Prior Art Defeats Electronic Commerce Patent Claims

An interesting Electronic Commerce “EC” patent case was recently decided by the Court of Appeals Federal Circuit “CAFC” overturning a patent infringement verdict and vacating a $2.5 M damage jury award. The Plaintiff, Soverain, bought the patents and all rights to the Transact software electronic commerce platform “Transact” in a bankruptcy sale and sought to enforce patents by suing seven users including the Defendant Newegg. Six of the companies licensed all rights in order to be dropped from the lawsuit. SOVERAIN SOFTWARE v. NEWEGG

Newegg refused contesting the EC patents on grounds that its system was materially different from that described and claimed in the patents and that the patents were invalid for obviousness if given the scope asserted by Soverain. As sometimes happens, software morphs into different iterations through time and tinkering and Newegg pointed out that similar electronic commerce systems were known before Transact citing Compuserve Mall as prior art. They further alleged that Transact had generally been abandoned by users including those paid-up licensees who settled to avoid protracted litigation.

Section 103 of the Patent Act states, as a condition for patentability, the subject matter must be nonobvious. The test for whether an invention or discovery is nonobvious involves an analysis using four factors: (1) the scope and content of the prior art, (2) the difference between the prior art and the claimed invention, (3) the level of ordinary skill in the field of the invention, and (4) any relevant objective considerations. Newegg’s expert testified that the elements of their EC platform were similar to Compuserve’s and that other aspects of their system with regard to inventory and shopping carts were outside the scope and had transcended elements of the claimed patents. The CAFC, finding this evidence sufficient to reverse the District Court’s decision, may be signaling a further reigning in of software and business method patents.