Article

Note: In 1994, TradeCard, became the assignee of a patent of software applications that automated paperwork in international operations obtained by Guy Tozzdi (Assignee),. The software compared documents for buyers and sellers under a letter of credit and open account transactions and was useful for these transactions due to the features which allowed the program automatically to compare documents such as invoices, bills of lading, and insurance policies. The ability to compare both overt and hidden terms was a key component in the functionality and attractiveness of the software. Advanced approval of variations allowed the buyer and seller to complete the transaction with rapidity. If all criteria were met, the program issued an electronic instruction and payment was automatic.

Subsequently, Assignee sued S1 Corp. (Competing Vendor), Bank of America Corp., and Bank of America N.A. (Bank) for patent infringement, claiming Bank utilized Competing Vendor's software. On entry of judgment for Competing Vendor and Bank based on a jury verdict, Assignee moved for a new trial and judgment as a matter of law. The United States District Court for the Southern District of New York, Hellerstein, J., applying the law of New York, denied both motions, ruling that there was no error in the rulings given on the jury instructions and that there was no error in the verdict. The court also ruled that evidence was legally sufficient to support the jury's verdict.

Patent Holder had alleged that Competing Vendor's software allowed for transference of customer's data into Bank's system, and preparation of letters of credit from that data coupled with the input of seller's information, resulting in the electronic comparison of both buyer's and seller's documentation in order to determine discrepancies, which infringed on the patent. The software allowed for both an electronic and visual comparison of any discrepancies. Visual checks were considered a vital aspect of the procedure. The templates used to input information and detail discrepancies did not cover all criteria, thereby requiring trade specialists to enter both visual and electronic discrepancies. Payment was not made automatically, but required authorization. The services provided by the electronic check were available to the customer at no additional charge.

At trial, evidence was offered that a system similar to that of Patentee was developed, employed, and marketed by another bank, First National Bank of Chicago between 1989 and 1991. This system worked by imputation of data, comparison of that data, and thus recommendation of payment. Although the developer of this software did not use hidden terms, an essential element of Assignee's software, this aspect was solely due to the lack of need for such terms. The ability and recognition of creating such a possibility was not outside the scope of the previous developer.

The court stated that the evidence indicated that a similar program was developed, marketed, and used in past transactions and constituted adequate evidence to invalidate the patent. Because the patent was invalidated, the court stated that Assignee no longer held rights to such programs. Therefore, it noted that financial institutions were free to use electronic programs to compare letters of credit which may be substantially similar to that created by Assignee.

[JEB/alh]

Textual Appendix

Excerpts from the decision summarizing the evidence prescribed at trial:

Guy Tozzoli [Patent Holder] testified that... he conceived of a system to streamline the paper-intensive methods of international trade, and that he was awarded patent 6,151,588 on November 21, 2000 for the system he advanced, six years after his first application to the United States Patent Office, on October 13, 1994. Tozzoli testifies that the heart of his invention was the automatic comparison features of the system, and that the concept of "hidden terms" made it possible for a buyer to agree in advance to accept possible variations between the buyer's purchase order and the seller's proffered performance.

Kurt Cavano [Senior Vice President of TradeCard] testified that Tozzoli came to him to develop the software for the invention. Cavano testified that, using web-based technology to permit various users to input their information, he developed a system to reduce the time and expense of international commercial transactions. Cavano testified that TradeCard licensed Tozzoli's system, and grew to have many offices in the United States and China, approximately 1500 customers in 40 countries, and revenues in 2005 of $7.5 million. Of his customers, Cavano testified, 60-70% purchased goods by "open" accounts without guarantees, and 30-40% were supported by guarantees, mostly given by insurance companies and non-bank financial institutions. Cavano testified that TradeCard had not been successful at selling its system to banks, presumably because banks preferred their traditional letter-of-credit system.

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