Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
Recent decisions by the appellate court for all cases involving patents, the Court of Appeals for the Federal Circuit, and the Supreme Court have tended to narrow the scope afforded to claims, and forced patent drafters to "aim" their claims more precisely at intended targets. Patent owners have answered the courts by widening the attack of their patent portfolios in a number of ways. This article explores several approaches recently adopted by patentees to improve their situations in the courts.
I. Increase the Numbers of Patents and Claims
One way to fight narrower individual claims is to increase the numbers of claims in one’s arsenal. Filing continuation and divisional applications provides an effective means of arming oneself by firing (or threatening) shotgun blasts of claims rather than carefully aimed rifle shots. Two pioneers of this approach, Ronald Katz and Jerome Lemelson, have become extremely wealthy with this strategy.
A. RAKTL
RAKTL stands for Ronald A. Katz Technology Licensing, L.L.P., a company holding rights in about fifty patents related to call-center technology (automated answering machine systems).1 RAKTL has completed licenses with approximately 60 companies. RAKTL’s licensees include American Express, AT&T, Bank of America, Capital One Services, Compaq, Equifax, Excel Communications, First Data, First Union, Hewlett- Packard, Home Shopping Network, International Business Machines, Merck, Microsoft, MoneyGram Payment Systems, QVC, Sprint, Tele-Communications Inc. (now known as AT&T Broadband), The Gallup Organization, T. Rowe Price Associates, The Vanguard Group, Wells Fargo, West Interactive, and WorldCom.2 Some commentators estimate that RAKTL has received between $350-$450 million thus far in royalties, and believe he will top $2 billion by the time his patents expire.3
RAKTL has instituted five lawsuits,4 but has contacted hundreds of others seeking licensing fees. His success stems from two key strategies. First, he targets end users of the equipment rather than suppliers. For example, he targets entities that utilize interactive voice response systems to provide services in fields, including Automated Health Care Services, Automated Securities Transactions, Automated Service Bureaus, Electronic Classifieds, Employment Verification, Enhanced Cable/Satellite Customer Services, Enhanced Customer Service for Telephony Delivered Over Non-Cable Communications Facilities, Enhanced Customer Service for Telephony Delivered Over Cable Communications Facilities, Financial Services Call Processing (e.g., Customer Service, Bill Pay, etc.), Government Licensing Registration (e.g., Automotive Registration), Government Payment Services, Group Conferencing (including "Broadcast" Services), Pay-Per-View, Product/Service Support, Lottery Prepaid Tickets or Cards, Regional and Inter-Exchange Telecommunications Services, Television Shopping Services (Automated Ordering), Travel and Transportation Services, and Energy and Utility Services.
Second, although his basic specification contains only about twenty pages, his patents have thousands of claims, many of which include end-user equipment. Therefore, his licenses with equipment and service suppliers do not extend to the end-users by implication because the end users have combinations that have not been provided by the suppliers.
RAKTL’s success comes from the sheer weight of his patent portfolio. With 49 issued patents including over 2,200 claims, RAKTL has effectively amassed too many claims to dispute. One cannot practically obtain an opinion on all of the patent claims (whose numbers increase as new patents issue), or assess the likelihood of success in litigation. By keeping settlement demands reasonably low, RAKTL has thus far avoided trial.
B. Jerome Lemelson
Jerome Lemelson pioneered the technique of saturation licensing. Unlike Mr. Katz, Jerome Lemelson (now deceased) not only has a large number of patents (currently over 550), those patents span several fields, from automated manufacturing systems to toy cars.5 He has too many licensees and litigations to list.6 Mr. Lemelson and his foundation have reportedly received more that $1 billion in licensing revenues.7
Similar to Mr. Katz, Mr. Lemelson received several patents from common specifications, but he had an advantage. Before the legislation implementing the GATT Uruguay Round (P.L. 103-465), which President Clinton signed into law on December 8, 1994, U.S. patents lasted seventeen years from issuance, regardless of when they were filed. Several of Mr. Lemelson’s patents issued from applications originally filed in the 1950’s. They did not "surface" until decades later, after technology had advanced,8 hence they became known as "submarine patents".9 Mr. Lemelson made full use of continuation and divisional applications to achieve this result.10
The new legislation marked an end to this practice because it prescribes a patent term of twenty years from filing rather than seventeen years from issuance.11 Thus, using continuation and divisional applications may still produce manifold patents, but, except for certain patent-term extensions, they will all expire twenty years from the date the first parent application was filed.
In addition, the Federal Circuit has recently ruled that Lemelson’s technique of adding claims to technology years after filing the original application may constitute "prosecution laches," and prevent enforcing the resulting patents.12 Symbol Technologies, Inc. v. Lemelson Medical, Education & Research Foundation.13 This may also cut short the effective life of his patents.
As with Mr. Katz, Mr. Lemelson has many critics. A recent article noted:
II. Increase the Number of Defendants
The theory behind the Katz and Lemelson strategies resembles that of hunters firing at flocks of geese with shotguns. If the flocks are large enough, and one fires enough shot, the odds are high that some geese will be hit, even if the aim is poor and the powder is wet. Those odds can be high enough to convince most geese to negotiate.
Patent owners not prescient enough to have filed the divisional and continuation applications needed to garner the limitless number of claims for menacing potential licensees must alter that strategy. Those patent owners, armed with rifles rather than shotguns, must look for very large flocks to increased the odds of success lessened from firing fewer bullets. These hunters must look for patents that affect very large numbers of potential licensees ("geese"). Of course, the larger the flock, the greater the likelihood that some of the geese, now faced with a finite number of bullets, will assess the odds of success and choose to fight.
A. E-Data
In the mid-1990’s, E-Data Corporation, once described as "three lawyers and a patent,"15 sued forty-three companies for infringing its U.S. Patent 4,528,643 entitled "System for Reproducing Information in Material Objects at a Point of Sale Location." E-Data alleges its patent covers the commercial downloading of information from the Internet. The defendants in the three lawsuits, E-Data Corp. v. Micropatent Corp.,16 Interactive Gift Express, Inc. v. CompuServe Inc.,17and Interactive Gift Express, Inc. v. Dun & Bradstreet, Inc.,18 included the major suppliers of information over the Internet, as well as some bookstores, such as Waldenbooks.19
E-Data has also offered licenses on the Internet to at least 25,000 other companies. IBM took a license under the patent,20 as did several others.21 Although licenses for companies not planning to engage in electronic commerce start at $500,22 most companies waited for the courts to rule.23
The first court ruled in 1999, largely for the defendants, but in 2001, the Federal Circuit, reversed many of the narrow constructions. 24 E-Data settled with several parties after that decision. 25 E-Data recently announced several new lawsuits, this time in the "rocket docket" of the Western District of Wisconsin, along with new licensees. 26
B. Charles E. Hill & Associates
Charles E. Hill & Associates sued CompuServe Inc. and a related company in the Southern District of Indian alleging infringement of U.S. Patent No. 5,528,490, which purports to cover electronic catalog services. That court granted summary judgment of noninfringement and denied summary judgment for invalidity. In April 2002, the Federal Circuit construed the claims of that patent in affirming part and reversing part of that judgment, and remanding the case back to the Southern District of Indiana. 27
In August 2002, the patentee accused several catalog companies (such as Barnesandnoble.Com Inc., Buy.Com Inc., Eddie Bauer Inc., The Gap Inc, Intimates Brands Inc., J Crew Group Inc., L. L. Bean Inc., Lands’ End Inc., Limited Brands Inc., Sears, Roebuck And Co., Spiegel Inc., and Williams-Sonoma Inc.) and several providers of enabling technologies (such as eBay Inc. and International Business Machine Corp.) of infringing the ‘490 patent and two other patents. The plaintiff filed the suit in the United States District Court for the Eastern District of Texas, a favorite spot for patent owners. On January 23, 2003, however, Judge Ward of that Court transferred the case to the Southern District of Indiana where the CompuServe remand is pending.
C. TechSearch
As its website explains,
III. Choose Your Defendants Carefully
Another approach many patent owners pursue involves careful selection of defendants. Messrs. Katz and Lemelson license customers and suppliers separately, presumably to increase revenue and decrease the chance that a license to one party will be implied to others. Some patentees also choose defendants for tactical reasons as well, perhaps hoping for easy wins before approaching the powerhouses.
A. Konrad v. General Motors
Allan Konrad, a computer scientist working at Lawrence Berkeley Labs, sued three dozen corporations, including General Motors, Ford, Boeing, Daimler-Chrysler, United Airlines, Kodak, Hertz, and Hilton, alleging they infringed three patents granted between 1996 and 1999 for a "Remote Information Service Access System Based on a Client-Server Service Model." 31 The lawsuit alleged that the defendants infringe because each of their web sites provides interactive database operations or "dynamic" web pages. As compared to static web pages that simply provide users with preprogrammed content, dynamic web pages are generated on the fly in response to user requests. For example, a typical information retrieval (search) website like Google dynamically generates web pages in response to user search requests of the Google information databases.
Three defendants, Motorola, Boeing and Eastman Kodak, settled for undisclosed licensing fees. 32 Mr. Konrad did not sue the makers of the web-site technology, choosing instead the much larger group of the web site owners. To thwart that approach, three suppliers of the web-site technology, Microsoft, Netscape and Sun Microsystems, sued Konrad for a declaratory judgment of noninfringement and invalidity in the Northern District of California. 33 That court granted one of the suppliers’ motions that lead to a judgment of invalidity, and the Federal Circuit affirmed. 34 The Eastern District of Texas court (venue of Konrad’s suit against owners) had granted summary judgment of noninfringement, but the Federal Circuit vacated that judgment in view of its decision finding the patent invalid. 35
B. Leon Stambler
Like Messrs. Katz and Lemeson, Leon Stambler was not new to the patent system in 2000 when his counsel flooded the U.S. Postal Service with letters to website operators seeking license fees for the use of cover the Secure Sockets Layer (SSL), a Web security standard used to scramble data during Internet transactions between Web sites and their customers, on the basis that SSL (now core to the World Wide Web) infringed at least three of Stambler’s patents. 36 In the words of Stambler’s counsel: "The use by … of … Secure Sockets Layer encryption techniques to provide that security falls within the claims of the Stambler Internet Security Patents."
Stambler relied on seven patents stemming from the same specification and including hundreds of claims. Thus, Stambler, like Katz and Lemeson, spent time developing a portfolio. And Stambler also practiced the art of "late claiming" in the sense that he closely followed develops in an industry and used a pending patent application with what he believed to be an early filing date for that industry to support claims crafted to ensnare the industry when it reached a mature state.
Further, Stambler, like Konrad, chose his targets wisely. His first suit was against several companies, 37 one of which (First Data) settled for an undisclosed amount. However, Stambler recently went to trial against two others, RSA Security and Verisign, and lost. 38 This result calls into question his basic claim against SSL.
C. PanIP
PanIP, 39 LLC describes itself as "a technology development company that holds a number of United States and Canadian high-impact patents directed to Information Appliances, including multimedia public kiosks, personal computers, TV Set Top Boxes, TV video game consoles, and various workstations, as well as systems employed in such industries as E-Commerce, interactive financial transactions, and database search systems."40 Its portfolio centers on patents developed by Mr. Lawrence B. Lockwood.
Several companies sued by PanIP sponsor a website with the ominous name of www.youmaybenext.com. 41 The web site accuses PanIP of asserting "that if you use graphical and textual information on a video screen for purposes of making a sale, then you are infringing on their patent. Us Patent No 5,576,951," and "if you accept information to conduct automatic financial transactions via a telephone line & video screen, you’re infringing on their patent. US Patent No. 6,289,319." 42
PanIP has already sued several small companies who do business over the Internet. 43 Under a section entitled "Why is PanIP Suing These Companies?," the web-site owners offer the following analysis of the issues of defendant choice:
Why has PanIP chosen to go after small, hometown businesses with moderate gross earnings to begin their patent protection crusade?
Why, when there are so many corporations out there currently running websites that annually gross millions in profits, while at the same time supposedly infringing upon the exact same patents, is PanIP going after the smaller businesses?
Why did PanIP choose not to go after any businesses in the state of California where PanIP is located? Are there no small companies with e-commerce web sites in California?
Why has PanIP subsequently dropped charges for some of the defendants when they were informed that the defendants’ web sites did not even perform e-commerce? Did they not even look at the defendants’ web sites before suing them? Wouldn’t that seem relevant?
The defendants associated with this web site have banded together to provide a formidable defense. And they are seeking help from the Internet Community to aid them with their struggle. Curious how the web technology may help defeat a web-technology patent.
IV. Conclusion
The state of patent litigation, especially in Internet technologies, has both a legal and a practical component. The legal component involves the tougher road patentees face in winning infringement cases. The practical component involves their strategic responses to that fact. One possible effect, as more companies become patent defendants, however, is patent "reform" by Congress. And that may be the biggest gamble of all.
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. The information provided in this article is for informational purposes only and is not intended and should not be construed as legal advice. This memorandum may be considered advertising under applicable state laws.
Endnotes:
1 http://news.cnet.com/investor/news/newsitem/0-9900-1028-20653353-0.html(visited February 10, 2003), http://www.cafezine.com/index_article.asp?Id=582&deptid=5(visited February 10, 2003).
2 Id.
3 http://www.forbes.com/asap/2002/0624/065_print.html (visited February 10, 2003).
4 (1) First Data Resources, Inc. v. 900 Million, Inc., CV 90-5418 HLH (C.D. Cal., Sept. 23, 1991); (2) First Data Corp. v. West Interactive Corp., CV 91-4471 TJH (C.D. Cal., Jan. 26, 1994); (3) Ronald A. Katz Technology Licensing, L.P. and MCI Telecommunications Corp. v. AT&T Corp., 97 CV 4453 (E.D. Pa. July 9, 1997); (4) Ronald A. Katz Technology Licensing, L.P. v. MicroVoice Applications, Inc., et al., C-99-00592 (N.D. Cal., Dec. 3, 1999); and (5) Ronald A. Katz Technology Licensing, L.P. v. Verizon Communications, Inc., 01-CV 5627 (E.D. Pa. Nov. 7, 2001).
5 http://www.lemelson.org/about/patents.html(visited February 10, 2003); http://www.spectrum.ieee.org/careers/careerstemplate.jsp?ArticleId=i050202(visited February 10, 2003).
6 For partial lists, see http://www.lemelsonpatents.com/(visited February 10, 2003); http://www.lemelsoninfo.com/home.html; (visited February 10, 2003); http://www.chipworks.com/news/11eetimes_lemelson.htm(visited February 10, 2003); and http://www.aimglobal.org/resources/patentinformation/lemelson.htm(visited February 10, 2003).
7 http://www.forbes.com/global/2002/0513/069.html(visited February 10, 2003).
8 http://www.chipworks.com/news/fabless.html(visited February 10, 2003).
9 Supra at n. 24.
10 http://www.spectrum.ieee.org/careers/careerstemplate.jsp?ArticleId=i050202(visited February 10, 2003).
11 Brenda Sandburg "A New Industry Transforms the Patent System; Congress, corporations eye reform as power of patent enforcers grows" The Recorder (July 30, 2001).
12 http://www.forbes.com/global/2002/0513/069.html(visited February 10, 2003).
13 277 F.3d 1361, 1363- 66 (Fed. Cir.), cert. denied, 123 S. Ct. 113 (2002).
14 http://www.spectrum.ieee.org/careers/careerstemplate.jsp?ArticleId=i050202(visited February 10, 2003).
15 See Mark Voorhees, Three Employees and a Patent, Information Law Alert (May 31, 1996).
16 No. 96-CV-523 (D. Conn. filed March 25, 1996) (twenty-two defendants).
17 No. 95-CV-6871 (S.D.N.Y. filed August 23, 1995) (eighteen defendants).
18 No. 95-CV-1675 (D. Conn. filed August 11, 1995) (three defendants).
19 1998 U.S. Dist. LEX1S 7081, (S.D.N.Y. 1998).
20 See E-data Corporation Announces Another Patent Infringement Settlement: Issues 21st License to Cybersource, Press Release (June 11, 1997), http://www.e-data.com/press/ pr970611.html (E-Data Web Page) ("Among E-data’s 20 other licensees are IBM, Adobe and VocalTec.") (visited February 10, 2003).
21 See id.
22 See Mark Voorhees, E-Data’s Cakewalk through the Patent Office, Information Law Alert (July 27, 1996).
23 See The Whining Game: E-Data Defendants Say They Are Still In the Dark Over the Claims of Patent That Has the Internet Trembling, Information Law Alert: A Voorhees Report, Sept. 27, 1996.
24 http://www.e-data.com/e-newsnov27.pdfhttp://www.e-data.com/e-newsnov27.pdf(visitedInteractive Gift Express, Inc. v. CompuServe, Inc., 256 F.3d 1323 (Fed. Cir. 2001).
25 http://www.e-data.com/e-newsnov27.pdf(visited February 10, 2003).
26 http://www.e-data.com/Edata%20New%20Litigation%20Press%206%2012%202002.pdf(visited February 10, 2003); http://www.e-data.com/Edata%20Corporation%20Announces%20New%20License%20Agreement.pdf(visited February 10, 2003).
27 Charles E. Hill & Assocs. v. CompuServe, Inc., 2002 U.S. App. LEXIS 6895 (Fed. Cir. April 10, 2002)
28 http://www.techsearch-llc.com/about.htm(visited February 17, 2003).
29 Brenda Sandburg, "Trolling for Dollars," The Recorder (July 30, 2001).
30 Techsearch L.L.C. v. Intel Corp., 286 F.3d 1360 (Fed. Cir.), cert. denied, 123 S. Ct. 436 (2002).
31 www.cnn.com/2000/TECH/computing/07/05/patent.tech.idg/(visited February 17, 2003).
32 http://www.xent.com/FoRK-archive/oct00/0780.html(visited February 17, 2003).
33 Id.
34 Netscape Communications Corporation, v. Konrad, 295 F.3d 1315 (Fed. Cir. 2002).
35 Konrad v. GMC, 2002 U.S. App. LEXIS 14994 (July 15, 2002).
36 In Stambler v. Diebold, Inc., 11 USPQ2d 1709 (E.D. N.Y. 1988), aff’d 878 F.2d 1445 (Fed. Cir. 1989), Stambler failed in an attempt to broadly license one of his patents in to vendors of automated teller machines (ATMs).
37 The list of defendants includes: RSA Security Inc., Verisign Inc., First Data Corp., Openwave Systems Inc., and Omnisky Corporation. See Stambler v. RSA Security Inc., Civ. No. 01-0065, Complaint (D. Del. Feb. 2, 2001).
38 Grant Gross, "Jury turns down Internet patent claims," IDG News Service, March 10, 2003.
39 http://www.nwfusion.com/news/2003/0310juryturns.html
40 PanIP appears to be short for Pangea Intellectual Properties.
41 http://www.panip.com/comp-back.htm(visited February 17, 2003).
42 http://www.youmaybenext.com/(visited February 17, 2003).
42 Id.
43 http://www.youmaybenext.com/list.html(visited February 17, 2003).
44 http://www.youmaybenext.com/why.html(visited February 17, 2003).
