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The Court of Appeals for the Federal Circuit continues to broaden e-business and Internet-related patents. In a case closely watched by on-line software, document and music providers, that court revived a patent infringement suit filed by Interactive Gift Express, now known as E-Data, against ten on-line retailers including Compuserve, Broderbund Software, and Ziff-Davis Publishing. 1 The patent at issue taught a novel solution to inventory management problems long faced by music stores, booksellers and other merchants. As new titles are released, a low estimate of consumer demand results in unsatisfied customers, while a high estimate results in unsold inventory. It can be difficult to estimate accurately the prospective demand for the latest pop craze or flop. The E-Data patent taught a unique solution to this problem. Rather than stocking actual copies, why not print books or record tapes on demand? In one example implementation, the E-Data patent detailed a recorder that operated at point of sale locations. 2 When, for example, a music store needed to restock tapes of a particular title they could simply request an authorization code for a certain number of copies of that title. The authorization code enabled the recorder and provided a reference for billing purposes. Although the E-Data patent was filed back in 1983, long before the popular advent of the Internet, E-Data asserted it against the ten defendant companies in relation to their sale of software and documents over the Internet. The district court effectively limited the scope of E-Data’s rights to the embodiments shown in the patent, which did not include an Internet-based application. The Court of Appeals for the Federal Circuit reversed and held that the scope of E-Data’s rights are not limited only to the embodiments shown in the patent. Rather, the patent may be extended to cover later-developed technologies. Any other result would frustrate the purpose of patent protection in fast-developing technology areas, especially software and e-commerce. E-Data must now return to the district court in a race against time. A utility patent generally lasts twenty years from the date it was filed. E-Data’s rights will expire on January 10, 2003, which gives them just a little over two years. If they are successful in obtaining a favorable judgment this time around, they will have a better opportunity to pursue their rights against other on-line software retailers and publishers. Meanwhile, the defendant software and publishing companies likely will try to run out the clock. The Court of Appeal’s decision addressed only the legal scope of the patent. It did not address whether the defendants’ services infringed the patent, and it did not address the validity of the patent. These issues likely will land before a jury as the case returns to the district court. For patent holders, the legal scope of a patent offers a delicate balance. While a broad scope provides more room to find infringement, it also provides more room for a defendant to challenge the validity. If the scope of a patent claim extends so far as to cover technologies that were already known, often referred to as the prior art, then that patent claim is rendered invalid. Indeed, with the broadened scope of E-Data’s patent rights, at least one defendant, namely Broderbund Software, now contends that the patent is invalid in view of prior art. According to their attorney, Broderbund Software now has another plan of attack as the case returns to the district court. They will argue that the broadened scope of the patent renders it invalid "because the processes it [now] covers were already in use as early as the 1970’s." 3 The Court of Appeals for the Federal Circuit retains appellate jurisdiction in patent cases. The E-Data case is the latest in a series where that court has upheld patent rights for software, e-business and Internet-related innovations. As E-Data now prepares to fight contentions of invalidity in the district court, the broadened scope of their patent rights may become a mixed blessing.
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