Authored by E. Robert Yoches
The US Patent and Trademark Office (USPTO) recently issued a White Paper suggesting that business-method patents have been around 200 years1 (despite the USPTO's best efforts for much of that time to prevent them). Only recently, however, have significant numbers of these patents been litigated. They present some interesting issues, including, for example, the construction of claims written in nontechnical terms.
Litigating these patents requires attorneys to consider certain issues in a new light. For example, the inventive process behind business-method patents differs from the process behind most other patents and may raise inventorship issues affecting the validity and enforceability of the patents. Also, the USPTO's recent efforts to tighten its procedures for issuing these patents may make reexamination a more attractive litigation option.
The one unique aspect of litigating business-method patents, however, is a new statutory defense to infringement available only to those charged with infringing such patents. Therefore, it is with this new defense that our discussion begins.
In Section 4302(b) of Public Law 106-113, Patent Reform Act of 1999 (PRA), Congress defined a new defense to patent infringement:
It shall be a defense to an action for infringement under [Section] 271 of this title with respect to any subject matter that would otherwise infringe one or more claims for a [business] method in the patent being asserted against a person, if such person had, acting in good faith, actually reduced the subject matter to practice at least [one] year before the effective filing date of such patent, and commercially used the subject matter before the effective filing date of such patent.
This provision—the first statutory recognition of a prior-use defense—only affects business-method patents. It differs from the allegations of prior use that may invalidate a patent, because those prior uses cannot have been "abandoned, suppressed, or concealed."2 This statute, however, allows a person using a secret business method to avoid infringement by meeting certain criteria. Those criteria are strict, however, and the penalties for failure are draconian.
The PRA now provides a defense to infringement for those who had reduced a process to practice more than a year before the effective filing date of a business-method patent, and who had commercially used that method before that date.3 The defense applies to products produced by the patented method, as well.4
To qualify for this defense, the patented invention must be a method of doing business and the party asserting the defense cannot have derived the invention from the patent owner or persons in privity with the patent owner.5 The defense does not constitute a general license under all claims but just to any business-method claims (which the PRA does not define). Moreover, a party who has abandoned commercial use of the subject matter may not rely on activities performed before the abandonment to establish a defense with respect to actions after the abandonment. Further, only the person who performed the acts necessary to establish the defense can assert it.6
Moreover, the rights under this Section cannot be licensed, assigned, or transferred to another except as part of a good-faith assignment or transfer of the entire enterprise or line of business to which the defense relates.7 Furthermore, even in such assignments and transfers, the defense may only be asserted when the subject matter is either in use before the effective filing date of the patent or the date of the assignment or transfer, whichever is later.8
If these conditions were not limiting enough, the party asserting the defense must prove the elements by clear and convincing evidence.9 If that party does not prevail on the defense, the court must find the case exceptional for the purpose of awarding attorney fees under 35 U.S.C. Section 285.10 These last two conditions make it unlikely that many defendants will rely on this defense.
Two recent cases shed light on the courts' interpretations of claims in business-method patents.
Amazon.com, Inc. v. Barnesandnoble.com, Inc.
In Amazon.com, Inc. v. Barnesandnoble.com, Inc.,11 Amazon.com obtained a preliminary injunction preventing barnesandnoble.com from infringing US Patent No. 5,960,411. That patent involved a method and system for allowing a consumer to complete a purchase order for an item via an electronic network using only a "single action," such as the click of a computer mouse button on the client computer system.
All of the claims-in-issue contain the single action limitation. For example, claim 1 reads as follows (emphasis added):
1. A method of placing an order for an item comprising:
under control of a client system, displaying information identifying the item; and in response to only a single action being performed, sending a request to order the item along with an identifier of a purchaser of the item to a server system;
under control of a single-action ordering component of the server system, receiving the request;
retrieving additional information previously stored for the purchaser identified by the identifier in the received request; and generating an order to purchase the requested item for the purchaser identified by the identifier in the received request using the retrieved additional information; and fulfilling the generated order to complete purchase of the item
whereby the item is ordered without using a shopping cart ordering model.
The district court had held that the single action needed to complete the order only occurs after: (1) the presentation of a description of the item to be purchased, and (2) the presentation of the single action the user must take to complete the order. The federal circuit found that limitation too narrow, disagreeing with Amazon.com's interpretation of the following excerpt from the prosecution history:
Applicants' single action ordering technology facilitates electronic ordering of items . . . To order an item using single-action ordering technology, the purchaser first locates the item by browsing through a catalog of items, by searching for the item, by selecting a link to the item, or by using any other means for locating the item. Once the item is located, the purchaser need only perform a single action to generate an order for the item and to fulfill that generated order.12
Amazon.com sought to begin counting the number of actions only after the consumer made up his or her mind to purchase, but the federal circuit found such a test too subjective.13 The court found instead that the "call for the single action [should] be performed immediately after a display of information about an item and without any intervening action, but not necessarily immediately after the first display or every display."14
To support its interpretation, the court noted that the claims recite "displaying information identifying the item" and then immediately recite "sending to a server system a request to purchase the item" "in response to only a single action being performed."15 According to the specification, the claim term "the act of counting the steps" might constitute the "single action" that begins after the user selects the "single action" option.16
Based on this observation, the federal circuit concluded:
Therefore, neither the written description nor the plain meaning of the claims require [sic] that singleaction ordering be possible after each and every display of information (or even immediately after the first display of information). The plain language of the claims and the written description require only that single action ordering be possible after some display of information. Indeed, the written description allows for and suggests the possibility that previous displays of information will have occurred before the display immediately preceding an order.17
Although the court recognized that this construction potentially caused the claim to read on the shopping cart model that the invention was designed to avoid, the court remarked that the claims' "whereby" clauses expressly excluded that model. This broad interpretation of the claims helped Amazon.com on infringement but likely doomed it on validity.18
Catalina Mktg. Int'l, Inc. v. Coolsavings.com, Inc.
The district court of Illinois recently construed claim terms narrowly in light of ordinary dictionary meaning, the patent specification, and the prosecution history. Catalina Mktg. Int'l, Inc. v. Coolsavings.com, Inc.,19 involved a system for monitoring and controlling the distribution of coupons. A disputed claim element read:
A system for controlling the selection and dispensing of product coupons at a plurality of remote terminals located at predesignated sites such as consumer stores.20
The defendant argued that the term "predesignated sites such as consumer stores" required that the terminals be established at point-of-sale locations, such as stores.21
In construing the disputed claim limitation, the district court started by parsing the term into three parts and then examining each in light of the dictionary. First, the district court noted that "predesignate" meant "to designate beforehand,"22 and "site" meant "the original or fixed position of a thing."23 The court thus interpreted "predesignated site" to mean "to designate beforehand the original or fixed position of a thing."24 The court then turned to the dictionary to define "such as" to mean "of a kind or character about to be indicated, suggested, or exemplified, for instance."25 The court concluded, "[The] definitions of these terms demonstrate that the terminal must be placed at a place that has been designated beforehand, for example, a consumer store."26
The court next turned to the pivotal issue of whether to construe "such as a consumer store" narrowly to mean "at the point of sale," or to construe the term broadly to allow the terminal to be placed anywhere. After analyzing the specification, the district court opted for the narrower construction.
In particular, the court noted that the abstract states: "A system for monitoring the distribution of product coupons from a plurality of remote terminals located at the point of sale is provided."27 The summary of the invention, moreover, states that "by providing point of sale distribution . . . [a] stand alone coupon dispensing terminal is provided at each retail store."28 Furthermore, the court pointed out that the description of the preferred embodiment states that "[each] of terminals T is a stand alone unit to be placed at a remote location such as a retail grocery store."29
Also critical to the court's narrow construction was a statement made during the prosecution of the patent at issue. In response to a rejection, the applicants argued, "The invention is a system for controlling the selection and dispensing of product coupons by stand alone terminals located in stores."30 The applicants also represented, "The concepts of this invention go to the very core of couponing, beginning with the dispensing of coupons onsite."31 Each of these statements argued for the narrower construction.
The US patent laws require that each patent properly name its inventors, even if they all have a duty to assign their inventions to the same entity.32 Failure to identify inventors renders a patent unenforceable until the inventorship is corrected, and failure resulting from deceptive intent may invalidate the patent completely.33
Unlike inventions in most technical areas, many business-method inventions have unclear parentage. Often these inventions result from meetings or general discussions between marketing and business personnel, perhaps involving engineers. Reconstructing the precise contributions made by each inventor months or years after conception often proves a daunting task. In one case, the federal circuit held that a patent owner's failure to advise the USPTO of all facts surrounding inventorship amounted to inequitable conduct (which resulted in an unenforceable patent) even though the patent correctly identified the inventors.34
Furthermore, inventorship depends on the claims,35 delaying the task of finalizing the inventive entity until the USPTO finally allows the claims in a patent, which may occur years after the application was filed. During prosecution of the patent application, the USPTO may take several actions that cause the applicants to change the claims. For example, the USPTO could issue a restriction requirement forcing the applicant to select only certain claims for prosecution. Alternatively, the USPTO may reject certain claims, causing the applicant to cancel or amend them. For whatever reason, the claims that issue in a patent often differ significantly from those that were filed, and the inventorship may change, as well. Failure to repeat the inventorship determination may result in an incorrect inventorship and an unenforceable patent.
Conventional wisdom counsels against reexamination as a litigation strategy. The inter partes reexamination recently enacted36 gives the protestor some participation in exchange for severe consequences if the patent survives, and conventional ex parte reexamination gives the protestor precious little participation.
Conventional wisdom, however, may not always be the best wisdom. Two factors suggest considering reexamination seriously in business-method patent litigations. First, the USPTO currently looks carefully at business-method claims, even invoking a second layer of review. Second, the USPTO grants most requests for reexaminations, and most of those reexaminations result in amended or canceled claims.37 This latter statistic has special significance in light of the grave importance of claim amendments.
Therefore, one should weigh several factors in deciding whether to file a reexamination: (1) technical difficulty of the invention; (2) strength of the patent or publication prior art (a reexamination can only consider these two types of prior art) versus the strength of other types of prior art; (3) court delays; (4) other invalidity defenses; (5) strength of noninfringement position; and (6) number of claims involved. The right combination of these factors may suggest reexamination as a new front in the patent war.
The avalanche of new business-method patents has already created a wave of litigations. Those patents offer new opportunities for effective prosecution of patent lawsuits and should force litigators to reassess old patterns.
1 USPTO White Paper, "Automated Financial or Management Data Processing Methods" (Business Methods), Executive Summary at www.uspto.gov/web/menu/busmethp/index.html (last visited July 5, 2001).
2 35 U.S.C. § 102(g) (2000).
3 See Dean Anason, "Financial Firms Given Legal Defense Against Lawsuits over Patents," Am. Banker 2 (Dec. 2, 1999).
4 Public Law 106-113, § 4302(b).
11 239 F.3d 1343 (Fed. Cir. 2001).
12 Id. at 1352.
14 Id. at 1353.
17 Id. at 1354.
18 Id. at 1358—1366.
19 No. 00C2447, 2001 U.S. Dist. LEXIS 3781 (N.D. Ill. Mar. 27, 2001).
20 Id. at *6; U.S. Patent No. 4,674,041 (issued June 16, 1987).
22 Id. (citing Webster's New Int'l Dictionary 1785 (3d ed. 1986)).
23 Id. at *6—7 (citing Webster's New Int'l Dictionary 2128 (3d ed. 1986)).
24 Id. at *7.
25 Id. (citing Webster's New Int'l Dictionary 125, 2283 (3d ed. 1986)).
26 Id. at *7.
29 Id. at *8.
31 Id. (emphasis added).
32 35 U.S.C. § 256.
33 PerSeptive Biosystems, Inc. v. Pharmacia Biotech, Inc., 225 F.3d 1315 (Fed. Cir. 2000).
35 An inventor need only contribute to one claim in a patent, so the inventors in the application as filed should include everyone who made a contribution to at least one claim in the original application that was more than what is expected from an artisan of ordinary skill. 35 U.S.C. § 116 (2000); see also Donald S. Chisum, Chisum on Patents § 2.03 (1999).
36 Optional Inter Partes Reexamination Proceedings, 65 Fed. Reg. 76,756 (Dec. 7, 2000) (to be codified at 37 C.F.R. § § 1.902—1.997).
37 See Glenn E. Von Tersch et al., "Strengthening and Weakening the Patent Through Reexamination and Reissue," 456 PLI/PAT 417, 434 (1996).
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