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Software and business method patents - MercExchange

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MercExchange vs eBay MercExchange facts 5,845,265 6,085,176 6,202,051 Technical analysis Qualification Background 5,845,265 Technical analysis DRC analysis Data analysis Process analysis Innovation summary Claim analysis 6,085,176 Divisional application Claim analysis 6,202,051 Divisional application Claim analysis

This case is almost as famous as Eolas vs Microsoft and triggered the same kind of reactions. Because many legal documents were made public by the plaintiff, MercExchange, and because the court interpretations may become a case law this is a very interesting case to study. U.S. District Court for the Eastern District of Virginia (Norfolk) had found eBay guilty of infringing the MercExchange patents on August 6, 2003, and eBay was ordered to pay MercExchange $29.5 million in damages. eBay is currently appealing the case. eBay petitioned the U.S. Patent & Trademark Office to reexamine MercExchange patents, and on June 4, 2004, the Patent office ordered a reexamination. So some chapters of this story have yet to be written like in case of Eolas.

Though Eolas case was frequently compared to MercExchange the MercExchange patents protect business methods whereas the Eolas patent protects a software process. In this analysis we first consider the MercExchange patents from the point of view of a person of the art. Then we comment the court decisions in a legal perspective.

MercExchange found that eBay was infringing three of their patents:

1. 5,845,265

2. 6,085,176

3. 6,202,051

In this section we only consider facts:

• The prosecution history. When and how carefully were these patents examined by the USPTO?

• The number of patents that refer to these patents. This is the less questionable way to measure the quality of a patent.

• Patent metrics, the number of claims and words and the most frequent words.

• The patent classification, in which classes the USPTO has defined the patent.

• The main claim. We cannot reproduce the whole patent for legal reasons and also because the purpose of this page is to comment rather than annotate the MercExchange patents.

Not surprisingly all these patents were classified in the business method class, 705.

This patent is a continuation in part of U.S. patent application Ser. No. 08/427,820 filed Apr. 26, 1995.

It was filed on November 7, 1995 and granted on December 1, 1998. Here is its prosecution history:

We may notice that the examiner made two non-final rejections in 1997. In 2002 the applicant changed of patent attorney.

5,845,265 is referenced by 55 patents, which is a lot for a patent granted in 1998. 5,845,265 qualifies as a very good patent.

5,845,265 contains 14604 words and has 29 claims. 5 of these claims are independent (claims 1, 8, 15, 23, 26.) The most frequent words are node (308 occurrences), consignment (304), good (277), market (197), participant (185). There are only 92 occurrences of auction, 7 occurrences of www and 6 of internet.

5,845,265 has been defined in the following subclasses:

• 705/37: Subject matter including the trading or exchange of securities or commodities within an organized system.

• 705/27: Subject matter which includes a feature enabling a user to inspect a listing, or other visual or audible representation of plural items available for purchase.

The title of 5,845,265 is "Consignment nodes" and its abstract is:

A method and apparatus for creating a computerized market for used and collectible goods by use of a plurality of low cost posting terminals and a market maker computer in a legal framework that establishes a bailee relationship and consignment contract with a purchaser of a good at the market maker computer that allows the purchaser to change the price of the good once the purchaser has purchased the good thereby to allow the purchaser to speculate on the price of collectibles in an electronic market for used goods while assuring the safe and trusted physical possession of a good with a vetted bailee.

The first claim of 5,845,265 is:

A system for presenting a data record of a good for sale to a market for goods, said market for goods having an interface to a wide area communication network for presenting and offering goods for sale to a purchaser, a payment clearing means for processing a purchase request from said purchaser, a database means for storing and tracking said data record of said good for sale, a communications means for communicating with said system to accept said data record of said good and a payment means for transferring funds to a user of said system, said system comprising:

• a digital image means for creating a digital image of a good for sale;

• a user interface for receiving textual information from a user;

• a bar code scanner;

• a bar code printer;

• a storage device;

• a communications means for communicating with the market; and

• a computer locally connected to said digital image means, said user interface, said bar code scanner, said bar code printer, said storage device and said communications means, said computer adapted to receive said digital image of said good for sale from said digital image means, generate a data record of said good for sale, incorporate said digital image of said good for sale into said data record, receive a textual description of said good for sale from said user interface, store said data record on said storage device, transfer said data record to the market for goods via said communications means and receive a tracking number for said good for sale from the market for goods via said communications means, store said tracking number from the market for goods in said data record on said storage device and printing a bar code from said tracking number on said bar code printer.

This patent is a continuation of U.S. patent application Ser. No. 09/166,779 filed Oct. 6, 1998, which is a divisional of U.S. patent application Ser. No. 08/554,704 Filed Nov. 7, 1995, now U.S. Pat. No. 5,845,265 which is a Div. of U.S. patent application Ser. No. 08/427,820 filed Apr. 26, 1995. So 6,085,176 inherits the advantageous priority date of the ancestor of 5,845,265 (Apr. 26, 1995) while it was filed on March 8, 1999 to be granted on July 4, 2000. Continuation is allowed only when the patent matter of the continuation is the same as the patent matter of the original patent. Its prosecution was fast (17 months). The prosecution history is less interesting than for the two other patents. We may however notice that the examiner made a non-final rejection in 1999. In 2002 the applicant changed of patent attorney.

6,085,176 is referenced by 13 patents, which is not bad for a patent granted in 2000. 6,085,176 qualifies as a good patent.

6,085,176 contains 14138 words and has 54 claims. 8 of these claims are independent (claims 1, 7, 10, 13, 16, 29, 42, 51.) The most frequent words are node (310 occurrences), consignment (304), market (254), good (193), participant (169). Electronic enters the top ten with 164 occurrences whereas good and participant decline. However the word distribution confirms the impression that this patent reuses a large part of 5,845,265. There are 102 occurrences of auction, 9 of internet and 7 of www.

6,085,176 has been defined in the following subclasses:

• 705/37: Subject matter including the trading or exchange of securities or commodities within an organized system.

• 705/16: Subject matter drawn to a computerized arrangement for including a mechanism for effecting a transaction and determining the amount of a sale which may also be a terminal in a system. The mechanism for effecting a transaction may include a mechanism for handling cash, or debiting an account or prepaid card. The sale may include a plurality of goods at different prices.

• 705/26: Subject matter drawn to a computerized arrangement which enables a purchaser to inspect or select from a plurality of different items, or effect a purchase of one or more items at a location geographically separated from the system user. A remote shopping system is included in this subclass. Browsing of a selection without a purchase transaction is classified in this or its indented subclass.

• 705/44: Subject matter in which an approval is required prior to effecting a funds transfer between accounts. Such approval may be related to either the permitted amount of the transaction or the identity or authorization of the user.

The title of 6,085,176 is "Method and apparatus for using search agents to search plurality of markets for items" and its abstract is:

A method and apparatus for creating a computerized market for used and collectible goods by use of a plurality of low cost posting terminals and a market maker computer in a legal framework that establishes a bailee relationship and consignment contract with a purchaser of a good at the market maker computer that allows the purchaser to change the price of the good once the purchaser has purchased the good thereby to allow the purchaser to speculate on the price of collectibles in an electronic market for used goods while assuring the safe and trusted physical possession of a good with a vetted bailee.

6,085,176 is better defined by claim 16, which reads:

A computer-implemented method of searching for an item in a plurality of independently operated electronic auctions interconnected by a computer network, each electronic auction having an associated data repository, the method comprising:

• receiving input identifying an item; and

• instructing a software search agent to search for the item on the computer network in the respective data repositories of one or more of the electronic auctions.

This patent seeks priority from Div. U.S. patent application Ser. No. 09/166,779 filed Oct. 6, 1998, which is a continuation of U.S. patent application Ser. No. 08/554,704, now U.S. Pat. No. 5,845,265, filed Nov. 7, 1995 and U.S. patent application Ser. No. 08/427,820 filed Apr. 26, 1995. So 6,085,176 inherits the advantageous priority date of the ancestor of 5,845,265 (Apr. 26, 1995) while it was filed on February 19, 1999 to be granted on March 13, 2001. Here is its prosecution history:

We may notice that the examiner made two non-final rejections in 1999 and 2000. In 2002 the applicant changed of patent attorney.

6,202,051 is referenced by 15 patents, which is good for a patent granted in 2001. 6,202,051 qualifies as a quite good patent.

6,202,051 contains 15013 words and has 52 claims. 8 of these claims are independent (claims 1, 6, 10, 11, 12, 36, 51, 52.) The most frequent words are node (309 occurrences), consignment (304), good (202), participant (193).,market (142). Auction enters the top ten with 224 occurrences whereas good and market decline. However the word distribution confirms the impression that this patent reuses a large part of 5,845,265. There are 34 occurrences of internet and 7 of www.

6,202,051 is defined in the following subclasses:

• 705/27: Subject matter which includes a feature enabling a user to inspect a listing, or other visual or audible representation of plural items available for purchase.

• 705/26: Subject matter drawn to a computerized arrangement which enables a purchaser to inspect or select from a plurality of different items, or effect a purchase of one or more items at a location geographically separated from the system user. A remote shopping system is included in this subclass. Browsing of a selection without a purchase transaction is classified in this or its indented subclass.

• 705/37: Subject matter including the trading or exchange of securities or commodities within an organized system.

The title of 6,202,051 is "Facilitating internet commerce through internetworked auctions" and its abstract is:

Auctioning an uniquely identified item (e.g., used goods or collectibles) with a computerized electronic database of data records on the Internet includes creating a data record containing a description of an item, generating an identification code to uniquely identify the item, and scheduling an auction for the item at the computerized database of records. The item is presented for auction to an audience of participants through a worldwide web mapping module executing in conjunction with the computerized database. The data record connotes an ownership interest in the item to a seller participant on the computerized electronic database of data records. The worldwide web mapping module translates information from the data record on the computerized database of records to a hypertext markup language (HTML) format for presentation through the Internet. Bids are received on the item from participants on the Internet through an auction process that executes in conjunction with the computerized database of data records. Auctioning of the item is terminated when the auction process reaches predetermined criteria. The auction participant is notified of the high bid in the auction process. The unique identification code is provided to the auction participant with the high bid to uniquely identify the item.

The first claim of 6,202,051 is:

An automated method, performed by a computer-based auction system, for enabling a seller to auction a uniquely identified item via the Internet to one or more potential buyers, the method comprising:

• requiring the seller to establish a seller's account, the seller's account being based at least on the seller's identity and a financial instrument associated with the seller;

• receiving information from the seller including a description of an item offered for auction by the seller;

• creating a data record containing a description of the item based on the information received from the seller, the data record connoting an ownership interest by the seller in the item, the data record being stored in a computerized electronic database maintained by the computer-based auction system;

• generating an identification code to uniquely identify the item;

• scheduling an auction for the item, the auction to be hosted by the computer-based auction system;

• presenting the item for auction to an audience of participants through a worldwide web mapping module executing in conjunction with the computerized database, the worldwide web mapping module translating information from the data record to a hypertext mark up language format for presentation through the Internet;

• receiving bids on the item from participants via the Internet through an auction process that executes in conjunction with the computerized database;

• terminating the auction for the item when the auction process encounters predetermined criteria;

• notifying a winning auction participant that the winning auction participant has entered a high bid in the auction process;

• providing the unique identification code to the winning auction participant to uniquely identify the item; and

• charging a fee to the seller's account based on an amount of the high bid.

I am in IT business since 1981. I originally worked on mainframes, mainly on the CICS transaction monitor. Then after working on VAX VMS to develop a file transfer product in 1988-1999 I moved to Unix. As such I use Internet since 1993. Around 1995 I was developing a small transaction monitor, a tape management product and graphical front ends. I was an early user of Mosaic and of the NCSA Web server.

I work in a big company in which I wrote a patent and now I help other inventors to patent and lawyers to deal with examiner objections, and I analyze competitor patents.

One of hardest tasks is to find ante Web prior art. Before 1995 Internet sites and documentation systems didn’t exist. IT management was not aware of risks and opportunities related to Intellectual Property in general and to patents in particular. Secrecy was the rule. In these environments where nothing was tracked, where people kept their most important documents on floppy disks, numerous documents were lost. This may look like lack of foresight but consider that:

• Business patents were definitely allowed in USA in 1998

• Before 1995 software inventions were not officially patentable

The rise of Intellectual Property happened at the same time as the Web revolution. Therefore we had to manage the transition from a World without rules to a World where every kind of Intellectual Property was managed. This was unrealistic to expect the same due diligence in 1994 as now. The oldest MercExchange patent was filed in 1995, at the beginning of the transition phase.

MercExchange filed their first 08/427,820 application on Apr. 26, 1995. I did not find this first application but I think that it is reasonable to assume that 5,845,265, filed the same year is essentially the same thing. Though 5,845,265 references a paper titled "Sun Microsystems Bringing Interactive Technology to the WWW" the words "http" and "html" are never used, "www" is used seven times whereas there are six occurrences of "X 25". 5,845,265 talks about "www pages". 5,845,265 is a patent of 14000 words, which probably took three months in writing and reviewing. I found on the Web that MercExchange has only one employee, Thomas Woolston, who is the president, inventor and patent attorney. The latter point is confirmed in the patent specification. In case of 5,845,265 Thomas Woolston is the attorney. This point matters because he spared at least three months in doing the whole work himself.

X25 was widely available at the end of the eighties as well as private networks (see for instance SITA.) Internet and TCP/IP were widely available at the beginning of nineties. At the beginning on 1995 a capable browser, Mosaic and HTTP servers with a CGI support were widely available. These products were easy to install and CGI and HTML were easy to learn. Therefore MercExchange used proven means in a traditional way and made conservative technical choices.

5,845,265 is a transformation patent that combines used good and collectible shops and auction systems with low-cost WANs and servers. Consignment stores and auctions exist for centuries. People were probably selling and buying used goods and auctioning more often one century ago than today for several reasons (income, long-lasting goods...). So at the beginning of 1995 consignment stores and auctions were disorganized small businesses unable to operate complex products. The Web was developed precisely to create a worldwide village and information highways were created to open up small business. The essential idea of MercExchange was in the air. Collectors were desperately looking for better ways to communicate with each others and early adopters of Internet facilities like newsgroups. So there were users with the skills and motivation to use the new system. This is fair to say that online auction sales were independently invented by MercExchange, eBay and many others.

Here is the way I represent 5,845,265 according to the description:

I believe that it is a fair representation of the following sentences:

• "The present invention is a network of consignment nodes and a low cost easy to use posting terminal for the virtual presentment of goods to market. A consignment node is a computer database of used goods preferably operated by a used good, collectable shop keeper or a bailee. A posting terminal is a low cost easy to use computer and computer peripheral devices used by a small store owner to present goods to a computerized marker and track the sales of goods and control the posted inventory."

• "Central market maker computer may be virtually divided into different markets with posting terminals used as the means for the market to obtain virtual title goods. Other consignment nodes, after taking physical possession of a good, may make an electronic presentment of that good to such a dominant consignment node market. Thus, a local collector of antique pens may bring a pen to a convenient consignment node in Smalltown, USA, the consignment network would allow this collector to electronically 'present' his pen to the dominant market maker node for antique pens in for example, Chicago."

The system that is disclosed is a distributed system without central database. There are essentially two types of actors:

• The consignment/market maker nodes with a database that acts as servers for the participant PCs and can communicate with the other consignment/market maker nodes.

• The participant PCs. These PCs are clients of consignment/market maker nodes. Though it is not explicitly said there are two kinds of participants, the professional users who operate "posting terminals" with barcode scanners and other equipments and the customers. Customers only buy. Professional user sell but can also buy.

Such system requires a number of protocols, which are described in that way:

"The consignment node may have four modes of operation: a software download mode, an auction mode, a market mode, and an agent mode. The software download mode allows a participant to log into the consignment node and receive a download of a participant interface application program. The auction mode allows a participant, from the participant interface application program, to log into a consignment node to partake in an electronic auction. The market mode allows a participant with the participant interface program to log into a consignment node to browse the consignment node database to search for a used or collectable good. The agent mode allows a participant to log into a consignment node to formulate a search request for a particular used good or collectable. The consignment node may search its own database for the requested good and/or generate agents to search and report back a search request of other consignment nodes."

In my view this is not enough to allow the reader to implement a practical solution without additional research. On the diagram I draw different boxes for the consignment node and for the market maker node but they are implemented in the same way:

"The present invention may allow a participant to electronically purchase goods from a consignment node and to select whether the good should be shipped to a participant designed location or the participant may take electronic legal ownership of a good and post a new participant defined offer or reserve price. By the interaction of a plurality of participants buying and selling collectibles on a consignment node, posting 'buy at' and 'sell at' quantities and prices the consignment node may establish a market or become a 'market maker' for collectable goods."

The system disclosed by 5,845,265 can be implemented. The problem in my view is that the system is barely more than a blueprint for the computerization of shop sales. Each shop operates a consignment node with a database accessed in ODBC. Protocols simply reproduce what the shop keeper does with her phone and fax. This statement is further confirmed by the description of the auction:

• "At the auction date, perspective participants log onto the consignment node auction mode locally or through the consignment node network and await the first good to be auctioned. It is understood that in the best mode of the invention the participant will have a data terminal with a digital to analog converter such as a 'sound blaster' and speaker, the digital to analog capability may be used in the auction mode to bring the aural excitement of an auction, e.g., the call of the heckler, the caller and bidders, home to the auction participant."

• "The consignment node takes the first item to be auctioned and posts the image of the good and the good's text record to the participants. The consignment node then posts the opening bid. It is understood that the bid postings may be in a protocol that invokes the generation of an auctioneer's voice at the participant terminals. The participants may then respond with a higher bid. The consignment node mode scans electronically the participants for bids and accepts the highest bid."

This point looks so important to the inventor that he disclose implementation details:

"The present invention uses pre-stored sound samples of different auction prices and auctioneer "string" along aural calls inside the participant interface software, and allows the generation of said pre-stored sound bites to be invoked by the consignment node driver through the said special protocol. This method greatly reduces the bandwidth necessary for a consignment node to support the generation of exciting auctioneers calls at a plurality of participant terminals. It is understood that the generation of an audio bit stream from the consignment node to the participant terminals is also with the scope of the present invention."

This auction is like 50’s Popular Mechanics anticipation. 5,845,265 use computers to reproduce as closely as possible a traditional auction. This is like if Wright has tried to patent a machine mocking the bird fly instead of a plane. There is no relationship between actual Internet auction and 5,845,265. Today buyers do not necessarily use directly the auctioning system. They prefer to use bid snippers and high proxy bids. There was a mistake in the reasoning behind 5,845,265. Bidders are not looking for excitement. What happened is quite the opposite of what was envisioned in 5,845,265: online auctions are kept as simple as possible and do not involve any multimedia means. Professional auctions evolve toward something close to eBay. When buyers still attend an auction (for flowers, fish, cattle...) they look at a screen and they silently bid with a remote control.

I think that a simple prototype tested with a small user panel would have been sufficient to find that this noisy auction was not practical. Such prototype would also have demonstrated that online sell and auction are not compute-intensive tasks and a distributed solution was not necessary. A centralized solution a la eBay was simpler to implement and operate. It seems to me that there are only two ways to invent and that 5,845,265 follows none of them. The long way goes through patient tests and trials. This is the way of Watt and of the Wright brothers. The fast way goes through intuition and can be quite effective for business methods. Someone feels that what she wants others also want. This is the way of Sony for the Walkman. eBay creators had a similar experience according to this story found on the eBay site: "The idea for eBay came from a conversation between Pierre Omidyar and his fiancée, an avid Pez collector. She thought it would be neat to find dispensers and meet other collectors over the Internet. Realizing that people needed a central, safe location to buy and sell unique items, Pierre founded and launched eBay on Labor Day in 1995."

I do not believe that applicants try to deceive the patent office but I think that examiners can be fooled by explanations and diagrams that look technical and detailed. Let’s take the example of FIG. 3 I reproduced here:

The corresponding explanation is:

• "FIG. 3 shows a logical flow diagram of the steps the consignment node may use to create a database record of a good for sale or for auction."

• "The consignment node user may invoke the consignment node program to enter the posting 200 mode to create a data record for the good. The posting 200 mode initializes 204 the consignment node to receive information on a new good. The initialization 204 step displays a data record with data fields on the consignment node terminal for the user to fill in information on the good. The initialization step 204 also initializes the consignment node peripheral devices such as the digital camera 12 and the printer 20. The consignment node user then 'photographs' or digitizes the image of the good from one or more perspectives as well known to the digital camera arts. The consignment node receives the digitized image(s) at receive image 206 step. The consignment node program then prompts the consignment node user for information on the good 208. The consignment node receives information 210 that the consignment node user inputs to the data record displayed at step 208. The consignment node program verifies 212 that the necessary information, such as owners name, reserve price, market or auction designation is in the data record. The verify step 212 will reject the record and return the consignment node user data entry mode 210 if the record does not have the minimum information. If the record is verified 212 as complete enough to commit to the consignment node database, a data record is created 214 and linked into the consignment node database. The consignment node program then generates and prints a bar code 216 that indicated the data record. The bar code system is used by the consignment node to maintain an accurate inventory and is a hook for local sales (discussed below)."

The selling basics of eBay whose html version is http://pages.ebay.com/education/sellingbasics/registration.html and PDF version is http://pages.ebay.com/education/sellingbasics/sellingBasics.pdf presents closely the same thing.

These figure and explanation look detailed but hardy convey any new idea. Any programmer would have designed closely the same thing given the following requirements

1. The post request must create good records in a database

2. The good data comprise an image and textual data

3. The post request must print a bar code identifying the good

The pattern "Prompt for information; receive information; verify record; create database record" is well known since the 70s. Because the image does not require verification, it makes sense to receive the image before handling textual data. The bar code can be printed only once the record number is known, so after the creation of the database record. For a person of the art these figure and explanation do not even convey information. The person of the art is trained to detect such figures because she reads analysis documents that contain plenty of them. An examiner is not.

Lack of skills may have helped 5,845,265 to be granted but only marginally. For some patents this lack of skills can have a serious impact. How can the patent office make a serious analysis of the prior art if it does not completely understand what the invention is about? But 5,845,265 uses words and concepts widely known in 1995 and is very readable.

A first constraint is the inventory database of the consignment node. This database requires a computer and disk space.

A second constraint is the network that consignment nodes must use to communicate with each other and that participant must use to post new offers (posting terminals) or to order and bid (end user terminals). The network implies a peer to peer protocol between the consignment nodes and a client/server protocol between the terminals and the consignment nodes, in which the terminals act as clients and consignment nodes act as servers.

An offer is represented by pricing data (for instance reserve price and initial price in case of auction), the quantity offered, a textual description and an image, which implies the following requirements.

The consignment node database must store:

1. traditional inventory data such as the quantity already sold that has to be delivered and the quantity available;

2. pricing data;

3. item images;

4. textual descriptions of the items.

The end user terminals must offer:

1. forms to order, to bid and to pay the goods;

2. facilities to display the textual description and the image of the good.

The posting terminal must offer:

1. forms to display offers and post a new offer;

2. means to link the good to the database record (bar code reader and printer);

3. means to enter the image of the good (scanner, digital camera).

If we put together these constraints and requirements we can see that

1. A consignment node necessarily contains a computer with disk space running a database, a peer to peer component, a server component and a logic that translates the requests of the peer to peer and server components into database requests. Consignment nodes therefore contain four design blocks, the database access block, the peer to peer block, the server block and the logic block.

2. An end user terminal necessarily contains a computer running a client component and a user interface able to display text, images and forms allowing ordering, bidding and paying goods. End user nodes therefore contain two blocks, a client block and a user interface block.

3. A posting terminal necessarily contains a computer running a client component and a user interface. To this computer must be connected a bar code reader, a bar code printer, a scanner and/or a digital camera. The user interface must display text, images and forms to display offers and post a new offer. The user interface must allow selecting an image, reading and printing bar codes. Posting nodes contain two blocks, a client block and a user interface block.

The blocks can be implemented using practices that were well known in 1995. They communicate with each other through interfaces and protocols whose design was known art in 1995. Note that the peer to peer block could have been inventive but not enough was disclosed about the consignment node to consignment node protocol to establish this inventiveness.

We have seen that 5,845,265 handles:

1. traditional inventory data such as the quantity already sold that has to be delivered and the quantity available;

2. pricing data;

3. item images;

4. textual descriptions of the items.

Combining images and textual description was well known in 1995, notably thank to the Web. 5,845,265 does not claim to innovate in that respect and suggests using www pages to present images and textual descriptions. Management of inventory and pricing data was also well known since the seventies. The combination of the four types of data was certainly known in 1995 because any online sale system has to display the price, the quantity and a description.

In applications developed in 1995 inventories, pricing data and descriptions were already stored in relational database. HTTP and CGI had been designed precisely:

• to access computer resources such as databases to display their content on remote terminals;

• to allow remote terminals updating the computer resources such as databases

A person of the art would have necessarily represented, accessed and distributed the data in the same manner.

5,845,265 combines data in a manner allowing sellers to post offers and end users to display offers and buy or bid. Fig. 13 of 5,845,265 shows the user interface of a posting terminal and this interface is essentially what is in use today. From Fig. 13 we can deduct that the envisioned user interface of an end user terminal is also what is essentially in use today.

There is however close prior art. For instance, since the seventies, Global Distribution Systems (GDS) also called Central Reservation Systems (CRS) were market places between users (travel agents) and providers (airlines, hotels, car rental companies...). Screenshots displayed by GDSs differed from Fig. 13 in two points:

• GDS forms were displayed on text and not on graphic displays. Text displays were preferred because they were originally much cheaper than graphical displays and because the bandwidth needed to display graphics was not available before Internet.

• GDS forms did not include pictures for one part because of the technical limitations of the displays and for another part because the professional user knew the good that was sold.

5,845,265 is a transformation patent that discloses an implementable, useful and new system.

We cannot regard this system as a significant innovation for two reasons:

1. Though it is reasonable the idea of using the system as the consignment node inventory is not practical. A consignment shop either already has an inventory or is too small to operate the system. In the first case the consignment shop problem is to interface its system with the market place. In the latter case the consignment shop faces the chicken and egg problem: many consignment shops must have adopted the system for the system to be appealing for one consignment shop.

2. Systems allowing professional users to buy online were well known since the seventies. The idea of offering essentially the same service to end users using new public networks like Internet was in the Web inventors’ minds.

However 5,845,265 is not obvious. The best evidence may be that 5,845,265 errs for auctioning and consignment nodes. Beyond that the author of 5,845,265 did not realize that the availability of public WAN networks and of simple and portable protocols allowed solving the 5,845,265 problem with loosely coupled components from different providers. The best solution to this problem is probably made of:

1. A posting terminal using HTML forms and multi-part POST requests to upload images in the same way as eBay.

2. A means to correlate the market place records with the consignment node inventory. This means can parse the HTML stream or use a Web service.

3. An inventory management that may use an applet or ActiveX object to scan and print bar codes.

4. A means to interface with the payment in the same way as PayPal.

5. An end user terminal using HTML forms in the same way as eBay auctions and Buy it now.

I wrote above that the claims of 5,845,265 are an improper generalization of the description subject matter, claims mentioning nowhere consignment nodes, while this is precisely the title of the patent and though the background of the invention describes a network of consignment nodes. This point is not the only weakness of the claims in my view. The key parts of the claim set are claim 1 that presents the posting system and claim 8 that presents how the invention is used to allow online sales.

Claim 1 system comprises:

1. a digital image means for creating a digital image of a good for sale;

2. a user interface for receiving textual information from a user;

3. a bar code scanner;

4. a bar code printer;

5. a storage device;

6. a communications means for communicating with the market; and

7. a computer locally connected to said digital image means, said user interface, said bar code scanner, said bar code printer, said storage device and said communications means, said computer adapted to receive said digital image of said good for sale from said digital image means, generate a data record of said good for sale, incorporate said digital image of said good for sale into said data record, receive a textual description of said good for sale from said user interface, store said data record on said storage device, transfer said data record to the market for goods via said communications means and receive a tracking number for said good for sale from the market for goods via said communications means, store said tracking number from the market for goods in said data record on said storage device and printing a bar code from said tracking number on said bar code printer.

Claim 8 discloses a market apparatus for use with a posting terminal apparatus, said posting terminal apparatus having means for creating a digital image of a good for sale, means for creating a data record of said good for sale, a tracking number printer means, a tracking number scanner means and means for communicating to said market apparatus, said market apparatus comprising:

1. a communications means for communicating with the posting terminal apparatus;

2. a post/de-post communications handler operably connected to said communications means, said communications handler receiving a data record of a good for sale from the posting terminal apparatus, said communication handler detecting a predetermined posting terminal apparatus identification code from the posting terminal apparatus and verifying from said code that the posting terminal apparatus is an authorized user of said market apparatus;

3. a storage device operably connected to said post/de-post handler, said storage device adapted to receive and store said data record of a good for sale, said data record containing an image of said good for sale and a textual description of said good for sale;

4. a presentation mapping module operably connected to said storage device and a wide area communication network, said presentation mapping module providing via said wide area communication network an interface to said market apparatus for a participant, said presentation mapping module providing said participant with access to said data record textual description and said image of said good for sale;

5. a transaction processor operably connected to said wide area communication network and said storage device, said transaction processor adapted to receive a purchase request and payment means from said participant, clear said purchase request and payment means and if said payment means clears then transfer the ownership of said good for sale by modifying said data record of said good for sale to reflect the new ownership of said good for sale by said participant; and

6. a notification means operably connected to said transaction processor said notification means notifying the posting terminal apparatus in response to said transaction processor transferring ownership of said good for sale denoting with a finality of transaction said new ownership of said good.

Both claims are independent but claim 8 uses the posting terminal system described by claim 1. This is an unusual construction. In the normal way claim 8 should be the first claim and claim 1 should depend on claim 8 with a sentence like "The apparatus of claim 8 wherein the posting terminal apparatus is a system comprising..."

Claim 8 describes the consignment node apparatus. This apparatus is the server whereas the posting terminal system is the client. The component of the consignment node apparatus that handles the communication with the posting terminal system is the post/de-post communications handler (2). The component of the consignment node apparatus that handles the communication with the end user terminal is the presentation mapping module (4). The presentation mapping module calls the transaction processor (5) to update the data record. Then the transaction processor calls the notification mean (6) to notify the posting terminal. The communication means (1) is a network and can be considered as obvious - the posting terminal and the consignment node being two different computers.

Claim 8 is difficult to interpret. The presentation mapping module (4) is connected to the end user terminal through a wide area communication network whereas the post/de-post communications handler (2) is connected to the posting terminal through a communication means. Because two different wording are used we necessarily conclude that the wide area communication network and the communication means can and usually are different. This is further confirmed by "communication handler detecting a predetermined posting terminal apparatus identification code from the posting terminal apparatus and verifying from said code that the posting terminal apparatus is an authorized user of said market apparatus." A reliable terminal identification code is a feature of networks like SNA or X25 but certainly not of TCP. With TCP the only reliable way to check if a user is authorized is to ask her to authenticate with a user/password or with a certificate. Using the IP address is not a solution. The use of a terminal identification code was common for instance in travel agent systems.

To my knowledge no online sale or auction system uses terminal identification codes. Beside security there is another reason. The presentation mapping module and the post/de-post communications handler can be implemented using the same means, what we call today a Web application. The presentation mapping module and the post/de-post communications handler share a substantial part of the logic and of the screens. Therefore this is simpler and cheaper to develop the presentation mapping module and the post/de-post communications handler in essentially the same Web application.

We can now turn our attention to claim 1. Claim 1 describes the posting terminal system. This system is the client whereas the consignment node apparatus is the server. The posting terminal system:

1. generates a data record of the good for sale,

2. incorporates a digital image of the good for sale into the data record,

3. receives a textual description of the good for sale,

4. locally stores the data record,

5. transfers the data record to the consignment node apparatus,

6. receives a tracking number for the good for sale from the consignment node apparatus,

7. stores the tracking number in the local data record,

8. prints the tracking number on the bar code printer.

This system can be implemented only with a fat client (either a traditional client or a big applet or ActiveX object) because it incorporates a digital image of the good in the data record, locally stores this data record and prints the tracking number on the bar code printer. I do not believe that any online sale or auction system implements this unnecessary complex apparatus. A thin client solution in which

1. the data record is stored only on the market node,

2. the posting user uploads the image on the market node,

3. the data record does not contain the image but a reference to the image,

4. the posting user enters the textual description of the good on a HTML form,

5. the market node returns a tracking number once the posting user has confirmed the creation of the offer,

6. the posting user can list her offer and display the offer status (sold, current bid price...)

is a simpler solution to the posting problem. This is the solution used by online sale or auction systems.

If 5,845,265 had been filed in the eighties we could rightfully regard the differences between the fat client and the thin client solutions as improvements obvious to the person of the art who knew about new facilities such as the Web. For instance we could find that storing a reference to the image is the same as storing an image.

But 5,845,265 was filed in 1995 and then digital image formats like GIF, which is still widely used today, were known. It was also known that data record including the text description and excluding the image had a size of about two hundred bytes and that a detailed and appealing color image had a size of five thousand bytes and more. Therefore we cannot find that storing a reference to the image is the same as storing an image.

There is another issue. In 1995 the development, deployment and administration cost of fat clients was also known. Keeping a local image of the data record presumably in a database such as Access had to be a conscious decision. I believe that the choice of a fat client design was motivated by the use of an old communication means like SNA or X25 at a time at which TCP, FTP and HTTP were available and at which the standardization of multipart requests (RFC 1867) was already considered.

I showed above the substantial differences between the description (studied in the technical analysis and innovation assessment) and the claims of 5,845,265. On one hand the description does not support the scope of the claims. On the other hand the description discloses components that are not covered by claims. The facility that allows a consignment node to search an item on other consignment nodes is not needed to support the 5,845,265 claims.

5,845,265 is actually a combination of three inventions:

1. An invention that allows posting, searching and buying goods on consignment nodes, which is claimed in the 5,845,265 claims.

2. An invention that allows a consignment node to search a good on other consignment nodes on behalf of end users.

3. An invention that allows consignment nodes to handle auctions

6,085,176 was filed to protect the second invention. Because it uses essentially the same description 6,085,176 can have the same priority date as 5,845,265. Because the description of 6,085,176 is close to the description of 5,845,265 we do not need to make again a technical analysis.

The 6,202,051 patent, presented later in this page, was filed to protect the third invention.

6,085,176 claims a method of searching a plurality of electronic markets to locate an item, the method comprising:

1. receiving a search request for an item from an internet participant at a first computer;

2. formatting said search request at said first computer into a predetermined format;

3. transmitting said search request, using a software search agent, from said first computer to a plurality of other computers in said predetermined format, at least one of the plurality of other computers performing a search for the item in response to receiving said search request; and

4. receiving at the first computer search results from at least one of the plurality of other computers in response to the transmitted search request.

In my opinion the description correctly supports the 6,085,176 claims. As we have seen in the technical analysis of 5,845,265 the description is implementable though not enough details are disclosed to allow a person of the art to implement the invention without additional work.

6,085,176 claims a system of distributed electronic markets whereas the online sale or auction sites I’m aware about are centralized electronic markets. However the 6,085,176 claims refer to computers and not to companies. Therefore a single company could infringe 6,085,176. [The description describes electronic markets hosted by consignment stores and by third parties, so by different organizations. But what can link different companies can a fortiori link computers inside a company. So the claim wording of 6,085,176 is legitimate].

We can suppose that large online sale or auction sites operate many server computers. The biggest sites probably combine three mechanisms:

• Request load balancing between servers

• Storage areas (SAN) containing the data records, which are shared by servers

• Data dependent routing. A set of servers may handle cars and another set collectibles. When she searches cars on sale or auctions the user is routed to the proper server set.

These mechanisms are either simple to implement (data dependent routing) or available of the shelf (load balancers and SANs).

Half.com has been convicted for infringement of 6,085,176. This patent may also be a concern for the syndication sites that search lowest prices or lowest fares. Such sites query serially or in parallel many provider sites. They emulate an end user for instance to check for instance the availability and the fare of a flight. Most provider sites do not do anything to facilitate or forbid the work of syndication sites and they usually do not pay syndication sites. But the interest of providers is to make syndication sites’ queries easier and cheaper, for instance with Web services and to give them incentives. If providers do so and if syndication sites use these Web services then these syndication sites will be formatting and transmitting search requests, from their server computers to provider computers to perform searches. Together providers and syndication sites will be close to the first claim of 6,085,176.

However in my view 6,085,176 is not new. Since the seventies, as we have seen above, CRSs / GDSs are intermediates between travel agents and airlines. Travel agents must check the availability of airline seats. They can formulate their requests in general terms (list me the flights of next Monday from Boston to San Francisco, for which seats are available). Travel agents make their requests on the CRS system. Then to process the request the CRS queries airlines for available seats on their flights. This apparatus used to be regulated (and therefore public) since 1984 to ensure neutral display (not biased toward an airline.)

Because it uses essentially the same description (including the dubious excitement of a "live" auction house type atmosphere) 6,202,051 can have the same priority date as 5,845,265. Because the description of 6,202,051 is close to the description of 5,845,265 we do not need to make again a technical analysis.

The first claim of 6,202,051 describes an automated method, performed by a computer-based auction system, for enabling a seller to auction a uniquely identified item via the Internet to one or more potential buyers, the method comprising:

1. requiring the seller to establish a seller's account, the seller's account being based at least on the seller's identity and a financial instrument associated with the seller;

2. receiving information from the seller including a description of an item offered for auction by the seller;

3. creating a data record containing a description of the item based on the information received from the seller, the data record connoting an ownership interest by the seller in the item, the data record being stored in a computerized electronic database maintained by the computer-based auction system;

4. generating an identification code to uniquely identify the item;

5. scheduling an auction for the item, the auction to be hosted by the computer-based auction system;

6. presenting the item for auction to an audience of participants through a worldwide web mapping module executing in conjunction with the computerized database, the worldwide web mapping module translating information from the data record to a hypertext mark up language format for presentation through the Internet;

7. receiving bids on the item from participants via the Internet through an auction process that executes in conjunction with the computerized database;

8. terminating the auction for the item when the auction process encounters predetermined criteria;

9. notifying a winning auction participant that the winning auction participant has entered a high bid in the auction process;

10. providing the unique identification code to the winning auction participant to uniquely identify the item; and

11. charging a fee to the seller's account based on an amount of the high bid.

In my opinion the description correctly supports the first claim of 6,202,051. No information is given about the type of auction but the subsequent claims and the description of 6,202,051 suggests that this is the simplest type of auction that is envisioned. A person of the art can implement the described auction system relatively easily.

6,202,051 references fifty eight patents and twenty five papers that confirm that the idea of computer-based auctions was not new in 1995. Next I think that a person of the art who knows databases and HTTP servers has to develop an auction system in 1995 necessarily designs a system

1. receiving information from the seller including a description of an item offered for auction by the seller; [requirement. Participants must know what is sold]

2. creating a data record containing a description of the item based on the information received from the seller, the data record connoting an ownership interest by the seller in the item, the data record being stored in a computerized electronic database maintained by the computer-based auction system; [simplest solution]

3. generating an identification code to uniquely identify the item; [see the discussion below; identification code generation is known art since the seventies]

4. scheduling an auction for the item, the auction to be hosted by the computer-based auction system; [requirement]

5. presenting the item for auction to an audience of participants through a worldwide web mapping module executing in conjunction with the computerized database, the worldwide web mapping module translating information from the data record to a hypertext mark up language format for presentation through the Internet; [simplest solution]

6. receiving bids on the item from participants via the Internet through an auction process that executes in conjunction with the computerized database; [requirement and consequence of 5]

7. terminating the auction for the item when the auction process encounters predetermined criteria; [requirement]

8. notifying a winning auction participant that the winning auction participant has entered a high bid in the auction process; [requirement]

The last element ("charging a fee to the seller's account based on an amount of the high bid") describes a charging scheme used in auctions for centuries. A person of the art who has to implement this scheme will necessarily "require the seller to establish a seller's account" (first element) to make sure that the seller will pay her commission. The tenth element ("providing the unique identification code to the winning auction participant to uniquely identify the item") is not necessary for the invention to work. However the person of the art will also implement it. The reason is that the participant may be disappointed with the good (especially when the good is used or a collectible) and then needs to provide data uniquely identifying the good to the seller.

If you follow this reasoning you necessarily conclude that the first claim of 6,202,051 is obvious.

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