July 22, 2019

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IBM Notches $82.5 Million Win Against Groupon in E-Commerce Patent Litigation

Earlier this year, the U.S. Commerce Department released a report showing that online retail purchases had jumped 16% to $453 billion in 2017, as compared to $391 billion in 2016. That was the highest growth rate since 2011. In comparison, total retail sales rose only 4.4% in 2017 as compared to 2016.

New Programming Methods

Seeking a competitive advantage, leading e-commerce companies continually introduce new programming methods that will make their online shopping experience faster and more convenient for customers. Frequently, however, these innovations run afoul of existing e-commerce patents.

Considered an IT dinosaur by many, IBM has assembled an impressive portfolio of e-commerce-related patents that it aggressively enforces against alleged infringers. Expert witnesses play a key role in these enforcement efforts by analyzing the extent to which competitors have incorporated the methods described in the patents into their websites.

On July 27, 2018, IBM notched a big win against Groupon when a jury awarded $82.5 million to IBM after finding that Groupon had intentionally infringed four of IBM’s e-commerce patents. The “intentional” finding was particularly significant since it allows the judge to increase the damages.

Groupon Patents and E-commerce

The patents at issue are highly technical, but immensely valuable to e-commerce providers. The first patent, called the 601 Patent, describes methods to preserve information transmitted between users’ computers (referred to as “clients”) and a vendor’s servers during online communications. By way of background, in order for a visitor to view a page on a website, the client transmits a request to the server, and in response, the server displays the page. When the visitor clicks a link on the requested webpage to visit a different webpage, the client sends a new request to the server. These ongoing communications between the client and server are handled using a protocol called HTTP.

HTTP is a “stateless” protocol, which means that it does not keep track of the information passed back-and-forth between the client and server during online conversations. Thus, for example, if a client requests the same webpage numerous times, the server does not maintain a history of those requests. While a stateless protocol provides for simple and efficient communication between clients and servers, it poses problems for e-commerce transactions. For example, it is desirable for a server processing online orders to keep track of a customer’s product selections while the customer continues shopping, and then recall those selections when the customer is ready to check out and complete their purchase. The 601 Patent improves on earlier methods for preserving information (or “state”) in a stateless protocol by embedding information in hyperlinks during the back-and-forth communications between the client and server.

346 Patent

The second patent, referred to as the 346 Patent, improves upon existing single sign on (“SSO”) technologies for authenticating users when they seek to log in to a particular application. Prior methods require a user to have a preexisting account with an e-commerce provider in order to log in, and require repeated sign ins each time the user wishes to access the provider’s application. The 346 Patent improves on existing SSO technology by creating an “identity provider” that authenticates a user on behalf of a collection of applications (often sponsored by different enterprises) within a connected computing environment, and shares the user’s credentials with all applications within that environment. In this way, users can access the various applications within the environment without having to log in and separately authenticate themselves with respect to each application.

697 and 849 Patents

The third and fourth patents, the 967 and 849 Patents, concern methods to facilitate access to interactive applications (such as electronic banking, travel reservations, home shopping, and current news) to millions of simultaneous users with minimal response times. The 967 Patent claims methods for storing structured collections of data known as objects on a user’s personal computer for easy retrieval on an as-needed basis in response to user requests. This technology streamlines use of an interactive service.

The 849 Patent provides a method for presenting relevant advertising to a user of an interactive service without distracting the user, or disrupting the user’s session, by structuring the advertising as data objects.

Groupon hosts an interactive e-commerce marketplace that offers discounted products and services from local merchants to its subscribers. It is thus easy to envision how IBM’s e-commerce patents could add value to Groupon’s business.

The Trial 

Prior to trial, Groupon moved for summary judgment that it did not infringe any of IBM’s patents. On June 18, 2018, relying heavily on expert testimony, the Court denied Groupon’s motion in its entirety. The Court noted that the parties’ dueling experts raised disputed questions of material fact concerning Groupon’s use of the methods described in IBM’s patents.

At trial, IBM noted that other e-commerce companies such as Amazon, Google, Twitter and LinkedIn had paid between $20 million to $50 million to license its thousands of patents. In a similar infringement action by IBM against Priceline, Priceline agreed to settle on three of the four patents. Groupon, however, refused to settle, and now has to bear the consequences of that decision. For its part, Groupon promises to explore all options, including post-trial motions and appeal.

When asked for his take on the outcome, IBM’s trial attorney noted that recent reforms designed to fight abuses in the patent system have led companies like Groupon to litigate IBM’s licensing demands whereas prior to the reforms, the dispute would have likely been resolved with a few meetings.

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About this Author

Joshua Fruchter Attorney and Editor At IMS Expert Services
Contributing Author

Josh’s background in a large New York firm together with his literary work in legal marketing technologies is a great combination for generating exclusive commentary on many of today’s legal issues.

He is a member of the New York Bar Association, and a former attorney at a large NYC firm. He is currently the principal of eLawMarketing, a leading provider of website development, email marketing, blogging, search engine optimization (SEO), and social media services to law firms of all sizes, founded in 2002.

A graduate of NYU School of Law, Joshua combines his legal background...