More Relief For Retailers: Giftcard Patent Case Unlikely To Be Appealed As Plaintiff Is Running Out Of Money

The dozens of major retail chains that have been sued for giftcard patent violations have received more good news. As the rapidly dissolving cases against them dissolved yet further, the suing vendor released a statement saying that an appeal of an unfavorable key ruling is becoming less likely as its dollars run short.

The vendor, Card Activation Technologies (CAT), has sued quite a few major chains over the last years, including RadioShack, 7-Eleven, Nordstrom, Macy's, Starbucks, JCPenney, Sears, OfficeMax, TJX, McDonald's, Walgreens, Barnes & Noble, Aeropostale, Lane Bryant, Blockbuster, Fashion Bug, Cabela's, Guess, Panera Bread, Giorgio Armani, Caché, Denny's, Sunglass Hut Trading and the Brown Group Retail (doing business as Famous Footwear). But CAT's position began to implode earlier this month when a federal judge invalidated all but three of its claims against the retailers. That move followed a preliminary report from the U.S. Patent Office that it was also about to invalidate all of CAT's claims. CAT then surrendered its last claims, pending an appeal.

In a statement issued on July 22, CAT said that it expects the Patent Office to make its preliminary report final. "We anticipate that the [Patent Office] will likewise make a final determination that the '859 Patent is invalid. Consequently, we will be required to appeal in both the Delaware [federal court] Action and the [Patent Office] reexamination proceeding."

The statement made clear, though, that neither appeal may ever happen.

"Although we strongly disagree with the Court's Order and what we presume will be the findings of the PTO, we are mindful of the economic realities facing the company at this juncture," the CAT statement said. "The realities of Card's financial status surely impact our ability to appeal these decisions. The costs of appeal, as well as the cost of maintaining an ongoing entity, are estimated to reach $750,000.00 over the next two years. It is also important to understand that success on appeal means the action will be returned to the Delaware District Court for further proceedings regarding the validity of the patent. It is also common for the Federal Circuit Court of Appeals to affirm a trial court's ruling without written explanation."

CAT said it would hold a briefing on August 2. But then, as though it didn't really want anyone to attend its briefing, it said in the statement that little would be said during the briefing. "Please bear in mind that we know, and expect, our adversaries to be listening on this call. Consequently, the company will not be inclined or able to fully disclose all of its strategies."The statement did reveal one new detail, namely what one of the judicial errors CAT may claim will be. "The Court on its own raised a validity challenge to '859 Patent based upon a defense known as Section 112. [An opponent in the case] had never previously raised this issue in the litigation between the parties. In 2010, the Third Circuit Court of Appeals determined that it was improper for a court to raise a defense on its own and then dismiss the claim on that defense. In our case, however, the Court's Order did indeed invalidate claims of the '859 Patent based upon a Section 112 defense first raised by the Court. The opinion neither cites the Third Circuit Court of Appeals' prior contrary position nor does it distinguish that opinion. We believe this to be one of several errors in the Order."

It also questioned one of the court's rulings about whether one aspect of the technology had been used by anyone else prior to the Patent being granted, which in Patent circles is referred to as prior art.

"The Court also held that the prior art reference known as MicroTrax was indeed prior art even though [a legal rival] provided no corroborating evidence that the document was disseminated to the public prior to the filing of the '859 Patent with the PTO. We believe the Court's Order in this regard is directly contrary to over 100 years of Supreme Court precedent and numerous recent cases throughout the country."

Mark Rasch, the former head of the U.S. Justice Department's Technology Crimes division and the legal columnist for StorefrontBacktalk, said the appeal points mentioned are unlikely to be successful and it does not matter anyway.

"In their news release, CAT lawyers argued that the District Court judge made a mistake when he invalidated CAT's patent on a ground not initially raised by the parties. CAT argued that the Judge did not have the authority to invalidate the patent unless this issue was raised by the parties, and CAT indicated that they may appeal the decision on this ground. However, this may end up being a pyrrhic victory for CAT if they win on appeal, as all that would likely happen would be that the issue would be raised and then litigated in the lower court, with the same likely result," Rasch said. "If the patent is valid, it is valid. If it's invalid, it is unenforceable even if it is invalid on grounds not initially raised by the parties. Moreover, in light of the judge's decision, the Patent Office itself may invalidate the patent making the issue moot."