E-Data Patent Alive and Well

For those of you who remember the very early days of the eCommerce patent field, one of the first players was Interactive Gift Express (IGE, a/k/a E-Data). After reportedly sending out 75,000 "amnesty" licensing packages, IGE brought suit against various parties in 1995 for infringing U.S. Patent Number 4,528,643, ``System for Reproducing Information in Material Objects at a Point of Sale Location'', also referred to as the "Freeny patent." After a New York District Court ruling in 1998 and a Stipulated Order and Judgment in 1999, it appeared that the courts would interpret the Freeny patent very narrowly. However, the Federal Circuit Federal Circuit recently vacated and remanded the case, breathing new life into one of the first eCommerce patent licensing programs to really scare the online world.

According to a press release, E-Data President, Scott Hillstrom said, ``this case represents a strong victory for E-Data. While we didn't win every point, and some questions remain to be decided, E-Data's position in the digital product distribution marketplace is strengthened substantially.'' The press release further stated, "[t]he ruling also clarifies the issues that may now be addressed in further litigation relating to the sale of software, video games, music and other products downloaded by businesses and consumers to offices and homes. While the lower court had ruled that the patent precluded coverage of such transactions, the Federal Circuit held that such transactions are not precluded by the patent where all of the elements of the claims are present. Regrettably, the ruling holds that sales of digital products downloaded only to PC hard drives are not covered by the patent but leaves avenues open where digital products are downloaded, streamed or copied onto compact discs, paper or other storage media in homes and offices. 'This method of distribution of music and other products is anticipated to be a large and fast growing market in the near future and we are optimistic that we will reach a large percentage of it with the clear path we can see ahead based on this ruling,' said Hillstrom."

So, what exactly does the patent claim? Claim 1 of the patent is as follows:

1. A method for reproducing information in material objects utilizing information manufacturing machines located at point of sale locations, comprising the steps of:
providing from a source remotely located with respect to the information manufacturing machine the information to be reproduced to the information manufacturing machine, each information being uniquely identified by a catalog code;
providing a request reproduction code including a catalog code uniquely identifying the information to be reproduced to the information manufacturing machine requesting to reproduce certain information identified by the catalog code in a material object;
providing an authorization code at the information manufacturing machine authorizing the reproduction of the information identified by the catalog code included in the request reproduction code; and
receiving the request reproduction code and the authorization code at the information manufacturing machine and reproducing in a material object the information identified by the catalog code included in the request reproduction code in response to the authorization code authorizing such reproduction.

There were five dispute claim limitations: (1) the meaning of "point of sale location"; (2) the meaning of "material object"; (3) the meaning of "information manufacturing machine"; (4) the meaning of "authorization code"; and (5) whether the information must be provided to and stored at the information manufacturing machine (IMM) before the consumer requests it. Since IGE conceded that none of the disputed limitations as construed by the court were being practiced by the defendants, IGE had to show that the district court was wrong in its construction of all five of the disputed claim limitations to prevail in the appeal. Ultimately, according to the Federal Circuit, the district court's claim construction impermissibly read limitations from the specification into each of the five disputed claim limitations.

With respect to the "point of sale" limitation, the district court held that, although point of sale locations are not restricted to retail locations, a home is not a point of sale location. The Federal Circuit disagreed with that conclusion, refusing to consider dictionary definitions of the term since the patent specification was clear in suggesting that a home could be included in the definition. In addition, the Federal Circuit did not agree with the district court's finding that a point of sale had to have multiple blank material objects for sale.

The district court also held that a "material object" must be: "(a) separate and distinct from the IMM, (b) removed from the IMM after purchase, and (c) intended for use away from the point of sale location." However, based upon the patent specification, the Federal Circuit ruled that the material object could be intended for use at the point of sale location as long as it is on a device separate from the IMM. Nonetheless, an internal hard drive could not be considered a "material object" since such was not envisioned anywhere in the specification and was inconsistent with the definition asserted by IGE before the district court.

The Federal Circuit also broadened the definition of "information manufacturing machine" since the district court had again impermissibly read additional limitations of an embodiment in the specification into the claims. In addition, with regard to the "authorization code", the Federal Circuit again broadened the meaning assigned by the district court, holding that: "(1) an authorization code must authorize copying but need not provide decoding information; (2) the term "authorization code" is not to be construed to require that it include an IMM code or that it be transmitted electronically; and (3) an authorization code is separate and distinct from a request reproduction code."

Finally, with respect to whether the information must be provided to and stored at the IMM before the consumer requests it, the district court had reached such a conclusion based on the order of the claimed steps, i.e., the court concluded that step one needed to be performed before step four. However, the Federal Circuit saw no need for such a conclusion and held that the claims covered real-time transactions in which the requested item of information is transmitted to the IMM at or prior to the time it is requested by the consumer.

In conclusion, the E-Data patent is apparently alive and well, and it is no longer safe to conclude that it is limited to kiosks located at conventional retail establishments with pre-stored information and blank recordable media for sale. More generally, even when patents appear to be dead or narrowly written, surprises are still possible.