Advanceme Inc. v. Rapidpay, LLC
| Decision Date | 14 August 2007 |
| Docket Number | No. 6:05 CV 424.,6:05 CV 424. |
| Parties | ADVANCEME INC., Plaintiff v. RAPIDPAY, LLC, et al., Defendant. |
| Court | U.S. District Court — Eastern District of Texas |
Otis W. Carroll, Jr., Deborah J. Race, Ireland Carroll & Kelley, Tyler, TX, Ronald S. Lemieux, Daisy S. Poon, Gisu S. Sadaghiani, Michael N. Edelman, Robert C. Matz, Shanee Y. Williams, Vid Bhakar, Paul Hastings Janofsky & Walker LLP, Palo Alto, CA, James Vincent Fazio, III, Paul, Hastings, Janofsky & Walker LLP, San Diego, CA, for Plaintiff.
Jeff Sanders, Roberts & Ritholz, Hilary Preston, Vinson & Elkins LLP, New York, NY, Brian K. Buss, Graham Eugene Sutliff, Joseph Daniel Gray, R. Floyd Walker, Willem G. Schuurman, Vinson & Elkins, Austin, TX, James Matthew Rowan, Potter Minton, Tyler, TX, for Defendants.
Plaintiff AdvanceMe, Inc. ("AdvanceMe") filed suit against Defendants RapidPay, LLC, Business Capital Corporation, First Funds, LLC, Merchant Money Tree, Inc. ("MMT"), Reach Financial, LLC ("Reach") and Fast Transact, Inc. d/b/a Simple Cash alleging infringement of U.S. Patent No. 6,941,281 ("the '281 patent"). Only Reach and MMT("Defendants") still remain in the case.1 The matter came for trial on the merits without a jury and was taken under submission. The Court has considered the testimony, exhibits, arguments of counsel, and supporting memoranda, and now details its Findings of Fact and Conclusions of Law below pursuant to Federal Rule of Civil Procedure 52(a).2
AdvanceMe alleges that Defendants directly infringe and/or indirectly infringe by contributing to or inducing the infringement of certain claims of the '281 patent, that this infringement is willful, and that it is entitled to a permanent injunction under 35 U.S.C. § 283 and attorneys' fees under 35 U.S.C. § 285.
Defendants deny that they infringe the fees under 35 U.S.C. § 285.
The matter was submitted to the Court on July 20, 2007 after a five-day bench trial.
The '281 patent is INVALID because it is OBVIOUS and ANTICIPATED. The patent-in-suit, simply put, is a computerized method for securing debt with future credit card receivables. While the patent inventor, Barbara Johnson, implemented an aggressive marketing and business development program that brought this financing method to widespread use, she did not invent a new business method. Rather, Johnson built on long-established prior art, packaged the idea in a new way, and marketed it aggressively.
There are multiple prior art references, not considered by the PTO when issuing the patent, that render the patent invalid, especially in light of the Supreme Court's recent ruling in KSR Int'l Co. v. Teleflex, Inc. In KSR, the Supreme Court opined ___ U.S. ___, ___, 127 S.Ct. 1727, 1740, 167 L.Ed.2d 705 (2007). The Litle & Co prior art, the LeCard program, the Transmedia program, and the prior art Reserve Accounts were all available in the field at the time of the purported invention. Johnson merely implemented a predictable variation of these existing methods in establishing her invention. While Johnson's work exhibits excellent entrepreneurship, it does not entitle AdvanceMe to a legal monopoly on this method of providing financing to small businesses. Rather AdvanceMe must continue to compete in the marketplace for its share of the market, which will benefit the economy and consumers as a whole.
Although this prior art was not considered by the PTO, there is insufficient evidence to conclude Johnson obtained the patent through inequitable conduct. The evidence is also insufficient to establish that this is an exceptional case and that the Defendants are entitled to attorneys' fees.
Accordingly, the Court HOLDS the patent is INVALID3 and issues the following Findings of Fact and Conclusions of Law pursuant to Federal Rule of Civil Procedure 52(a).
In January of 1984, Barbara Johnson opened a Gymboree franchise where parents and children participate in music, games, and activities. Johnson approached several banks for a business loan for her Gymboree franchise. The banks refused to loan her money because she was not willing to attach her home as collateral to the loan.
As time went by, the revenues generated by Johnson's Gymboree franchise became very predictable. Johnson knew what the credit card receipts for every September would be and knew that all of the expenses for advertising and printing occurred every July and August as she prepared for the fall school year. In light of the predictability of her business, it occurred to Johnson that the Gymboree credit card receipts might be something that a bank would consider of significant value. She realized that a bank might be willing to lend money on future receivables.
Johnson approached several banks and explained the predictability of the revenues generated by her Gymboree franchise. She asked the banks whether this predictability would be considered an asset of the business. The banks, however, answered no. When Johnson realized that predictability of credit card receivables was still not considered something on which a bank would be willing to lend, she began to think about who has control of the credit card receivables and who understands its value. She came to the realization that, since a computerized merchant processor4 functions as a gatekeeper to the credit card processing system, it would be advantageous for the merchant processor to also control the process for loan repayment. This would reduce the lender's risk of non-payment and create an efficient system that was not dependant on the merchant taking any action. This realization led to her conception of the inventions asserted in the '281 patent.
In particular, the '281 patent describes a method whereby the merchant processor would be responsible for dividing up the revenue from card payments and splitting the revenue between the merchant and the lender or other capital provider. Requiring the merchant processor to divide up revenue and pay the appropriate parties resulted in a far more efficient system for payment to a lender or other capital provider and placed control of the process in the hands of a trusted third party.
The '281 patent is a continuation of U.S. Patent No. 6,826,544 ("the '544 patent"). The application for the '544 patent was filed on July 9, 1997. Therefore, the effective priority date for the '281 patent is July 9, 1997.
The '281 patent describes that, prior to the invention, "the merchant 20 typically pays the outstanding loan back in periodic installments (e.g., equal monthly payments over five years)." '281 patent, 5:12-14. The '281 patent describes the invention as a modification of the existing merchant processor system, so that rather than the merchant making payment directly to the lender, "[t]he borrowing merchants use one or more already-familiar payment transaction processing systems to make the payments required by the lender or the loan collecting entity." '281 patent, 2:48-51.
Johnson confirmed this description of the invention during prosecution: "The invention relates to modifying the existing merchant processor system that is now used by merchants to authorize and settle card payment transactions." Applicant's June 7, 2000 Appeal Br., at p. 3.
The '281 specification describes that, in the prior art, merchants used VeriFone merchant-location equipment to accept a customer identifier (e.g., a credit card number) as payment from a customer and to electronically forward information related to the payment to a computerized merchant processor. '281 patent, 6:18-59. The '281 patent also describes that, in the prior art, computerized merchant processors used modems to acquire the information related to the payment from a merchant, and software executing known algorithms to authorize and settle the payment. '281 patent, 1:15-25, 3:31-4:37.
The '281 specification further describes that, in the prior art, the merchant processor would forward full payment (less processing fees) for that transaction to the merchant. '281 patent, 4:16-56. A general description of prior art card transactions at the merchant and merchant processor is discussed with reference to Figures IA and 1B of the '281 patent. '281 patent, 3:10-5:3.
The claims of the '281 patent reflect the invention's purported modification of the existing merchant processor system by requiring that a "computerized merchant processor" forwards a "portion" (Claim 10) or "at least a portion" (Claim 1) of the payment to a merchant's obligor. In other words, the invention purports to enable a merchant to automatically have its obligations repaid out of card receipts and, therefore, enables a capital provider to be repaid before the merchant gains access to payment amounts.
The patent examiner noted this sole non-obvious feature in his Notice of Allowance for the claims of the '281 patent: "[T]he non-obvious novelty of the invention is using the portion of the transaction payment as a remittance towards payment of an obligation owed by the merchant." March 17, 2005 Notice of Allowance, pp. 3-4.
The '281 patent contains two independent claims, claims 1 and...
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