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Interactive Gift Express, Inc. v. Compuserve Incorporated, et al.

The United States Court of Appeals for the Federal Circuit vacated the decision of the district court, which decision had limited the business method patent claim being asserted by the plaintiff in such a way as to result in a determination that the defendants' activities did not infringe it. Plaintiff claims that its 1985 patent covers such things as the sale of digital music and software over the Internet, which music or software is delivered via a download to a consumer's pc. The Court of Appeals held that the district court had improperly limited the patent being claimed by the plaintiff. The Court of Appeals held that while the claimed patent did cover real time downloads to pcs located in a consumer's home in response to a consumer's request, such downloads could not be to a consumer's hard drive. The Court of Appeals remanded the case to the district court for a determination of whether defendants' activities infringed the patent as interpreted by the Court of Appeals, or whether the patent itself was valid.

Plaintiff is the owner of U.S. Patent No. 4,528,643, known as the "Freeny patent." According to the New York Law Journal, this business method patent was filed in 1985. The patent claims to cover, among other things, the delivery via download of music and text to consumers at various locations in response to their request therefor. As explained by the court:

The Freeny patent provides a system for the distributed manufacture and sale of material objects at multiple locations directly serving consumers. The system includes a central control station, referred to in the Freeny patent as an "information control machine" or "ICM," and a plurality of remotely located manufacturing stations referred to as "information manufacturing machines" or "IMMs." At each IMM, a consumer selects the desired information and initiates a communication from the IMM to the ICM to gain authorization for copying of the selected information onto a desired type of material object. The consumer then waits for the IMM to receive the authorization after which the selected information is copied by the IMM onto a blank material object. The invention can be used with a wide variety of information and material objects, such as music on cassettes and text on paper.

The defendants are a number of corporations (including Waldenbooks, Ziff-Davis Publishing Company, Broderbund Software, Inc. and Intuit, Inc.) which sell software and/or documents "online" at web sites, which products are delivered to consumers in response to their request therefor at personal computers ("pcs") located in their homes. Plaintiff brought suit, claiming that these activities infringed the Freeny patent.

The district court interpreted the patent claimed by plaintiff in such a way as to ensure that it did not cover the activities being engaged in by the defendants, and in particular the downloading of information from a web site directly to the hard drive of a consumer's pc. As a result, the district court dismissed plaintiff's lawsuit. Importantly, the district court did not rule on whether the patent was in fact valid.

The Court of Appeals for the Federal Circuit vacated this decision, finding that the District Court had improperly limited the business method patent being claimed by the plaintiff. Accordingly, it remanded the case to the district court for further consideration.

The starting point in a patent infringement action is the scope of the patent being asserted. It is only after determining the scope of the claims asserted in the patent that the court can determine whether the defendants' conduct falls within its ambit. In interpreting the scope of a patent, the court will look "first to the intrinsic evidence in the record, i.e. the patent itself, including the claims, the specification and ... the prosecution history." If the meaning of the claim asserted in the patent is clear from this evidence, the court goes no further. If, however, it is not clear, the court may look to extrinsic evidence to determine the extent of the claim being asserted.

The Court of Appeals made a number of important determinations with respect to the scope of the business method patent being asserted by the plaintiff.

The first important determination made by the court addressed the meaning of "point of sale location" i.e. the location to which the consumer goes to purchase the material objects in question. The key question here was whether the point of sale location had to be a retail establishment, or could include an individual's home. The court, siding with the plaintiff, held that the point of sale location can include a person's home. Said the court:

[W]e construe a point of sale location to be a location where a consumer goes to purchase material objects embodying predetermined or preselected information. This construction permits a home to be a point of sale location. A point of sale location need not have more than one blank material object and it need not have any material objects separately for sale as blanks.

The next question was the meaning of the term "material object." As indicated in the description of the patent claim discussed above, the patent requires that the product delivered to the consumer be copied onto a blank "material object." Here, the argument centered on whether a personal computer's hard drive could be a material object that fell within the ambit of the patent's scope. The Court of Appeals held that it could not. Rather, it held that a "material object" as defined in the patent had to be a blank object offered for sale to the consumer at the point of sale location, which was both removable from the "information manufacturing machine" which placed the information (music/data) on the machine and usable in a separate device. Said the court:

[W]e construe a material object to be a tangible medium or device in which information can be embodied, fixed or stored, other than temporarily, and from which the information embodied therein can be perceived, reproduced, used or otherwise communicated, either directly or with the aid of another machine or device. A material object must be offered for sale, and be purchasable, at point of sale locations where at least one IMM is located. Further, a material object must be separate and distinct from the IMM, removed from the IMM after purchase, and intended for use on a device separate from the IMM either at the point of sale location or elsewhere. "Material object" does not encompass the hard disk component of a home personal computer. Finally, a material object need not be offered for sale independently from the information that may be reproduced onto the material object, that is, as a blank.

The court also held that the Freeny patent covered real time delivery of information to a consumer, i.e. delivery of an information product to a consumer directly in response to his or her demand therefor. Said the court:

[W]e hold that claim 1 is not limited to embodiments that pre-store or pre-deliver the information to the IMM, but that it covers 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.

As a result of these and several other determinations made by the Court of Appeals as to the scope of the patent, the court vacated the decision of the district court below, and remanded the action back to it for further consideration of plaintiff's claims that defendants' various activities infringed the Freeny patent.