May 18, 1998 6:40 PM PDT

Court guts E-Data patent

In a decision hailed by online software vendors, a federal judge has stopped a closely watched patent lawsuit in its tracks.

The lawsuit, brought by e-commerce firm E-Data against dozens of companies, claimed that a patent belonging to E-Data covered many systems of ordering software online.

E-Data accused defendants including CompuServe, Intuit, and Broderbund of infringing on its patent. If the court had agreed with E-Data's interpretation of the patent, E-Data would have been entitled to a royalty for Internet software sales.

But in her sternly worded decision, U.S. District Judge Barbara Jones narrowed the scope of the patent to such a degree that the defendants expect summary judgments in their favor.

"In an obvious attempt to expand the scope of its patent beyond that which was intended, plaintiff implausibly asserts that its patent covers certain uses of the Internet and World Wide Web, and applies to certain CD-ROM applications," wrote Judge Jones in her decision. "It is abundantly clear to the court, however, that the [patent does] not support plaintiff's broad interpretation."

Jones said the patent, known as the Freeny patent after the original owner from whom E-Data bought it, covered only a kiosk-type vending apparatus in a retail setting where users could choose selections to be downloaded onto a blank CD or tape.

"From what I understand, the judge said that you have to be sitting in a retail store for the patent to apply," said E-Data counsel David Fink, who had not yet read the decision. "If someone is blindfolded and operating a computer, they would have to inquire whether they were sitting in a living room or a retail store to determine if they were infringing on the patent. I think that is humorous."

Humorous or not, the judge's focus on the location of the software purchaser means the patent does not apply to systems in which the consumer downloads software from his or her home computer.

Defendants hailed the decision as a victory for the online software industry and a blow against frivolous patent lawsuits.

"We are very happy with the ruling, and we think that the court properly construed the patent," said David McIntyre, senior counsel at Fenwick & West, the firm representing Broderbund, Intuit, and other defendants. "We hope this sends a message to the patent holders who hope to extend their patents beyond their proper boundaries."

The E-Data lawsuit is not the only patent infringement suit in the software industry to falter in recent weeks. Earlier this month, a judge threw out patent claims brought by Wang against Netscape Communications and America Online for various features of the companies' Internet browsers.

While Jones's decision eviscerates E-Data's claims against software vendors, the case is not over yet. Defendants and observers say it is likely that the narrowed definition of the patent will result in E-Data's claims being dismissed, and two parallel cases in Connecticut are on hold pending the resolution of the New York case.

The defendants of the three pending suits are not the only parties relieved by Jones's ruling.

"E-Data sent 25,000 businesses letters saying, 'We're going to sue you when we're done with CompuServe and the rest,'" said Tim O'Hearn, an attorney with Jones Day, which represents CompuServe in the matter. "There were a whole lot of people who were watching this closely who had received those letters."

Some firms have chosen to license E-Data's technology rather than fight a patent claim. Those companies include IBM, VocalTec, and Adobe.

 

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