Source Search Technologies LLC v. LendingTree LLC
F.3d -, 2009 WL 4546742, 2009 U.S. App. LEXIS 26570 [+]
December 07, 2009
Facts regarding the patented method and allegedly infringing website:
- The Patent: Source Search Technologies (â€œSSTâ€) is the owner of the â€˜328 patent, a business method patent claiming a computerized procurement service for matching potential buyers with potential vendors over a network. The â€˜328 patent was filed on February 22, 1996 and issued on May 26, 1998.
- How does it work? The system, simplified, permits the buyer to submit a request for quotation (â€œRFQâ€) for a standard good or service, which is then broadcast via the network to certain vendors. The vendors who receive the RFQ are selected based on filter criteria set by the buyer, the seller, and/or the network operators. The selected vendors then submit responses to the RFQ to the network, which in turn communicates the responses to the buyer.
- The network contains a series of pre-programmed menus and submenus that classify products and services into categories corresponding to their standard commercial identifications.
- The vendors who receive the RFQ are selected based on filter criteria set by the buyer, the seller, and/or the network operators, each giving relevant information about the member and each selecting a manageable and sufficient number of search results.
- When the buyer submits an RFQ, the network applies pre-set conditions set by the buyer, vendor, and network to determine which vendors are capable of quoting on the RFQ.
- Both the buyer and vendor can set additional qualifications as necessary, such as geographic location or a requirement that the buyer be a government agency.
- The network can filter and/or prioritize results based on pre-selected criteria or business objectives
- The benefit: The â€˜328 patent allegedly solves the â€œtoo littleâ€ or â€œtoo muchâ€ problem often associated with Google-like or Westlaw-like searches of a network or system.
- Fewer vendors receive, and therefore can bid, on an RFQ. Knowing that the vendor pool is smaller, vendors are more likely to provide price quotes because their chances of receiving the contract are increased.
- Buyers are allegedly benefitted because the system returns only a reasonable and sufficient number of quotes.
- The Website: LendingTree operates www.lendingtree.com, a website that refers prospective borrowers to potential lenders for a variety of home, auto, and personal loans.
- Prospective borrowers access the website, select a type of loan, fill out a â€œqualification form,â€ i.e., â€œa request for a loan pre-qualification.â€
- Lenders wishing to be affiliated with the website provide LendingTree with information regarding the types of loans it offers and the types of borrowers likely to receive approval.
- The website then matches the borrowerâ€™s needs with up to five lenders. If too many lenders match the borrowerâ€™s needs and information, LendingTree automatically limits the results to the â€œtopâ€ five lenders, based on customer satisfaction and previous success rates.
- The website automatically generates and sends an email to the borrower containing the names and information of the prospective lenders reviewing the borrowerâ€™s application. Once a lender responds with an offer, the website generates another email containing the offerâ€™s details.
- Once the loan offers are sent to the prospective borrower, LendingTree plays no further role in providing information or contact between the two, leaving the borrower and lender free to contact each other and negotiate at will.
- Relevantly, SST filed suit against LendingTree, alleging that its website violated its â€˜328 patent.
- Over the course of litigation, certain claims were dropped. Currently, only Claim 14 is at issue, a claim depending on Claim 13 which in turn depends on Claim 12. Those claims read:
- 12. A method of purchasing goods or services over a data network comprising the steps of:
- Communicating over said data network, to a filter means, at least one request for a quotation from a potential buyer of saidgoods or services; filtering, at said filter means the at least one request in order to ascertain a set of sellers potentially capable of supplying said goods or services; and
- Obtaining, from at least one of said potential sellers, over a data network, quotes to supply said goods or services, and forwarding said quotes to said potential buyer, wherein at least part of the quote information is stored at a location remote from said filter means.
- 13. The method of claim 12 further comprising the step of accepting filtering conditions from said potential buyer, and utilizing said filtering conditions from said potential buyer, and utilizing said filtering conditions in said step of filtering to determine a subset of potentially capable sellers.
- 14. The method of claim 13 wherein said set is limited by said filter conditions and by a predetermined maximum number from which a bid is to be received.
- Following a Markman hearing, the district court construed â€œrequest for a quotationâ€ to mean â€œa request for the price and other terms of a particular transaction in sufficient detail to constitute an offer capable of acceptance.â€ The district court also construed â€œgoods or servicesâ€ to mean â€œstandardized articles of trade and performances of work for another.â€
- The parties submitted the following motions:
- SST submitted a motion for summary judgment, asserted LendingTreeâ€™s Infringement of claims 1-3 and 12-14;
- LendingTree filed a cross-motion for summary judgment, asserting invalidity of all SSTâ€™s claims on obviousness grounds;
- LendingTree argued that SSTâ€™s computerized quote-procurement systems was either nothing more than an electronic version of older brick-and-mortar service procurement/referral services, or that SSTâ€™s system was obvious as a combination of e-commerce and bricks-and-mortar prior art.
- LendingTree filed a cross-motion for summary judgment, asserting invalidity of all SSTâ€™s claims on indefiniteness grounds;
- SST moved to strike the supplemental expert report of LendingTree's expert for its untimely reliance on previously undisclosed prior artâ€”the â€œbricks and mortarâ€ prior art.
- The district court granted summary judgment for LendingTree, holding that the â€˜328 patent was infringed but invalid on obviousness grounds.
- The district court denied SST's motion to strike LendingTreeâ€™s expertâ€™s supplemental report.
- The district court denied LendingTree's motion for invalidity based on indefiniteness.
- The district court granted SST's summary judgment motion of infringement and granted LendingTree's summary judgment motion of invalidity on obviousness grounds.
- Both SST and LendingTree timely appealed.
- Claims 12-14 of the â€˜328 patent are not invalid for indefiniteness, therefore the district courtâ€™s grant of summary judgment for validity in favor or SST is affirmed.
- The district courtâ€™s grant of summary judgment for invalidity is vacated.
- The district courtâ€™s grant of summary judgment as to infringement is vacated, however LendingTree is still foreclosed from arguing that its website does not offer â€œgoods or services.â€
- Legal Standard: Obviousness is a question of law based on underlying findings of fact. The movant bears the burden to prove invalidity by clear and convincing evidence. Factual determinations of obviousness are based on the Graham Test and include:
- the scope and content of the prior art,
- the characteristics and understanding of a person having ordinary skill in the relevant field of art (â€œPHOSITAâ€) at the time of invention,
- the differences between the claimed invention and the prior art, and
- the evidence of secondary factors, also known as objective indicia of non-obviousness.
- The district courtâ€™s summary judgment of obviousness was based on three pieces of â€œe-commerceâ€ prior art, one prior publication, and at least two pieces of â€œbricks and mortarâ€ (â€œpre-internetâ€) prior art.
- FAST system: A parts-procurement system that accepted â€œrequests for quotationâ€ from clients and provided a wide variety of goods. The request for a part would be sent to all vendors in its system. FAST personnel could also become directly involved to expedite the process, and sometimes directly called or emailed vendors. The system generated and sent to the client a list of all the vendors who had submitted quotes and the amounts of each quote; in other words, no filtering system was used. These quotes were â€œnon-binding, inventory availability responses, not contractual offers.â€ Clients could (1) submit a purchase order to FAST, which would then forward the order to the vendor via email or fax, (2) pre-authorize FAST to select and purchase the lowest quote, thereby automatically generating and sending a purchase order to that vendor, or (3) reject all the offers or attempt to negotiate new terms.
- IQUEST: A document-searching system. Users select a particular database to query, enter search terms, and IQUEST would run the search and return all matching publications and articles. The system did not filter results. The system also did not send or receive quotes; the only fees involved were one-fee-per-search charges based on the selected database.
- FACNET: A federally-run procurement system for government agencies. Government agencies wishing to make a purchase would submit electronic requests for a quote. The system then solicited all the vendors on the database to provide bids on the quote. The system ranked the resulting quotes in order of price, and communicated this list the government agency. The systemâ€™s state purpose was to increase vendor competition by providing the offer to more vendors and thereby receiving the maximum number of offers.
- 1992 Communications of the Association of Computing Machinery Magazine: The article generally discussed the need for information filtering between the source of information and the user such that the filter acted as a â€œthird party,â€ providing only the information deemed relevant to the user.
- Bricks-and-Mortar Home Contractor Referral Services: The homeowner would call a referral system and provide information about the desired home-improvement project. The referral system would then search its database to find contractors who matched the needed specialties or location. That search would return a full list, but then only a pre-set number (usually three or five) were returned to the homeowner. The homeowner would use that list to personally contact the contractors to set up appointments and obtain quotes.
- Bricks-and-Mortar Social Service Networks: A client would contact a particular social service network (providing, for example, information on attorneys, childcare, housing, or counseling) and provide information regarding the desired service. The names of possible matching providers were generally kept in a card file. The service representative would match the client with a particular provider who could meet the clientâ€™s needs. The client would generally contact the provider directly, but in some services the service representative would contact the provider directly to set up the clientâ€™s appointment.
Question 1: Can bricks-and-mortar references be used here?
- LendingTree only provided bricks-and-mortar references after service of its initial invalidity report. SST therefore seeks to estop LendingTree from relying on this information based on its delay. LendingTree responds that the addition was due to (1) the Supreme Courtâ€™s KSR decision, 550 U.S. 398, and (2) the district courtâ€™s â€œmodifiedâ€ construction of the term â€œgoods or servicesâ€ in a summary judgment order.
- HELD: LendingTreeâ€™s reasoning is questionable, however SSTâ€™s 9-month delay in objecting to the introduction of the bricks-and-mortar prior art shows that no â€œmiscarriage of justiceâ€ occurred. Therefore, the district court did not abuse its discretion by permitting introduction of the bricks-and-mortar prior art.
Question 2: Was the district courtâ€™s finding of invalidity-for-obviousness correct?
- SSTâ€™s Claim 14, through independent Claim 12, requires the e-commerce system to obtain â€œquotesâ€ from potential sellers and to forward â€œsaid quotesâ€ to the potential buyer.
- The district court did not construe the term â€œquotes,â€ did construe the term â€œrequest for a quotationâ€ to mean â€œa request for the price and other terms of a particular transaction in sufficient detail to constitute an offer capable of acceptance.â€ The district court therefore intended â€œquoteâ€ to mean â€œprice and other terms of a particular transaction in sufficient detail to constitute an offer capable of acceptance.â€
- HELD: None of the e-commerce prior art returned â€œquotesâ€ fulfilling the courtâ€™s construction of the term. Similarly, none of the brick-and-mortar references provide a qualifying â€œquoteâ€ that is directly forwarded to the client. Furthermore, even if the brick-and-mortar reference qualified as â€œquotes,â€ a PHOSITA would have to equate the human judgment with the electronic â€œfiltering.â€ In light of these problems, genuine issues of material fact remain as related to (1) the level of PHOSITA, (2) the character and number of the differences between the claimed invention and prior art, and (3) scope of the prior art references, therefore the district court erred in granting LendingTreeâ€™s motion for summary judgment on the obviousness of SSTâ€™s â€˜328 patent.
- The FAST â€œquotesâ€ were non-contractual, non-binding offers. Therefore, even if a customer pre-authorized the system to â€œacceptâ€ the lowest offer, the potential seller could still reject or renegotiate that â€œacceptance.â€
- In the prior art, clients generally contacted the providers themselves to obtain price quotes, and the purpose of the service was only to connect the client and provider, not to provide â€œquotes.â€
- None of the e-commerce prior art had meaningful filtering methods.
- A PHOSITA in 1996 might not have recognized the problem addressed by SSTâ€™s filtering feature.
- Even if a PHOSITA in 1996 did recognize the problem, a solution might not have been an obvious step. The 1992 magazine article mentioned the need for such a solution, but did not teach SSMâ€™s specifications.
Question 3: Was the district court correct in granting summary judgment for infringement?
- After construing â€œrequest for a quotationâ€ to mean â€œa request for the price and other terms of a particular transaction in sufficient detail to constitute an offer capable of acceptance,â€ the district court found that LendingTree infringed Claim 14 of SSTâ€™s â€˜328 patent. On appeal, LendingTree challenges infringement because its service lacks a â€œrequest for a quotationâ€ and â€œgoods and services.â€ LendingTree argues that its â€œpre-qualification responsesâ€ do not qualify as actual offers.
- Collateral Estoppel, a side-issue: SST argues that LendingTree should be collaterally estopped from arguing that its website does not provide â€œquotesâ€ to its customers based on a decision in a different case between LendingTree and IMX. There, the district court found that LendingTreeâ€™s pre-qualification responses qualified as â€œbids,â€ a term construed to mean â€œoffers to make a loan.â€
- Because the district court sits in the Third Circuit, Third Circuit law controls the application of the collateral estoppel doctrine in this case. It requires that
- the identical issue was previously adjudicated;
- the issue was actually litigated;
- the previous determination was necessary to the decision; and
- the party being precluded from relitigating the issue was fully represented in the prior action.
The district court found the collateral doctrine inapplicable here. That decision is reviewed for abuse of discretion. The Federal Circuit
finds no abuse of discretion, particularly because the IMX patent was wholly unrelated and included different claims and dissimilar claim constructions as in this case.
- HELD: A genuine issue of material fact remains as to whether LendingTreeâ€™s website meets the â€œrequest for quoteâ€ limitation.
- On the one hand, the â€œGlossaryâ€ and â€œFrequently Asked Questionsâ€ webpages indicated that the buyer must take significant steps to close a loan.
- On the other hand, LendingTree often refers to its pre-qualification responses as â€œoffersâ€ and informs its lenders that any â€œconditional offer for the Loan Product type requestedâ€ must contain â€œany conditions which must be satisfied before the Lender is obligated to provide the Loan Product to the Site User.â€ This could be construed as requiring the lenders to submit all material terms of the offer for acceptance by the user. Additionally, the LendingTree software that is provided to lenders helps create an interface that may return an â€œoffer capable of acceptanceâ€ to users in violation of SSTâ€™s â€˜328 patent, which uses a similar process.
- HELD: Because claims are construed the same way for invalidity and for infringement, and because material issues of fact remain regarding obviousness in the â€œrequest for a quotationâ€ feature, summary judgment is also precluded as to infringement.
Question 4: Claim construction of â€œgoods and servicesâ€ and overall claim indefiniteness:
- The Federal Circuit affirms the district courtâ€™s construction of â€œgoods or services.â€ The district court construed the term â€œgoods or servicesâ€ to mean â€œstandardized articles of trade and performances of work for another.
- LendingTreeâ€™s argument that its loans are not â€œgoods or servicesâ€ fails because they comprise a debtorâ€™s promise to pay in exchange for the lenderâ€™s promise to provide funds, a financial service. The â€˜328 patent contemplates similar services.
- LendingTreeâ€™s further argument, that its loans are not â€œstandardized,â€ fails as well. Even if borrowers and lenders submit and receive varying information, the transaction itself is standardized financial operation.
- The district courtâ€™s construction does not introduce a subjective element that renders the claim insolubly ambiguous. Indefiniteness is judged according to a PHOSITA, and a skilled artisan can readily determine what is or is not a â€œstandardâ€ item.