Company claims patent on possibly millions of e-commerce sites

In early April, Allan Dickson, president of Dickson Supply Co., received notice that due to the design of his e-commerce Web site, his company was being sued for patent infringement by Pangea Intellectual Properties LLC (PanIP). PanIP owns patents concerning the display of text and images on e-commerce Web sites, as well as a patent covering automated credit checking for online transactions, Dickson said PanIP's lawyer told him.

When Dickson heard this, he thought: "If they're going after us ... they have to be going after everybody in the whole U.S. with a Web site."

PanIP has, to date, filed suit against 11 companies doing e-business in the U.S., but the lawyer representing PanIP says that the number of sites potentially infringing the company's patents could run into the millions, giving PanIP's patents, and these early cases concerning them, an importance for any business hoping to sell its products online.

San Diego-based PanIP didn't return repeated calls requesting comment for this story. The company's Web site is missing many pages, including information on how to contact the company and who is a part of it. That information, however, was available as late as May 13 when a story about the company's lawsuits was posted on the open-source news Web site

At issue are two PanIP patents, awarded to Lawrence B. Lockwood, one of the principals of the company, in 1996 and 2001. The 1996 patent -- No. 5,576,951 -- covers a system "for composing individualized sales presentations created from various textual and graphical information data sources" using "the retrieval of interrelated textual and graphical information," according to the patent filing.

The 2001 patent -- No. 6,289,319 -- covers an automated "financial transaction processing system" in which a computer "is programmed to acquire credit rating data relating to the applicant from the credit rating service," according to the filing.

Though PanIP is currently suing only 11 companies for allegedly infringing on these patents, the total number of infringing companies could run into the millions, according to Kathleen M. Walker, a private practice attorney in San Diego who is representing PanIP.

PanIP is seeking a one-time $30,000 license fee from each company on both patents for as long as they are valid, she said. That payment would also cover a patent that PanIP claims to have pending that covers "very similar technology and may bear on these retailers," Walker added.

So far, one of the 11 companies being sued has chosen to settle, Walker said. She declined to release terms of the settlement because that agreement hasn't been finalized.

"PanIP intends to litigate for the life of the patent" and will go after other infringing sites "as time allows," Walker said. Questions have been raised, however, as to how PanIP settled on the 11 companies it chose to sue first, as they are mostly small businesses. Dickson Supply, a plumbing and heating supply business, for instance, is a family-owned business with 25 full-time employees and 10 part-time employees, located in Brielle, N.J., according to Allan Dickson.

Nothing about the companies selected as initial defendants made them particular targets, Walker said. PanIP surveyed many sites looking for infringement and chose the 11 through "the luck of the draw," she said. The company waited to file its suits, for almost six years in the case of the first patent, because it didn't have the money to fund legal actions, she said.

"It's expensive to maintain a lawsuit," she said, adding that she didn't know where PanIP had gotten the money to pursue the current suits.

Though the decision to file suit against 11 small businesses out of the potentially millions of companies that may be infringing the patents, including such e-commerce titans as Inc. and eBay Inc., may look bad, "the patent and trademark laws don't say you have to go after the biggest fish first," Walker said.

"An infringer is an infringer, regardless of how large they are," she added.

These lawsuits aren't the first time that Lockwood has initiated legal proceedings against companies he felt were infringing his patents. Lockwood filed a lawsuit against American Airlines Inc. in 1994, claiming that American's SabreVision airline reservation system infringed on other patents he holds. Lockwood lost the suit in the U.S. District Court for the Southern District of California and then lost again on appeal in 1997.

As a result of that case, Lockwood had some of his patent claims invalidated, said Joe Re, a litigation partner at the Southern California law firm of Knobbe, Martens, Olson & Bear LLP, which represented American Airlines in the case.

Lockwood "was seeking lots of money" from American Airlines, Re said. "He had some backers of the case. Usually, backers are only interested in money."

At the time of the American Airlines suit, Lockwood said in a deposition question about his employment, "I enforce my patents." Lockwood offered no other job or employment information, Re said.

Though the patents may seem broad, "when you seek a patent, you try to get it as broad as possible," said Walker. "You don't want to limit it to just what you think it's going to be used for."

She did allow, however, that, "I can understand people saying it's very broad."

It's no surprise that PanIP is applying the broadest interpretation of its patents, Re said.

"Individual patent holders aren't [always] fully aware of the limits to their patents," he said. "People think they've invented the moon, when what the Patent Office allows is a piece of rock."

Whether PanIP has moon or rock may be an issue for the courts, but, according to Charles Cella, CEO of BountyQuest Corp., a Boston-based company that lets other companies offer rewards for information about certain patents, the company is likely holding a rock.

PanIP's patents are likely narrower than they appear because of changes in the law since the patents were filed, Cella said. Patents have relied for years on a "means-for" clause, which allowed an inventor to patent a way of doing something and then claim a broad application of that technique, he said. A string of court decisions in recent years have largely limited the "means-for" clause to cover only the specific implementation of an idea listed in the patent, Cella said.

"Both patents are absolutely full of means-for clauses," he said. "The language suggests pretty broad coverage of the concept of remotely ordering something ... but, my guess is that they probably don't cover the specific ways that people order goods and services."

That may be cold comfort to the companies facing PanIP's suit, however, as the cost of fighting the suits could run into the hundreds of thousands, or even millions, of dollars, he said.

"These patents could provide the equivalent of a monopoly right even though they would not succeed [in court]," he said.

All of the defendants have until June 10 to respond to the suit to the U.S. District Court for the Southern District of California, said Walker. After that, the cases will go before a magistrate judge who will attempt to resolve the cases without going to trial, she said. If the parties fail, the cases will go through discovery and trial, a process that could take years, she said.

Despite what could be years spent fighting a lawsuit on the other side of the country, Dickson does not intend to settle.

"Normally, I'm not a fighting type of guy," he said, but the broadness of PanIP's claims and the $30,000 they want in licensing fees led him to decide "we're going to rumble; we're going to fight this thing," he said.

Copyright © 2002 IDG Communications, Inc.

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