June 3, 2004, 12:00 AM

The latest twist in the patents dispute: The Patent Office reverses itself

Following a reexamination, the U.S. Patent and Trademark Office has issued an initial rejection of claims in a patent it had earlier granted to technology developer Pangea Intellectual Property. The patents were the subject of a series of suits by Pangea against retailers.

Following a reexamination, the U.S. Patent and Trademark Office has issued an initial rejection of claims in a patent it had earlier granted to technology developer Pangea Intellectual Property. The patents on payment processing technology used at e-commerce sites was at the center of a series of suits that San Diego-based PanIP had filed against small retailers claiming it was due licensing fees on their supposed use of the patented processes (Internet Retailer, May 2004; Nov. 2002).

A group of 15 retailers who had been sued challenged the validity of the patents. PanIP has since settled with those retailers but has threatened action against others. A second patent on which the retailer group, the PanIP Group Defense Fund, also is challenging PanIP still is under review by the Patent Office.

PanIP has two months from the early May ruling to respond to the Patent Office’s Action document, says Jonathan Hangartner of Sheppard Mullin Richter & Hampton LLP, the retailer group’s attorney, who terms the preliminary findings “a critical first step.” However, overcoming the initial findings will be “very difficult for PanIP. The Office Action is very well reasoned and strong,” he says.

Hangartner notes that nine of the 10 individual claims in the patent were rejected on the basis of anticipation in prior art. That essentially means that the Patent Office examiner determined that every element that the patent holder claimed to originate actually predated the patent and could be found in a single reference, such as an article, according to Hangartner. The remaining claim in the patent was rejected on the basis of “obviousness,” meaning that most elements of the claim existed in prior art and that the remaining elements would have been obvious to someone skilled in the art.

“The Patent Office has rejected the 10 claims that we challenged. That means that if that rejection holds throughout the process, the result will be the patent itself is invalid,” Hangartner says. The attorney representing PanIP, Kathleen Walker, says that while the action is ongoing, PanIP would have no comment. “We have 60 days to respond and we’ll make the appropriate responses,” she says.

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