Groupon Sued for Patent Infringement

Groupon is a popular and growing website that features discounted gift certificates usable at local or national companies.  The website launched in 2008, the company rejected an $6 billion offer to be acquired by Google and is eyeing an IPO.  Yet, only now have they have truly and properly entered the tech sector.  Groupon is now being sued in a recently filed patent infringement lawsuit.

SellerBid, Inc. brought the patent infringement lawsuit (see complaint) demanding a jury trial, against Groupon and others on July 20, 2011.  Somewhat surprisingly, the lawsuit was filed in the United States District Court for the Eastern District of Virginia.  The Eastern District of Virginia is famously known by attorneys everywhere as “the Rocket Docket,” thanks to how fast cases go from filing to trial.  In a study published in October 2010, Stanford Law Professor Mark Lemley wrote: “The Western District of Wisconsin and the Eastern District of Virginia are truly rocket dockets; in those districts the average patent trial was completed less than a year after the case was filed.” So this case will not linger if it does, in fact, stay in the Eastern District of Virginia.

Historically due to the fast treatment given patent cases in the Eastern District of Virginia many patentees wanted to file their litigation there. This lead the Judges of the Eastern District to closely scrutinize whether that was the proper venue. When I interviewed Professor Lemley about his study he told me:

The Eastern District of Virginia was a forum of choice for several years in the early 1990s. My sense is that the judges got sick of patent cases clogging their docket, so they began (1) transferring cases out of the district and (2) sending the ones that remained to the Richmond and Norfolk divisions rather than keeping them in Alexandria. Both moves sent the message to potential plaintiffs that you shouldn’t file in the E.D. Va. unless you had a real connection there.

According to the complaint filed by SellerBid, they are a Virginia corporation with a principal place of business in Arlington, Virginia.  That should make it difficult for the defendants to remove the case, meaning this matter will come to a head sooner rather than later, either through settlement or through decision.  Nevertheless, expect the defendants to seek to remove the case and the Eastern District of Virginia to be sympathetic to the defendants if there is any reason to suspect that SellerBid was merely attempting to manufacture jurisdiction and venue.

Returning to the complaint itself, SellerBid is alleging infringement of U.S. Patent No. 7,647,024 and U.S. Patent No. 7,983,616.  Regarding the ‘024 patent, SellerBid alleges in paragraph 13:

Groupon is directly infringing one or more claims of the ‘024 patent in this judicial district and elsewhere in Virginia and the United States, including at least claim 1, by, among other things, making, using, offering for sale, and/or selling secure group transaction services that, among other things, correlate user location data with goods and services and provide a group benefit (see, e.g., deals accessible through www.groupon.com and Groupon’s mobile applications for smart phones and tablet devices).  Groupon is liable for its direct infringements of the ‘024 patent pursuant to 35 U.S.C. § 271.

Regarding the ‘616 patent, SellerBid alleges in paragraph 22:

Groupon is directly infringing one or more claims of the ‘616 patent in this judicial district and elsewhere in Virginia and the United States, including at least claim 1-3, 10, 13-15, 18, 26-27, and 29-30, by, among other things, making, using, offering for sale, and/or selling secure group transaction services over a wireless communications channel that, among other things, correlate user location data with goods and services and provide a group benefit (see, e.g., deals accessible through www.groupon.com and Groupon’s mobile applications for smart phones and tablet devices).  Groupon is liable for its direct infringements of the ‘616 patent pursuant to 35 U.S.C. § 271.

At this point is is really impossible to offer any additional information about SellerBid’s claims.  It takes surprisingly little information in order to initiate a patent infringement litigation, yet by patent infringement complaint standards SellerBid has provided volumes of information.  Each of the above two paragraphs cites specific claims of the patents asserted that are believed to be infringed, along with at least some vague, generalized description in support of the belief the patents are infringed.  Paragraph 22 is particularly detailed for a patent infringement complaint, which I now is a sad commentary in and of itself, but those are the rules the game is played by.

What we can look at are the claims of the patents that SellerBid asserts.  With respect to the ‘024 patent the earliest priority date is for a provisional patent application filed on October 3, 2005.  Two later filed provisional patent applications also provide priority for the nonprovisional patent application filed.  These other two provisional patent applications were filed on March 31, 2006 and July 25, 2006 respectively.  The nonprovisional patent application was filed October 2, 2006, which is within 12 months of the first provisional patent application so priority to all of the filed provisional patent applications can be claimed.

Regardless of what each of the provisional patent applications contained in terms of disclosure, and whether they provide meaningful priority, the nonprovisional filing date of October 2, 2006 seems to clearly beat any actual use by Groupon, which is potentially important in part because claim 1 does seem to read as if it covers the Groupon model.  Claim 1 of the ‘024 patent reads:

. A method for facilitating electronic communication of secure information, the method comprising: receiving a unique identifier corresponding to a client process; recognizing the unique identifier and establishing a secure communication channel with the client process based on the recognition of the unique identifier; receiving information from the client process, through the secure communication channel, wherein the information is related to an item transaction or a financial transaction; receiving location information of the client process; and using the location information of the client process to correlate the transaction to a group transaction wherein transaction parties belonging in the group transaction are provided with a group benefit.

Of course, there may well be other prior art not associated with Groupon that would invalidate the claim.  Having said that, the ‘024 patent would present a real impediment to Groupon obtaining patent protection themselves, even if they were so inclined.  In that regard Groupon might do well to either license this patent or simply seek to acquire the patent, either of which would settled this litigation.  Such a move would also simultaneously provide what very well might be an important asset to insulate the Groupon model.

The ‘616 patent is a continuation of the ‘024 patent, which means that the disclosure in the application is identical to that of the ‘024 patent.  A continuation is a common procedural move when at the end of examination there are allowable claims but other claims remain rejected.  At any time during prosecution of a patent application you have only allowed claims a patent will issue (assuming payment of the issue fee).  What is commonly done in this situation is to cancel any rejected claims, thereby having only allowed claims remain.  Then a new patent application called a continuation is filed prior to the patent issuing.  If it is filed before the prior patent issues it can claim full priority of the previous application, which is what happened relative to the SellerBid patent.

In this situation the ‘024 patent has only 2 claims, and the ‘616 patent has 30 claims.  This is not at all uncommon.  In the first application you take whatever you can get many times so that the client has an issued patent, which can be used for a variety of purposes.  Then you circle back to seek additional claims.  Having additional time to work with the examiner you can frequently get additional claims, perhaps even broader claims.  At first glance it does not seem as if broader claims are contained in the ‘616 patent, but there are certainly more of them.  Knowing what the patent examiner will allow in the first patent application also allows a patent attorney to work to craft claims that build upon those allowed claims in order to obtain additional claims that more particularly capture various more specific embodiments of the invention.

It is hard to predict what will happen in a patent litigation, although upwards of 96% of all patent infringement actions are settled.  With Groupon eyeing an IPO and being questioned by the SEC about certain curious accounting behaviors the last thing they need is a distracting patent infringement litigation.  That could suggest a settlement, particularly if Groupon can acquire patents or patent rights.  A settlement seems more likely with the case being litigated in the Rocket Docket of the Eastern District of Virginia, simply because preparation time will be dramatically condensed — and at a time that Groupon needs to focus on the IPO.  Of course, as a young company it is hard to know how they will respond to a challenge of this nature.

Stay tuned for additional developments!