Thomson Wins Appeal of $77M Verdict in Suit on Bond Auction Patent

Thomson Corp. is off the hook for a $77 million verdict in a patent infringement suit after a federal appeals court said parts of the patent were invalid.

The U.S. Court of Appeals for the Federal Circuit said other claims in the patent, which covers a system of bidding on municipal bond auctions over the Internet, were valid but that Thomson's system did not infringe them.

Thomson Corp. recently merged with Reuters and is now called Thomson Reuters. Andrews Publications is a division of West Group, which is wholly owned by Thomson Reuters.

The suit involves a patent covers the use of Web browsing software to conduct "original issuer" municipal bond auctions over the Internet.

In an original-issuer auction a municipality offers the bonds to underwriters, who bid on the entire bond offering. The winner then offers the bonds to the public.

The patent is a prime example of the types of patents that have bedeviled the courts and the U.S. Patent and Trademark Office for the past 10 years.

The Federal Circuit ruled in 1998 that a computer system for managing complex mutual funds could be patented even though the end result of the process was expressed in numbers.

Mathematical processes and formulas generally had been considered unpatentable.

That ruling led to an explosion of patents for business systems and processes, including automated trading systems, risk-management models and tax-avoidance structures.

Critics have said the PTO issued too many dubious business method patents covering inventions that were not really new or novel.

The Federal Circuit is once again considering whether these types of patents are valid. It is preparing to rule in a case involving a patent for a method of commodity trading risk management.

In the current appeal plaintiff Muniauction Inc., which owns the patent at issue, sued Thomson in the U.S. District Court for the Western District of Pennsylvania, alleging a system Thomson uses, called BidComp/Parity, was infringing.

A jury found that Thomson willfully infringed the patent and awarded Muniauction $38.5 million in damages for lost profits. The District Court later increased the award to $76.9 million and added $7.7 million in prejudgment interest.

Thomson appealed to the Federal Circuit, the only appellate court that hears patent cases.

At trial and on appeal Thomson argued that a substantial portion of the patent was invalid because the claimed invention - using a Web browser to conduct the bond auctions - was obvious in light of the technology that existed at the time the patent application was filed in May 1998.

The appeals court first cited several patent applications filed in the mid-1990s that mentioned using a Web browser to conduct an electronic auction.

It also mentioned a speech given at a May 1996 meeting of the Government Finance Officers Association that mentioned using Web technology to sell bonds to consumers.

The patent application itself uses the term "conventional" to modify both "Internet browser" and "Web browsing software," indicating that Web browsers were in common use at the time, the panel said.

Thomson also argued - and the appeals court agreed - that combining Web browsing technology with existing electronic trading systems would have been obvious to someone skilled in the field of electronic bond auctions in the late 1990s.

With respect to the patent claims that were not invalid, the appeals court said Thomson's system did not infringe them.

The court first explained that no single person or entity performs all the steps that, taken together, Muniauction says would infringe the patent.

The underwriters initiate the process by placing bids, and Thomson's system performs the remaining steps of the process, it said.

To prevail, the plaintiff had to prove that Thomson had sufficient control over the bidders' actions such that those actions could be attributed to Thomson.

Muniauction argued that Thomson controls access to its system and provides instruction to bidders on how to use it, but that was not enough, the appeals court said.

There was no evidence that the bidders were performing their actions "on behalf of" Thomson, the panel said.

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