Online-coupon companies battle over patents

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April 3, 2000
Web posted at: 8:43 a.m. EDT (1243 GMT)

by Diane Anderson

(IDG) -- It isn't a bad time to be a patent attorney with some high-tech know-how.

While companies wage Internet patent battles daily, the online-coupon space provides the latest peek into how treacherous these wars can be. Although coupons help people save money, this seemingly pleasant little business niche is far from immune to legal turmoil. The fight for the right to promote products and special offers online is heating up -- so much so that Catalina Marketing (POS) , which owns the ValuPage Web site, has asked the U.S. Patent and Trademark Office to re-examine CoolSavings' coupon patent. And infrastructure firm BrightStreet, which provides technology that lets Web sites deliver promotions on their pages, has filed an "interference" claim with the agency against CoolSavings' patent.

"We've all been picked on," says BrightStreet CEO Scott Wills. "I'm just a kid from New York. You take it for so long, and then you stick up for yourself."

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Patents are becoming the topic du jour. Just look at the players taking cases to court: names like Qualcomm, Amazon.com (AMZN) , Priceline.com and Microsoft (MSFT) . A wide spectrum of Internet companies are jealously protecting their intellectual property and hoping that judges might find in their favor. Of course, the broader the patent, the better a company's chances of future economic benefit. But some industry observers complain that overly broad patents are being granted and that the life of a patent should be shorter. However, patents still remain an important part of doing business on the Net.

Perhaps the pioneer in online-coupon patents is Henry Von Kohorn, an inventor in his 80s who is the president of Response Rewards System and holds numerous patents.

"Henry Von Kohorn saw the future, and he realized the great value of coupons being available on demand interactively," says RRS attorney David Fink.

Von Kohorn's patents cover ways of generating product coupons at remote locations, including interactive TV and kiosks. His patents have been licensed to many of the top Net coupon firms, including Catalina, MoneyMailer.com, Val-Pak, BrightStreet and CoolSavings.

CoolSavings also has been awarded its own patent, which covers a system of "issuing electronic certificates through online networks of personal computers, TV or other devices with video monitors or telephones." It has taken action against other online-coupon firms, suing a number of companies in order to collect licensing fees. Some of these firms, including Catalina, Planet U and E-centives.com, have countersued. The litigation seems endless and expensive.

Those legal fees certainly add up. In CoolSavings' original S-1, filed Jan. 14, the law firm of Niro, Scavone, Haller & Niro owned 204,000 shares of common stock. The firm now owns 234,600 shares. And all does not seem well with CoolSavings.

In its revised S-1 document filed Wednesday with the Securities and Exchange Commission, CoolSavings states that Catalina filed a request for re-examination, "which may result in the patent being narrowed in scope or found invalid." And it mentions that BrightStreet is contesting CoolSavings' patent: "If BrightStreet is successful, we may lose some or all of our right in our United States Patent No. 5,761,648."

"An interference action is a priority contest in the [U.S.] Patent and Trademark Office to determine who was the first to invent the idea," says Jim Gatto, a patent attorney with Hunton & Williams, which represents BrightStreet. "BrightStreet believes they were first."

The tricky part is that filing first matters -- but so does inventing first. Even if CoolSavings filed after BrightStreet, it can still attempt to prove that it was the first to invent, but that requires lots of depositions. "Intervention are a wonderful opportunity for people to invent documentation," says Fink. "Just look at the prize."

CoolSavings also could be at risk because of timing issues. A patent office examiner considered a Response Reward System patent during the CoolSavings review. On Jan. 22, 1998, the examination was closed. CoolSavings cited 11 additional RRS patents on May 22, 1998. One month later, on June 22, CoolSavings was awarded its patent.

"Anytime an applicant is aware of prior art that is not timely submitted to the patent office, the resulting patent could have problems," says Gatto. "Those problems include invalidity and the potential allegation of fraud." So in effect, CoolSavings could be in trouble.

It's no mystery why companies are competing to rule the world of Net coupons. According to NPD Online Research, about a third of online shoppers use these coupons. Whichever company owns the definitive patent could stave off competition.

Online coupons are just one arena in which there is a flurry of patents and litigation. Many industry insiders are happy to hear that the agency will examine Web patents more closely. Gatto says Amazon CEO Jeff Bezos' urging of a patent-system overhaul is reminiscent of what the software industry experienced a decade ago. As a former patent examiner, Gatto thinks the Internet industry is in a position to perfect the system by helping flesh out the databases that patent examiners use as resources.

But for the time being, if you are looking to patent your invention, file early and often.

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