On August 15, 2006, our previous article provided you with an update on Emergis Technologies, Inc. (“Emergis”), a Canadian company, that launched an aggressive licensing campaign for its U.S. Patent No. 6,044,362 (“the ‘362 Patent”), which allegedly covers a broad electronic invoicing and payment system. At the time of our previous article, Emergis had filed about 18 lawsuits against various local and regional utility and communications providers alleging infringement of the ‘362 Patent with the assistance of the Chicago-based law firm Kirkland & Ellis. Several cases were settled through the use of out-of-court settlements and confidential licensing agreements, but other cases remained in active litigation. In two particular district court cases, the accused infringers won rulings of non-infringement on summary judgment in early 2007.1 Emergis appealed these decisions to the U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”), and on January 31, 2008, the Federal Circuit, in a consolidated appeal, affirmed the district courts’ decisions holding that the accused electronic invoicing and payment systems did not infringe the ‘362 Patent.2’

In the first district court case, Emergis alleged that defendants PNM Resources, TNMP, and First Choice Power (collectively “PNM”), which are electric and gas utility companies, infringed the ‘362 Patent by using two different types of electronic invoicing and payment systems: (1) a third-party solution and (2) an internal solution. The third-party solution allowed the PNM customers to pay their bills via a website maintained by a third-party company. The internal solution allowed the customers to pay their bills on the PNM websites with a one-time bank draft. In the second district court case, Emergis alleged that defendant Otter Tail Corp., an electric utility company, infringed the ‘362 Patent by using an electronic invoicing and payment system that allowed its customers to pay their bills online through an Internet bill-payment service operated by a third-party company.

In both cases, the district courts interpreted claim language from the ‘362 Patent requiring that “payment instructions [be] sent from the customer directly to the invoicer” as meaning either that “the customer sends payment instructions to the invoicer without reliance upon or through a third party service provider” or that “the payment instructions must be sent from the customer directly to the invoicer without the intervention of any third-party service provider.” The claim language of the ‘362 Patent also requires transmission of customer payment instructions, in response to a request for payment instructions, “directly to [the] invoicer, said payment instructions including at least a customer invoice account number and an associated customer payment account.” In the first case against PNM, the district court also construed the term “customer invoice account number” to mean “a number or other identifier associated with the customer’s account for its purchase of goods and services from the invoicer.”

At the district court level, PNM obtained summary judgment of non-infringement because (1) in the case of their third-party solution, customer payment instructions were not made directly to PNM and (2) with respect to their internal solution, customer account numbers were used to log on to the payment system and these account numbers were not provided in response to a request for payment instructions from the system. Similarly in the second district court case, Otter Tail obtained summary judgment of non-infringement because its Internet bill-pay solution was operated by a third-party service provider.

In appeals to the Federal Circuit, Emergis challenged both district courts’ non-infringement decisions and the construction of the claim term “directly.” In particular, Emergis alleged that the ‘362 Patent could be infringed by an electronic invoicing and payment system that used an outside company for payment-related tasks, and as such the term “directly” simply means that the system does not utilize a customer-chosen payment consolidator. The Federal Circuit disagreed and, in affirming the district courts’ claim constructions, ruled that “ ‘directly’ precludes the use of any third party service provider.” Thus, with respect to the third-party solutions used by PNM and Otter Tail, the Federal Circuit affirmed the district courts’ decisions holding that these third-party solutions did not infringe the ‘362 Patent because payment instructions were not sent directly to PNM or Otter Tail. In other words, because these defendants used third-party companies to receive payment instructions from their customers, their third-party solutions did not infringe the ‘362 Patent.

Additionally, during the appeal to the Federal Circuit, PNM filed a cross-appeal challenging the district court’s construction of the claim term “customer invoice account number.” In short, PNM argued that the claim term “customer invoice account number” should have been construed to mean only an invoice number and not a number associated with the customer’s account. The Federal Circuit agreed and reversed the PNM district court’s claim construction of this term. The Federal Circuit held that the “ ‘customer invoice account number’ is only an invoice number.” Notwithstanding the change in claim construction, the Federal Circuit affirmed the district court’s non-infringement decision because PNM did not use invoice numbers as part of their internal solution.

The Federal Circuit’s recent decision appears to be a major setback for Emergis’s licensing campaign, and it remains to be seen how Emergis will respond. If your company maintains a system that may be covered by Emergis’s ‘362 Patent, then you should consider consulting a patent attorney to determine what, if any, action should be taken. Alternatively, if you have received a letter from Emergis offering you a license to the ‘362 Patent or requesting that you take a license or cease and desist certain activity that may be covered by the ‘362 Patent, then you should promptly seek the advice of a patent attorney. In either case, a patent attorney can analyze the particularities of your system in light of the patent to determine whether infringement of the ‘362 Patent is an issue, and if so, assist you in identifying what steps can be taken to mitigate the potential liability posed by the patent. A substantive response to the letter from Emergis may bring the matter to a close and avoid a protracted fight.