Does Freeny Patent Make E-Data Download King?

You may never have heard of the Freeny patent or a company called E-Data, but stay tuned. Last month, MediaBay announced it had acquired the rights to the Freeny patent, a controversial and much-litigated patent claim that covers a specific system for distributing content over electronic networks.

U.S. Patent 4,528,643, "a system for reproducing information in material objects at a point of sale location" according to the patent information, was granted back in 1985 to inventor Charles R. Freeny. It is the sole asset of a company called E-Data, originally known as Interactive Gift Express, which bought the patent in 1994 with the intention of exploiting its licensing potential.

E-Data claims that this patent gives it an exclusive "field of use license" for spoken audio, e-book and print-on-demand transmissions over the Internet—in other words, if you sell downloadable content you probably owe E-Data a licensing fee—even though the patent was granted years before the Internet became a reality. And while the patent will expire in 2003, the current defendants and any others found to be infringing prior to expiration could still be held financially liable.

A number of e-vendors contacted by PW dismissed E-Data's patent claims, but some major companies, among them Adobe, Waldenbooks, IBM and Broderbund, have settled with E-Data and licensed the right to use its patent.

In 1995, E-Data filed patent-infringement lawsuits against a host of companies, including Waldenbooks for selling books with an encrypted CD that could be accessed online; and Ziff-Davis, Broderbund Software and Softlock for selling downloadable software. In 1999, the U.S. District Court for Southern New York rejected E-Data's infringement claims. E-Data appealed the ruling and in November 2000, a federal appeals court reversed the district ruling.

The E-Data patent outlines a system that transmits content to a network of remote "point of sale locations," each with an "information manufacturing machine" that copies the content onto a "material object" that the consumer can then buy. But while the trial court rejected E-Data's definition of terms such as "point of sale location" and "information manufacturing machine," the appellate court ruled that the trial judge had misinterpreted the terms. Now the case has been remanded to the district for reconsideration and the trial continues.

Mark Radcliffe, a lawyer with the firm Grey Cary Ware & Freidenrich specializing in digital copyright law, told PW that the Freeny patent is generally considered to be "less broad" than E-Data claims. He said the patent "essentially outlines a 1980s system that used in-store kiosks to receive music to a store to make a tape or a CD." Radcliffe noted that patents are written to be so specific that, generally, "if you do something just a little different, you're okay." But the appellate court ruling has thrown everything into question, he said; "Now they're going back to trial and there's a lot more life in this thing."

Patty Smith, a spokesperson for Amazon.com, which sells downloadable e-books, told PW, "We don't believe that the Freeny patent applies to the type of downloading we do on this site."

Steve Potash is president of the Open E-Book Forum, and also president of OverDrive, an e-wholesaler that supplies online infrastructure to retail clients—a company that very likely would be in violation if the court rules in E-Data's favor. He told PW, "It is sad and unfortunate that a company that has no vested interest in this business is trying to extend a patent from the 1980s into the Internet era using scare tactics. It is unhealthy, and we expect that the issue will be resolved in the courts."