A whole bunch of patent infringement lawsuits were filed on Tuesday — against Alaska Airlines, American Airlines, Delta Airlines,Frontier Airlines, Hawaiian Airlines, JetBlue Airways, Southwest Airlines, Spirit Airlines, United Airlines, and U.S. Airways.
The suits allege that there’s a portfolio of patents on loyalty programs where you can transfer miles and rewards from one program to another program electronically without going through an intermediary.
Each is a separate suit, though similar. Here’s a copy of the filing against Hawaiian.
The two patents at issue are for “Exchange of non-negotiable credits of an entity’s rewards program for entity independent funds” and “Graphical user interface for the conversion of loyalty points via a loyalty point website”
Do they have a claim? Does someone really own the rights to being able to transfer points?
I spoke with Robert Berman, President of CopyTele, Inc. which owns the entity that filed the suits.
He explained to me that the patents were filed in 2006, cover both sides of the transactions from the transferring program and from the receiving program, and involve a graphical interface that lets members transfer points, and lets the programs transfer points between each other.
My big question through all of this was make makes his patents different from what frequent flyer programs were already doing?
He told me he wasn’t an engineer and wasn’t familiar enough with the particulars but would follow up by email and he did,
Depending on how far back you go, points and miles conversions of this type were done manually, by sending coupons through the mail. After that, conversions were done through a third party intermediary, such as points.com, resulting in exorbitant fees being charged to the customer.
These patents cover a system where the entities running the programs have direct agreements with each other, and where their computer systems interact with each other, as opposed to acting and interacting through a third party intermediary.
This is where I first run into trouble with the patent claim. No doubt there are far more complicated specifics based on the intricacies of patent law. But taking the company President’s explanation at face value,
- Points.com offers transactions that have no fee, although conversion rates aren’t often very good. This has been the case long before the patents were in place. In fact Points.com even had a competitor over a decade ago that they acquired. (It’s also not clearly relevant, just responsive to the claim above.)
- American Express Membership Rewards has been transferring their points to miles – without any intermediary and by 2006 in some cases “live” with a direct connection that posted points instantaneously.
- There’s been no intermediary for my Starwood Preferred Guest transfers to airline miles in the 13 years I’ve been a member of that program.
These are just a few examples, so I keep coming back to what have they patented that’s different from what was existing standard practice in the industry?
And it’s not completely obvious to me that the patents in the suit are how transfers actually take place — when American Express transfers points to Delta, Amex doesn’t actually buy your 100,000 miles from Delta in that transaction. In simplest terms they settle up in bulk. In fact in many of these arrangements there’s a bulk prepurchase of miles, sometimes a loan secured by these future transactions. Patent lawyers will ultimately distinguish these things, but at a minimum they may be quite distinguishable.
I’ve not gotten a strong answer to what to me is the most important question, though, how the patents are for things the programs weren’t already doing.
It’s highly relevant since the questions for any such lawsuit are whether companies are in fact infringing on the patent, and whether the patent itself is valid. If you have a patent for something that was going on before you ‘invented’ it, your patent isn’t valid.
Will There Be Even More Lawsuits to Come?
I found it interesting that they:
- Filed suit against 10 US airlines but not against non-US airlines with US customers (say, Aeroplan up in Canada).
- Included Spirit in the filing, as far as I know their only transfer partners are e-Rewards and Mypoints.
- Didn’t sue any of the hotel programs
- Didn’t sue the credit card companies (American Express Membership Rewards, Chase Ultimate Rewards but also Diners Club Club Rewards and even Citi Thank You Points which are now transferrable through a graphic interface to Hilton HHonors
Berman’s response? “This is our initial round of lawsuits.”
I took that to mean that if they could get airlines to pay them to ‘license’ their patents, that they would then ask hotels and credit card companies to do the same. Presumably the suit is an opening gambit to negotiations, so see if they can get a licensing agreement (settlement).
That, and perhaps that Hawaiian, Frontier, and Spirit might be easier marks — American Express and Chase are pretty well situated to go to the mattresses in legal fights.
So Who Are These Folks Who Claim to Own a Patent on Transferring Points Between Programs?
I asked whether they own the patents, or ‘a bundle of rights associated with the patents’ like the right to sue and collect damages?
It was explained to me that the company, Copytel, Inc, is a “atent monetization and patent assertion” company. They have the “exclusive rights to license and enforce the patent for a significant period of time.”
Their Media is Pitching Them as a Crusader for the Traveling Public
When I got a media pitch about the suit, the suggestion was that most people would be shocked to find that programs aren’t loss leaders meant to pay you to be loyal to a travel provider, that they are big businesses making real money.
The suggestion was that this was a ‘hidden’ fact about the programs, though I don’t know that’s the case when there are public SEC filings which document their scale and when transactions between programs and banks have hit the billion dollar mark.
I puzzled over what the suit had to do with this, if there was a ‘consumer angle’ that I wasn’t seeing, and in fact there’s not – the relevance of the profitability of frequent flyer programs appears to be that unprofitable targets don’t really make sense to sue, money losing operations aren’t likely to license your patent.
So Are These Folks Just Patent Trolls?
They buy up rights to sue and collect on damages. So they’re patent trolls, right? I actually asked that question directly.
They claim they’re on firm ground, having done extensive searches of prior art, they believe their patents account for all existing practices in the industry at the time of their filing.
They have to claim that, of course, if they did not assert they had a valid claim they would have problems with their suit.
It does seem worth noting that one of the patents (filed for in 2006) was actually granted yesterday, the same day the suits were filed.
In our conversation, the company President explained that transfers used to happen with companies like Points.com in the middle,
You’re asking me a question that’s impossible to answer, since there are hundreds of pieces of prior art, I can’t distinguish every piece. It’s my understanding when points.com started they were a go-between one program and another and the programs themselves weren’t talking to each other. The programs themselves weren’t wired into each other the way they now are.”
While some of the architecture may have evolved and improved over time, Points.com was an intermediary for some programs like Hilton HHonors (if memory serves) but not for others like Starwood in the transfer of points to airline miles. So I don’t think the understanding here is correct.
As far as being a patent troll,
I’ve been called that on national television a lot the past few months. It’s unfair to try to classify one class of company as all good or all bad. I started an assertion company back in 2001, they are very successful now. Patents have become a more important part of our society because we’re a knowledge-based economy. Some entities have entered the space, acting unethically, against consumers. Those companies have given a black eye to the industry. Every lawsuit needs to be judged on its own merits. We’re picky about what we take on, we’re a public company. You can’t assume every patent lawsuit is frivolous.
Perhaps not, if you buy the patent system. But since I’ve yet to hear how the patents in question are differentiated from existing technology, I come down in the camp of frivolous on the basis of available evidence.
We may see more than is included in the initial legal filings, if the airlines are unwilling to settle and Copytel’s subsidiary pushes forward.
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Patent trolling, plain and simple. It’s becoming a huge problem in this country, particulary in the tech sector.
Of COURSE he is a Troll. These people are absolutely ruining the culture of innovation that once defined our country. I am a software developer, and have a few websites that I use for my own personal use, and have shared it with a few friends. They are always asking why I don’t allow them to be used by the public. This a$$hat is why. There is literally nothing you can do on a website now that doesn’t violate a patent. Just wait until “an online website that presents content from different sources as a collection of similar topics” is granted and boardingarea gets a letter. A law needs to be passed that ensures that patent owners are only allowed to litigate if they can show they are principally participating in the activity the patent involves. I’m sure the airlines will just end up paying licensing fees, but I hope at least one of them makes this fool spend some money trying to defend doing something that adds no value to society.
The arbitrage for him is it’s more expensive for them to go to court than it would be to pay him a settlement he is comfortable with (about $1-$2mn each case).
With apologies to Robert Browning:
“My first thought was, he lied in every word,
that patent troll, with malicious eye…”
Also: http://www.inc.com/uploaded_files/image/970×450/patent_troll-pano_22628.jpg
I’d tend to agree that intellectual property laws (patent and copyright both) have become a force for suppressing rather than fostering innovation.
Couldn’t the airlines simply band together and create a jointly funded clearing house, thus ensuring they are using a “third-party”?
What is he going to patent next. ATM transfers and vending machine dispensing, what a waste of time.
They’d be better off just ignoring him, letting it go to trial, then burying him in discovery. If they’re a publicly held company, that means their investors are making bets on who will cave. Simply bury them in legal entanglement and make their costs so high there’s no chance of recovery… all while working to get their (licensed) patents nullified.
Total troll. He essentially admits to prior art!
There are two sub-defenses under prior art – anticipation (someone else already invented it) and obviousness (a person skilled in the area would have said “duh!” at the time the patent was filed). I’d guess the airlines have both.
Before the America Invents Act, effective 3/16/2011, the system ran on a first-to-invent basis. It’s now a first-to-file system. If CopyTele had filed under the new system, maybe there’s a claim. Under the old system, no way.
Sadly, though, the airlines will probably settle out of court for an undisclosed amount. Too bad, really. If we stop feeding the trolls, they’ll starve to death.
Troll.
“This American Life Radio had a good epizode on Patent Trolls: http://www.thisamericanlife.org/radio-archives/episode/496/when-patents-attack-part-two
USA Patent system is broken and privents innovation when generic processes can be patented
I hope the airlines stand up and crush this guy.
This sounds like the suit being threatened over the concept of Podcasts which is being brought by someone who claims to have “invented” the concept and received a patent for that “invention”. Like this, it runs into a major re-think of what can and cannot be patented, and if concepts and ideas can be patented. In my law classes — no I didn’t go to law school but took a couple of those related to the media and government policy, as well as sitting on the Canadian government board that reviewed and proposed revisions to our Copyright Act — a basic concept was that an idea could not be copyrighted, only the expression of that idea in a very specific literary or visual form. It appears that in a vacuum, the US patent office has taken some very broad “ideas” and “concepts” and issued patents for them even though there was no appropriate technology available at the time to actually realize these “inventions”.
As noted, Points.com was started by two Canadians who worked at the CIBC bank which at the time was the credit card issuer affiliated with AC’s Aeroplan program. This certainly predates the issuing of the patent under question.
Texas courts have been a haven for these patent trolls and in upholding their extortion, the state has condoned a tax on all of us who use most modern day technologies one way or another. This new round of threatened suits, and legal actions, appear to be the next Volley of the Trolls!
what a loser… i hope he goes away. he should patent farts instead.
Makes VR and Bluebird look like an honorable business practice.
A real “hero” to the American public for protecting us. #Sarcasm
100% patent troll. No doubt.
The one thing I can say about crap like this is maybe it will get people to think about whether patents are even a good idea at all in a “knowledge-based economy.”
This lawsuit should be thrown out! TROLL
“It’s unfair to try to classify one class of company as all good or all bad.”
I agree. I’d guess that only 99.5% of the non-practicing entities are bad.
I bet all my AdSense revenue I get from my incredibly effective money maker ad on “Filipino women dating” that this is nothing but a troll. We hope he gets crashed but the airlines will throw him a few Doritos and a six pack of Budweiser to go away so he can do this…again. It’s a hard job but someone’s got to do it!
I’ve patented the process of walking to the bathroom and relieving yourself. From now on, anyone wanting to do this must pay me a royalty. I’m thinking about a new patent on eating as well, so watch yourself the next time you go to the kitchen!
I’m sure that forum rules would prohibit me from using the words that I want to use to describe this company’s patents (actually not even their patents). My perspective as someone who was a software developer previously and as someone who has testified many times as an expert witness in computer related cases is that the patent should have never been granted as it is based on something that is obvious. Additionally, it is obvious that someone else could and would have independently developed this.
This is the kind of bilge that gives lawyers bad names.
Be careful, these guys probably also have a patent on methods for indirectly communicating mileage offers via a blog to travelers and posting pictures of first class and hotel meals cuisine along with descriptions of that cuisine and its taste qualities. They will shut you down for trying to steal their technology. Anyway, you can sue over anything these days, the world is run by lawyers and its in lawyers interest for everything to be open to litigation.
I’m afraid this is just yet another example of the bonkers US patents system that let’s people patent anything they want and sort it out in court (ie lots of money for the lawyers) rather than properly check the patents before issuing them!!
How absurd! The finest of the trolls, no doubt.
Any first year law student could tell you that these patents are invalid as obvious and/or anticipated by the prior art. As Gary (who has no legal training, to my knowledge) observed, AMEX (at the very least) has been doing this for years. I am in my 20s and so still rather new–generally speaking–to the points world, but I know I transferred miles online using a graphic interface with AMEX before 2006. To the extent that what AMEX (and Chase, etc.) do is different, i.e., inasmuch as the miles are not purchased at the time the request is entered, the patents are simply not infringed. EIther way, this is a frivolous lawsuit that could easily cost the parties millions of dollars.
I don’t want to go on too long about all this, but I find attacks levied specifically against patent law misplaced. This is not an example of a problem with America’s patent system, it’s a “problem” with the American legal system in general. Anyone can do this, in any field of law. The courthouse doors are WIDE open–and I am all for that–but that door is open just as much for (as here) patent trolls going on fishing expeditions, hoping that someone decides to throw in the towel early and settle with them. I hope the case is quickly laughed out of court, but I think a long, expensive journey may await.
Some rather topical coverage of this from the BBC in the past couple of days – http://www.bbc.co.uk/news/technology-23673383