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E-tailers claim lawsuit is ‘frivolous,’ ‘extortion’

By Anna Wolfe

SAN DIEGO - A technology company based here has sued more than 50 companies in U.S. District Court here - including several on-line retailers of specialty foods - claiming their e-commerce web sites infringe upon terms of its two U.S. patents.

Pangea Intellectual Properties LLC’s patents, No. 5,576,951 and No. 6,289,319, cover, respectively, an “automated sales and services system,” and an “automatic business and financial transaction processing system.” PanIP claims millions of e-commerce sites infringe on its patented methods.

The U.S. Patent and Trademark Office granted the two patents in question in 1996 and 2001 to PanIP’s principal, Lawrence Lockwood, La Jolla, Calif.

Indeed, PanIP holds two patents, and spent years acquiring them, but the interpretation of the language is debatable, said John Hangartner, a San Diego-based patent attorney with the law firm Sheppard, Mullin, Richter & Hampton. Hangartner represented five of the first 11 defendants sued by PanIP in April. 

“The question is,” Hangartner said, “‘what do the patents cover?’

“Clearly, it does not cover your run-of-the-mill e-commerce site,” he said.

On Oct. 4, PanIP filed lawsuits against 10 defendants, including Caffe Vita Coffee Roasting Co., Seattle. Earlier lawsuits were filed in August and September - all in U.S. district court here. Other specialty food companies being sued include: Charlie’s Pastries, Fort Lauderdale, Fla.; River City Meat Co., Kansas City, Mo.; Lacas Coffee Co., Pennsauken, N.J.: The Little Pie Co., New York; and, Three Dog Bakery, Kansas City, Mo.

Tom Buckley, vice president of sales and marketing for Caffe Vita, said “Your guess is as good as mine,” when asked why the coffee roaster and retailer was being sued. 

Buckley knew something was “fishy” when he was contacted by a lawyer representing PanIP to settle the matter for $5,000 - before being served a copy of the lawsuit. “We’re being scammed. It’s extortion to pay $5,000,” he said. 

It’s no coincidence, he added, all the companies being sued are small businesses. The rationale, he and Hangartner believe, is to go after small businesses that will cave in and pay the $5,000 licensing fee rather than face a potentially costly legal battle.

PanIP’s strategy is not to litigate, said Hangartner. The defendants are all “thousands of miles from San Diego,” he added. PanIP has avoided pursuing too many companies in one industry; “They really like to spread it (the lawsuits) around,” he said. 

Some of the companies being sued closed their on-line storefronts. River City Meat Co., a supplier of Kansas City steaks, settled its case with PanIP. When contacted by Gourmet News, Ed Ray said he could not comment, pursuant to terms of the settlement. When asked why www.rivercity-meat.com, River City’s online store for the company’s hand-cut steaks and gourmet jerky, was shut down, Ray said, “That (removing the site) was part of the settlement.”

Gourmet News calls to PanIP’s attorney, were not returned before press time. Gourmet News was unable to locate a phone number, web site or street address affiliated with PanIP. 

In April, when PanIP sued its first 11 defendants - all in separate suits - the licensing fee was originally reported at $30,000, but dropped to $5,000. 

Hangartner said his five clients and five other defendants settled, and one defaulted. 

“I’d like to see us all (defendants) collectively together fight this,” Buckley said. “I don’t think this is legitimate at all.”

A group of defendants were pooling resources at press time to fight the PanIP litigation. The group, led by Tim Beere, co-owner of DeBrand Fine Chocolates, Fort Wayne, Ind., has set up an informational site, www.youmaybe-next.com, to spread word of the lawsuits. (See related story on page 1.)

Attorney Hangartner is representing the group. DeBrand operates three brick-and-mortar retail stores, and its eight-year-old web site attracts out-of-state business. 

On-line sales are a significant part of many small businesses. 

“The Internet is a small but an integral part” of the Cherry Re-public’s business, said Bob Suther-land, president. The Glen Arbor, Mich.-based company offers more than 150 cherry products at its retail store, catalog and web site. 

Sutherland said he was originally advised by his attorney to settle. After being contacted by Beere, and reading through Beere’s extensive research, Sutherland and his attorney both changed their minds; Cherry Republic joined the group of defendants fighting the case in court. “It’s amazing how quickly you can get things organized on the Internet,” he added.

Attorney Hangartner said the cases were being consolidated to be heard by one judge. Many of the defendants had filed extensions and were expected to respond in mid-November, Hangartner said.

This isn’t the first time PanIP’s Lockwood has sued claiming patent infringement. In 1991 Lockwood sued American Airlines, claiming its SABRE ticket reservation system violated three patents he had obtained for an automated travel-reservation system. PanIP lost both in U.S. district court in San Diego in1994, and its appeal in the Federal Circuit Court, Washington, in 1997. Consequently, some patents involved were invalidated. 

Caffe Vita was undecided at press time about whether to settle or to join the group and fight. “We’d rath-er fight it,” he said. “We’re playing both sides of the fence right now.”

All companies doing business on the Internet are potential targets for litigation, Beere said. 

“We’re interested in stopping this,” Beere said. “We’re fighting this fight so you don’t have to, because it’s going to come to your doorstep next.”