Consolidated Transaction Processing LLC v. Etsy Inc

I. Executive Summary and Procedural Information

• Parties & Counsel:
  • Plaintiff: Consolidated Transaction Processing LLC (Nevada)
  • Defendant: Etsy, Inc. (Delaware)
  • Plaintiff’s Counsel: Devlin Law Firm LLC
• Case Identification: 1:19-cv-00591, D. Del., 03/28/2019
• Venue Allegations: Plaintiff alleges venue is proper in the District of Delaware because Defendant Etsy, Inc. is a Delaware corporation.
• Core Dispute: Plaintiff alleges that Defendant’s Etsy.com online marketplace infringes five patents related to internet-based transaction processing, dynamic catalog generation, and sending targeted product offerings based on user information.
• Technical Context: The patents address methods for operating an e-commerce platform as a "virtual store front" that aggregates product data from multiple third-party distributors and facilitates direct-to-consumer sales without holding inventory.
• Key Procedural History: The complaint does not allege any prior litigation, inter partes review proceedings, or licensing history related to the patents-in-suit. The allegations of willful infringement are based on knowledge of the patents acquired no earlier than the filing of the complaint.

Case Timeline

II. Technology and Patent(s)-in-Suit Analysis

U.S. Patent No. 8,374,956 - Internet Transactions Based on User-Specific Information, Issued Feb. 12, 2013

The Invention Explained

• Problem Addressed: The patent’s background section describes the limitations of traditional e-commerce in the late 1990s, where businesses often operated like their brick-and-mortar or catalog predecessors by maintaining costly physical inventory in warehouses, limiting their product offerings and flexibility (Compl. ¶14; ’956 Patent, col. 3:5-19).
• The Patented Solution: The invention proposes an "internet-centric electronic transaction system" that functions as a "virtual store front" by aggregating product data from a plurality of third-party distributors. The system uses this data to generate electronic catalogs with user-specific offerings, processes customer orders, and authorizes distributors to ship products directly to the customer, making the back-end logistics transparent to the end user (’956 Patent, Abstract; col. 3:40-48). This is managed through an architecture including an Online Shopping System, an Order Processing System, and a main database (’956 Patent, col. 4:31-40).
• Technical Importance: The complaint alleges this was a "pioneering" approach that improved upon simple e-commerce models by enabling greater automation and user-specific customization in the online shopping experience (Compl. ¶14, ¶19).

Key Claims at a Glance

• The complaint asserts infringement of independent claim 1 and dependent claims 3, 9, 10, 11, 13, 19, 20, and 21 (Compl. ¶29).
• Independent Claim 1 requires:
  • A database storing product data from a plurality of distributors and personal information about customers.
  • A catalog builder for generating electronic catalogs with user-specific product offerings, dynamically placing them based on personal information.
  • A communication interface for customers to access catalogs and place orders.
  • A payment authorization processor.
  • A distributor authorization processor to authorize distributors to ship products directly to customers.
  • A customer service sub-system for sending automated messages about orders.

U.S. Patent No. 8,533,047 - Internet Business Transaction Processor, Issued Sep. 10, 2013

The Invention Explained

• Problem Addressed: Like its parent, the '047 Patent addresses the drawbacks of early e-commerce businesses that were essentially online versions of catalogs and relied on maintaining physical inventory, which was inefficient and costly (’047 Patent, col. 2:60-3:19; Compl. ¶14).
• The Patented Solution: The patent describes a transaction system that overcomes these issues by using a centralized database of product and customer information to generate dynamic, user-specific product offerings. A key component is the "Catalog Builder/Price Modeler", an "intelligent rule-based algorithm" that generates competitive pricing and can create different catalogs for different users (e.g., student vs. business pricing) from the same underlying data (’047 Patent, Abstract; col. 6:11-29).
• Technical Importance: The invention provided a solution to the technical problem of how to utilize aggregated product data from multiple sources and personal customer data to generate targeted, customized electronic catalogs and product offerings (Compl. ¶20-21).

Key Claims at a Glance

• The complaint asserts infringement of independent claim 1 and dependent claims 2, 5, 10, 13, 16, and 18 (Compl. ¶39).
• Independent Claim 1 requires:
  • A database with product data from a plurality of vendors and customer data.
  • A catalog builder that dynamically places user-specific product offerings in electronic catalogs based on personal information.
  • A communication interface for customers to access catalogs and place orders.
  • A payment authorization processor.
  • A distributor authorization processor for authorizing delivery.
  • A customer service sub-system for sending automated messages.

U.S. Patent No. 8,775,255 - Internet Business Transaction Processor, Issued Jul. 8, 2014

• Technology Synopsis: The ’255 Patent, part of the same family, describes an internet-centric transaction system for facilitating automated retail sales. The system integrates product data from multiple vendors and personal data from customers to generate and display user-specific product offerings in dynamic electronic catalogs, and then processes the resulting transactions (’255 Patent, Abstract; Compl. ¶15).
• Asserted Claims: The complaint asserts infringement of independent claim 1, among others (Compl. ¶49).
• Accused Features: The complaint accuses the Etsy.com marketplace of infringing the ’255 Patent (Compl. ¶49).

U.S. Patent No. 8,712,846 - Sending Targeted Product Offerings Based on Personal Information, Issued Apr. 29, 2014

• Technology Synopsis: The ’846 Patent focuses on the targeted marketing aspect of the e-commerce system. It claims a method that involves receiving product data from distributors and customer data (including location information derived from an IP address), generating a user-specific product offering based on that data, and sending an automated message containing the offering to the customer (’846 Patent, Abstract; Claim 1).
• Asserted Claims: The complaint asserts infringement of independent claim 1, among others (Compl. ¶59).
• Accused Features: The complaint accuses the Etsy.com marketplace of infringing the ’846 Patent (Compl. ¶59).

U.S. Patent No. 8,396,743 - Sending Targeted Product Offerings Based on Personal Information, Issued Mar. 12, 2013

• Technology Synopsis: Similar to the ’846 Patent, the ’743 Patent is directed to methods for offering targeted products. The system receives product and customer data, uses that information to generate at least one user-specific product offering, and then sends automated messages containing that offering to customers over a communications network (’743 Patent, Abstract; Compl. ¶15).
• Asserted Claims: The complaint asserts infringement of independent claim 1, among others (Compl. ¶69).
• Accused Features: The complaint accuses the Etsy.com marketplace of infringing the ’743 Patent (Compl. ¶69).

III. The Accused Instrumentality

Product Identification

• The complaint identifies the "Etsy.com marketplace" as the Accused Instrumentality (Compl. ¶29).

Functionality and Market Context

• The complaint alleges that the Etsy.com marketplace operates as a "virtual store front" that functions as a "warehouse for inventory from a plurality of distributors" (Compl. ¶17). According to the allegations, the platform obtains product data from numerous sellers, generates electronic catalogs with user-specific offerings based on customer information, processes transactions, and authorizes sellers to ship products directly to customers (Compl. ¶15, ¶22). The complaint asserts that the automation and user-specific customization provided by such a platform are crucial for distinguishing businesses in the modern, crowded online marketplace (Compl. ¶19). No probative visual evidence provided in complaint.

IV. Analysis of Infringement Allegations

The complaint references, but does not include, preliminary claim chart exhibits. The following summary tables are based on the narrative infringement theories and technical descriptions provided in the body of the complaint.

8,374,956 Infringement Allegations

8,533,047 Infringement Allegations

Identified Points of Contention

• Scope Questions: A central question may be whether the term "distributors" (or "vendors"), as used in the patents, can be construed to cover the diverse population of sellers on the Etsy marketplace, which includes individual artisans and small businesses rather than just traditional commercial distributors.
• Technical Questions: The infringement analysis may focus on whether Etsy’s search, recommendation, and product display features constitute a "catalog builder" that "dynamically plac[es] user-specific product offerings in electronic catalogs," as required by the claims, or if these are merely conventional search and filtering functions. The complaint does not provide specific evidence detailing the inner workings of Etsy's algorithms.

V. Key Claim Terms for Construction

The Term: "distributor" / "vendor"

• Context and Importance: These terms are foundational to the infringement theory. The patents describe a system that acts as a "virtual store front" for a "plurality of distributors" (’956 Patent, col. 3:39-45). The viability of the infringement case may depend on whether Etsy's numerous, often individual, sellers meet the patents' definition of a "distributor" or "vendor".
• Intrinsic Evidence for Interpretation:
  • Evidence for a Broader Interpretation: The patents do not provide an explicit, limiting definition. The claims refer to a "plurality of distributors" and a "plurality of vendors," and the specification refers to "independent pick, pack, and ship distributors" (’956 Patent, col. 12:22-23), language that a plaintiff might argue supports a broad, functional definition covering any third party that provides and ships products.
  • Evidence for a Narrower Interpretation: The "Summary of the Invention" section's repeated framing of the invention as an "'other people's warehouse' approach" could suggest that the term implies more formal, commercial entities that would traditionally operate a warehouse, potentially excluding individual craftspeople (’956 Patent, col. 3:43-45).

The Term: "catalog builder"

• Context and Importance: This term describes the core functionality of generating customized product displays. Practitioners may focus on this term because the infringement question turns on whether Etsy’s system for presenting products to users is equivalent to the claimed "catalog builder".
• Intrinsic Evidence for Interpretation:
  • Evidence for a Broader Interpretation: A plaintiff may argue the term should be given its plain meaning, encompassing any software component that assembles and displays product information from a database into a "catalog" format for a user.
  • Evidence for a Narrower Interpretation: The specification describes the "Catalog Builder/Price Modeler" as a specific component that "generates multiple catalogs from the same system" and can display different "criteria-specific templates" for different users (e.g., student vs. business) (’956 Patent, col. 6:11-20). A defendant could argue this points to a more structured, template-based system than the dynamic, algorithm-driven feeds common on modern e-commerce sites.

VI. Other Allegations

Indirect Infringement

• The complaint alleges that Etsy induces infringement by providing the Etsy.com marketplace and related services to its partners and customers, which allegedly causes them to directly infringe the patents-in-suit. The complaint alleges knowledge and specific intent "since at least the time of receiving this Complaint" (e.g., Compl. ¶32-33, ¶42-43). The complaint also pleads contributory infringement, alleging the Accused Instrumentalities are material components especially made for use in an infringing manner and not a staple article of commerce (e.g., Compl. ¶34, ¶44).

Willful Infringement

• Willfulness is alleged for all five patents. The basis for this allegation is that "Etsy was made aware of the... patent and its infringement thereof at least as early as the filing of this Complaint" (e.g., Compl. ¶31, ¶41). There are no allegations of pre-suit knowledge.

VII. Analyst’s Conclusion: Key Questions for the Case

• A core issue will be one of definitional scope: can the terms "distributor" and "vendor," which are described in the patents' "virtual warehouse" context from the late 1990s, be construed to read on the modern e-commerce ecosystem of diverse, independent, and often individual sellers that populate the Etsy marketplace?
• A key evidentiary question will be one of technical implementation: does the accused Etsy.com platform, with its dynamic search results and recommendation algorithms, contain a "catalog builder" that performs the specific functions required by the asserted claims, or is there a fundamental mismatch between the claimed technology and the actual operation of the accused system? The high-level nature of the complaint leaves this as a central question for discovery.
• The litigation may also raise questions of patent eligibility under 35 U.S.C. § 101, given that the patents relate to methods of conducting business over the internet. The complaint preemptively argues that the claims are "deeply rooted in computerized transaction processing" and solve technical problems, rather than merely reciting an abstract idea (Compl. ¶21, ¶25).