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In 1993, most consumers had never heard of the World Wide Web. The Internet had been around, in one form or another, for well over 20 years and the Web for about three; the White House had a Web page and the medium was sufficiently mainstream to have been written up in The New York Times. But few could have predicted the enormous growth of the Web over the coming years, and many inventors were working on other schemes for interacting with people in their homes. Henry Von Kohorn was one such inventor. In 1993, he received two patents relating to the electronic delivery and tracking of coupons: United States Patent Numbers 5,227,874 (’874 patent) and 5,249,044 (’044 patent). Von Kohorn’s inventions contemplated a system whereby users could print coupons related to TV or radio advertisements at home via specially programmed coupon printers. The patents include mechanisms for encoding coupon data into TV or radio broadcasts and descriptions of coupon printing devices (or token dispensers). In Van Kohorn’s inventions, the token dispenser is operated remotely either through a modem or through a signal embedded directly in the broadcast. For example, a TV ad might have coupon information encoded into the part of the broadcast spectrum reserved for closed captioning. This information would be invisible on the screen, but the token dispenser would read it and, at the user’s request, print the appropriate coupon for the advertised product. Because the patents contemplate (but do not require) each token dispenser being uniquely identifiable, the process would provide extremely accurate tracking of which customers print coupons, which use them and which never bother with coupons at all. Von Kohorn’s inventions — including these and similar ones in the electronic sweepstakes area — provide excellent technological solutions to a serious issue in direct marketing: tracking the actual effectiveness of incentive programs. However, it is impossible to look at these patents (particularly the drawings in the ’004 patent) without thinking of Rube Goldberg’s fantastic machines. Today, the idea that every household would have a dedicated device hooked up to the television, receiving signals by satellite, modem or antenna, solely for the purpose of printing direct marketing material — that many would call spam — seems absurd. For Von Kohorn and inventors like him, however, it was a natural idea. Television is a huge, though entirely passive advertising medium. In the early 1990s, many inventors sought to graft an “interactive” component onto that medium by inventing technologies to allow people to “talk back” to the television. Some of those experiments (such as pay-per-view) worked well. Others, such as Von Kohorn’s coupon schemes, were supplanted by the explosive growth of a much more interactive medium in the home: the Internet. Not to be discouraged, Von Kohorn took the position that he had invented and patented all electronic delivery of coupons, and spent most of the late 1990s suing or threatening companies that delivered coupons or ran sweepstakes online. The broad language of these patents makes them hard to fight, and most companies, preferring to avoid litigation, chose simply to license Von Kohorn’s inventions. However a few companies have fought these patents in court, with varying levels of success. The most recent fight is taking place in the Southern District of New York in Applied Interact LLC v. The Vermont Teddy Bear Company, and the current licensee of Von Kohorn’s patents, Applied Interact, was recently handed a major victory in its efforts to apply its patents to situations their inventor could never have imagined. [FOOTNOTE 1] TEDDY BEARS’ INFRINGEMENT The Vermont Teddy Bear Co. hosts a site advertising its products where customers can sign up for a chance to win a Vermont Teddy Bear and can print a coupon that can be brought to VTB for a free factory tour. Applied Interact, the licensee of Von Kohorn’s coupon on sweepstakes patents, sued VTB claiming that its site violated its patents on electronic coupon delivery, electronic sweepstakes and electronic wagering. VTB moved for summary judgment of non-infringement, and the court denied summary judgment on all but the wagering claim. A denial of summary judgment is hardly a great victory, and the opinion repeatedly points out how thin the court believes plaintiff’s claims are, but in bending over backwards to avoid dismissal of a claim at the summary judgment stage, the court may have missed an opportunity to clarify for the parties the actual meaning of the patents at issue. It also greatly expanded the reach of direct infringement in the Southern District, adopting and expanding a form of direct infringement that had not previously been addressed in the 2nd Circuit. As described above, two features of the ’874 and ’044 patents are central to the inventions they describe: both involve broadcast advertising (either on television or radio) and both involve a programmable “token dispenser” for printing coupons based on transmitted information. Neither patent mentions the Internet or even a home computer, much less the Web. It is evident from even a casual reading of the patents that Von Kohorn thought, at least at the time he invented it, that his invention would typically involve some kind of dedicated coupon printer with a roll of tape (similar, he wrote in one patent, to calculator tape), probably hooked up to the television. Personal computers and the Internet certainly existed at the time, but the list of possible types of advertising transmissions in Von Kohorn’s patents does not include them. For example, it does not mention e-mail, which was common even a dozen years ago. However, the patents are broadly written to cover all kinds of transmissions, and a television is apparently sufficiently close to a computer monitor that the parties do not seem to have argued the issue. Instead, the decision focuses on the issue of what it means to “provide” a token dispenser. PROVIDING A TOKEN DISPENSER A patent claim typically consists of a series of steps, or elements. Direct, literal infringement of the claim occurs when a defendant’s product or process duplicates each and every one of those elements or steps. If even one element is missing from the defendant’s product or process, the infringement claim fails. [FOOTNOTE 2] A party can also be liable for “indirect infringement” when it actively induces another party to infringe a patent. [FOOTNOTE 3] To prove indirect infringement, however, the plaintiff must prove first that a direct infringement occurred and second that the defendant intentionally induced the acts that constituted the direct infringement. [FOOTNOTE 4] The claims of the ’874 patent and the ’044 both include long lists of elements required for infringement. In claim 10 of the ’874 patent (the claim at issue), the first of those elements is “an organizer exposing individuals to a stimulus intended to induce the performance of a desired act by said individuals,” and the second is “providing said individuals with electronically programmable token dispensers capable, upon the request of individual ones of said individuals, of dispensing a token having value to said requesting individual, said value being available upon the performance of said act and upon surrender of said token.” According to Applied Interact, VTB is the “organizer” mentioned in the first element, its Web page advertising is the “stimulus,” and the “desired act” is getting customers to come on the factory tour. VTB apparently did not dispute this, at least for purposes of summary judgment. Instead, the case focused on the second element — “providing” the “token dispensers.” It may come as a surprise to many that they have an “electronically programmable token dispenser” in their home, but according to the court, they do. The court found that a computer and printer, capable as they are of being programmed and producing printouts, are sufficient to satisfy the requirement. VTB argued that it does not “provide” computers and printers to its potential customers as required by the second element. The court found this to be a close question, but in the end found that the word “provide” as used in the patent should be read to mean to “furnish, supply or make available.” Though VTB does not “provide” token dispensers, its customers do — when they make their own computers available to VTB by visiting its site. This is an extremely convoluted reading; the court seems to be trying overly hard to avoid summary judgment. The plain language of the claim requires “providing said individuals [the customers] with electronically programmable token dispensers.” Thus, the claim does not contemplate the case in which consumers “provide” pre-existing “token dispensers” The court nonetheless found that, when customers visit VTB’s site, they make their own computers and printers available to themselves for the printing of VTB’s coupons and thus a jury could find infringement as to that element of the claim. WHAT KIND OF INFRINGEMENT? Under U.S. patent law, however, even that convoluted reading is not enough to establish infringement by VTB, because if VTB itself is not “providing” token dispensers, it is not directly and literally accomplishing all the elements of the claim. Nor can VTB be said to be indirectly infringing, because it has not actively induced consumers to buy (or otherwise “provide”) their computers. The court ruled, however, that VTB could be found to have directly infringed the patent because it had a “connection” with its customers established when its customers visited its site. That is, where VTB performed some steps of the patent and its site visitors performed others, VTB could nonetheless be found liable for direct infringement. This is an extension of an already controversial doctrine that almost certainly extends beyond what the court intended. As noted earlier, an infringer must typically perform all the elements of a patent claim to be liable for direct infringement. Some district courts, however, have recognized a limited exception to this rule: If an infringer performs some elements of the patent and directs its agent or affiliate to perform the rest, it is still liable for the infringement. This doctrine, found in Marley Mouldings Ltd. v. Mikron Industries, Inc. [FOOTNOTE 5] and the cases collected there, is controversial, and neither the U.S. Court of Appeals for the Federal Circuit nor the U.S. Supreme Court has ruled on it. Until the VTB case, it had not been adopted in the Southern District of New York or elsewhere in the 2nd Circuit. Nonetheless, the reason for the exception is clear: It should not be possible to work around a patent simply by dividing its elements between two closely connected entities. Courts that have accepted this doctrine have limited it to close connections –situations in which the infringing party is likely, as a practical matter, to be able to direct the actions of the other party taking part in the infringement. But the VTB court extended the doctrine substantially, finding the required “connection” between VTB and its Web site visitors simply because the visitors followed the instructions on the site (such as “click here to print coupon”). If this is a sufficient “connection” for purposes of direct infringement, then the exception begins to swallow the rule. Holding an entity liable for direct infringement based on the infringing acts of everyone that visits its site makes simply having a site (beyond the simple “brochure” variety) a dangerous proposition. CONCLUSION In this case, the circuit’s broad reading of “provide” in the ’874 and ’044 patents and the connection requirement means that essentially any site that provides coupons or runs a contest of any kind has to deal with Applied Interact. If VTB keeps up its fight it may win reversals of some of these holdings outside of the summary judgment context. The court made it clear that its broad reading of the “connection” requirement was only for purposes of surviving summary judgment. But the economics of patent defense make it unlikely that the case will go much further: VTB will very likely settle the case, take a license and move on, leaving other companies’ patent attorneys to struggle with the consequences. Stephen M. Kramarsky is a member of Dewey Pegno & Kramarsky specializing in complex intellectual property litigation. ::::FOOTNOTES:::: FN1 Applied Interact LLC v. The Vermont Teddy Bear Company, No. 04 Civ. 8713 (HB), 2005 WL 2133416 (S.D.N.Y., Sept. 9, 2005) FN2 The “doctrine of equivalents” provides some latitude in cases where one or more elements of a claim are not performed exactly as described in the patent, but no doctrine of equivalents claim was at issue here. FN3 35 U.S.C �271(b) FN4 Mercexhange, LLC v. eBay, Inc., 401 F.3d 1323, 1332 (Fed.Cir. 2005). FN5 No. 02 C 2855, 2003 WL 1989640, *3 (N.D. Ill., April 30, 2003).

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