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E-Data patent finally gets its day to get ganged up on in court June 28, 1996 Federal judge Barbara Jones looked down from the bench into the jammed jury box last Friday afternoon, moments after 4 p.m. on the longest day of the year, and still managed to find humor at the end of a long, wet, and hot week in New York's early summer soup. "A good-looking jury," she cracked. Their dark suits were actually a collection of patent and trial lawyers defending clients who have been sued by E-Data Corp. The New Jersey company's most valuable asset-indeed, one of its only assets-may be a patent that it believes covers many forms of electronic commerce (See May 31 issue). The company has been referred to as three employees and a patent; this hearing was 25 lawyers and a judge. E-Data's president Arnold Freilich hopes to generate a rich stream of royalties from the patent, as consumers and businesses start to buy and sell goods over the Internet. The company has sent out 75,000 license agreements to potential infringers. But the effort has not had much success without a judicial ruling that E-Data's patent is worth more than the postage it costs to deliver it to potential licensees. KICK START Although the case has been kicking around the Southern District of New York docket for nearly a year, there hadn't been much forward progress. New to the bench and recently assigned to the case, Jones called a conference to end the inertia. Considering that she was facing nearly 25 lawyers representing more than a dozen companies, Jones's first stab at bringing order to the case was as smashing as she thought the lawyers handsome. Jones gave E-Data's attorney, David Fink, 60 days to give each defendants at least a partial list of which products may be infringing and which of the patent's 56 claims those products may be infringing. If Fink completes his task on time-something he said he would try to do-it would be a gigantic step forward for mankind-well, at least for the defendants in this case, who profess not to have a clue about which of their products may soon be in the hot seat. "None of us has been informed by the plaintiffs which of the claims may be implicated and which activities may be involved," argued Claude Stern of Fenwick & West, which represents Broderbund and Intuit. Stern was sort of the ringleader among defendants, spending most of the time at the podium and giving to Jones a proposed scheduling order that she largely adopted. Stern also encouraged the judge to hold a Markman hearing quickly. These hearings, only a year or so old, have grown out of the Federal Circuit's and Supreme Court's judgment that judges and not juries should decide the meaning of the claims of a patent. Although the practice is still new, these hearings will likely shorten all patent trials, since they let both sides know exactly what they are arguing about. Often in patent trials, both sides would have to prepare cases based on many competing views of the scope of a patent, not knowing how the jury would ultimately interpret the claims. One theory is that many cases will settle once a judge interprets the claims since it will be fairly easy, in most cases, to know whether there is infringement. Jones indicated that she would probably hold a Markman hearing sometime after the expiration of Fink's 60-day clock. PROFOUND Carl Oppedahl, who represents defendant Softlock, suggested to the judge that the benefits of a Markman hearing would ripple far beyond the walls of her courtroom. "The effort by Your Honor would have a profound benefit to the 50,000 to 75,000 people who have received amnesty packages," Oppedahl said. An amnesty packages is E-Data's coy phrase for the 75,000 pieces of mail delivered to potential infringers offering them licenses. E-Data's license offer is not cheap on percentage terms, ranging from 1 percent to 5 percent on sales of infringing products up to $1 million. By comparison, Hayes Microcomputer charges 1.75 percent for a feature required of nearly all modems, but that fee was put in place only after a jury trial victory. On the other hand, many of the companies would probably save money by taking a license if they don't anticipate engaging in electronic commerce. The minimum license fee is $500, which is probably less than what many companies paid their lawyers to prepare for and attend last Friday's hour-long conference. A cynic might suggest that a company planning a large electronic commerce rollout tomorrow might want to take a cheap license today and hope that the remaining defendants successfully limit [or] invalidate the claims so that there is no need to renew the license. E-Data's standard license is a one-year renewable term, with prices going up 10 percent of the first year amount each year. The patent expires in 2003. IBM, Adobe, VocalTec, KidSoft, and CyberCash have already agreed to take licenses. In an interview, Fink said that a few other defendants in the New York case and a similar one filed in federal court in New Haven are close to agreements. At the hearing, Fink did nothing to try to limit the scope of the patent and give any sense of relief to defendants. It covers two broad categories of transactions, he said. In the first, a computer user makes a purchase and downloads that purchase, whether it is text, software, music, or video, onto his or her computer. In the second, an individual buys a CD-ROM that contains valuable information that can be used only upon payment of additional money and receipt from the publisher of a key or code to unscramble the information. The description provoked the only sharp exchange of the hearing. "From what I just heard, the claims cover all commerce on the Internet," Stern said. "I was speaking in broad, general terms. Don't interpret what I said," Fink snapped.
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Entered on: 05/19/1998
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