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E-data ordered to prove its point

A company claiming its patent covers most electronic commerce applications has been ordered by a New York judge to explain why it wants to sue 18 companies for patent infringement.

Lawyers at E-data, the little company with a wide-ranging and much disputed patent on point-of-sale electronic commerce software, has 60 days to prove to a New York judge that the company has grounds to sue 18 companies for patent infringement.

E-data's opponents are applauding the order of a New York judge that forces E-Data to explain in detail why it is suing CompuServe and 17 other defendants ? including including Intuit and Broderbund -- for patent infringement.

U.S. District Court Judge Barbara Jones gave E-Data until August 25 to submit to each defendant a detailed explanation of how the defendants' products and services infringe upon the patent. Judge Jones' order stems from a motion filed by Intuit asking that E-Data either clarify its reasons for suing or have the suit dismissed, but the judge expanded the motion to include an explanation to all defendants and scheduled a conference call on the matter for September 6.

At issue is the company's purchase two years ago of the rights to a 1985 patent granted to computer scientist Charles Freeny that described a "system for reproducing information in material objects at a point of sale location." E-Data wants to collect licensing fees from anyone electronically distributing digital data to a purchaser--software, video, fonts, text, audio-- via the Internet, floppy disk, or encrypted CD-ROM. The outcome of the lawsuit has broad implications for online commerce, and could theoretically divert a slice of every Net transaction to the three-person New Jersey-based company.

But in ordering E-data to list each claim of the patent that is being infringed, Judge Jones seemed to at least acknowledge if not validate defendant's complaints that the patent is vaguely worded and unenforceable. The list of claims, known as "claim construction," is intended to demystify and define the complex and often abstruse language of patent documents.

"We're really pleased with the judge's order," said David McIntyre, senior litigation associate at law firm Fenwick and West in Palo Alto, California, the firm representing both Intuit and Broderbund in the case. "[E-data] has so far been rather vague about what's at issue."

CompuServe General Counsel Stephen Heaton echoed McIntyre in a statement released this week, saying that "the confusion surrounding the Freeny patent could be significantly clarified within a few months."

E-Data is still hoping, however, to get some 75,000 companies to accept a "carrot or stick" amnesty program that rescinds the threat of a lawsuit in exchange for a one-year, renewable licensing fee. A few, including Adobe Systems, IBM, and Internet payment company First Virtual Holdings, have opted to pony up the fee instead of paying drawn-out legal expenses.

E-Data announced earlier this week that two additional companies, Index Stock Photography of New York and Monotype Typography of Illinois, dropped out of a comparable suit in Connecticut by agreeing to pay the license fee. Terms and conditions of all licensing deals are undisclosed.

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