elements in the claims – does not even mention the Internet, much less the e-commerce methods which PanIP alleges infringe upon its patents. Accordingly, there appear to be a number of significant hurdles for PanIP to overcome in order to obtain a sufficiently broad interpretation of its asserted patent claims that would cover the allegedly infringing conduct.

Conclusion

At this point, it is difficult to speculate as to whether the district court will enter a claim construction that supports PanIP's allegations of infringement, as the cases are still at a preliminary stage. However, in light of the broad scope of coverage asserted by PanIP, and the implications that a favorable claim construction might have for e-commerce as a whole, companies using the Internet to sell their products and services certainly may wish to keep a close eye on the ongoing progress of this litigation.

Endnotes

1 Patrick Thibodeau, Online businesses face increase in patent-infringement claims, COMPUTERWORLD, December 2, 2002, available at www.computerworld.com/governmenttopics/government/legalissues/story/0,10801,76297,00.html.

2 U.S. Patent No. 5,576,951 (“the '951 patent”), entitled “Automated Sales and Services System,” filed on March 16, 1994, and issued to Lawrence B. Lockwood on November 19, 1996.

3 U.S. Patent No. 6,289,319 (“the '319 patent”), entitled “Automatic Business and Financial Transaction Processing System,” filed on November 30, 1994, and issued to the same inventor on September 11, 2001.

4 Don Bauder, Distant e-tailer defendants unite vs. PanIP suits, San Diego Union Tribune, November 5, 2002, available at www.signonsandiego.com/news/business/bauder/200211059999_1b5bauder.html.

5 Id.

6 Id.

7 Information obtained through PACER database, U.S. Party/Case Index. The default judgment was sought in PanIP LLC v. CP Industries, Inc., No. 02-CV-0530.

8 Bauder, supra.

9 Lynne McKenna Frazier, DeBrand's co-owner tangled in patent Web, Fort Wayne News-Sentinel, November 4, 2002, available at:

www.fortwayne.com/mld/newsse tinel/4441222.html.

10 See www.youmaybenext.com/why.html.

11 See www.youmaybenext.com/news.html for a listing of articles that have been published in various publications regarding the lawsuits.

12 As the U.S. Supreme Court held in Markman v. Westview Instruments, Inc., the district court must first construe the claims as a matter of law, before the claims can be compared to the accused articles by the finder of fact in order to determine whether infringement has occurred. 517 U.S. 370 (1996).

13 Lockwood v. American Airlines, Inc., 877 F.Supp. 500 (S.D.Cal. 1994), aff'd. 107 F.3d 1565 (Fed. Cir. 1997).

14 '951 patent, at Col. 1, lines 34-40.

15 'Claim 10 in full can be found on www.youmaybenext.com, click on “US Patent No. 5,76,951.”

16 Claim 1 in full can be found on www.youmaybenext.com, click on “US Patent No. 6,289, 319.”

18 Micro Chemical, Inc. v. Great Plains Chemical Co., Inc., 194 F.3d 1250, 1258 (Fed. Cir. 1999).

19 Lockwood , 834 F.Supp. at 1252 (citing Standard Oil Co. v. American Cyanamid Co., 774 F.2d 448, 452 (Fed. Cir. 1985)).

20 Lockwood, 107 F.3d at 1574-75.