Consolidated Transaction Processing LLC v. Sally Beauty Supply LLC

I. Executive Summary and Procedural Information

• Parties & Counsel:
  • Plaintiff: Consolidated Transaction Processing LLC (Nevada)
  • Defendant: Sally Beauty Supply LLC (Delaware)
  • Plaintiff’s Counsel: Shea | Beaty
• Case Identification: 4:24-cv-00451, E.D. Tex., 05/17/2024
• Venue Allegations: Venue is alleged to be proper as Defendant Sally Beauty maintains an established place of business in the Eastern District of Texas, including a retail store in Sherman, Texas.
• Core Dispute: Plaintiff alleges that Defendant’s e-commerce website and associated back-end systems infringe two patents related to methods for generating targeted product offerings using aggregated product and customer data.
• Technical Context: The technology relates to early e-commerce systems designed to move beyond static online catalogs by dynamically personalizing product offers based on data from multiple distributors and user-specific information.
• Key Procedural History: The two patents-in-suit share a common inventor and specification, originating from a patent application filed in 1999. The later-issued '846 Patent is subject to a terminal disclaimer over the '743 Patent. The complaint preemptively argues that the claimed inventions are patent-eligible and not abstract ideas, suggesting an anticipation of a defense under 35 U.S.C. § 101.

Case Timeline

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

U.S. Patent No. 8,712,846 - “Sending Targeted Product Offerings Based on Personal Information”

• Patent Identification: U.S. Patent No. 8,712,846, “Sending Targeted Product Offerings Based on Personal Information,” issued April 29, 2014.

The Invention Explained

• Problem Addressed: The patent describes the state of commerce in the late 1990s, noting that traditional retail was limited by physical inventory and geography, while early e-commerce businesses still operated on this model, using the internet as a simple replacement for paper catalogs and maintaining costly warehouses ('846 Patent, col. 2:63-3:14). These early systems lacked interactivity and personalization (Compl. ¶13).
• The Patented Solution: The invention proposes a centralized transaction processing system that aggregates data from two distinct sources: product data from a "plurality of distributors" and customer data from a "plurality of customers" ('846 Patent, Abstract). The system, depicted in Figure 1, uses this combined information to generate and send "user-specific product offerings" via automated messages, thereby creating a dynamic and personalized shopping experience that is not tied to a single inventory or a static catalog ('846 Patent, col. 3:44-52).
• Technical Importance: The complaint alleges that this approach represented a significant improvement by enabling the dynamic generation of customized electronic catalogs and pricing from a single, centralized system (Compl. ¶16-17).

Key Claims at a Glance

• The complaint asserts independent claim 1 and dependent claims 3 and 4 (Compl. ¶32).
• Independent Claim 1 of the '846 Patent recites:
  • A computer-implemented method for targeted product offering, comprising:
  • receiving product data for a plurality of products from a plurality of distributors for the products via a communications network;
  • receiving customer data from a plurality of customers, the customer data comprising location information associated with customers, the location information derived from an IP address associated with one or more of the customers;
  • generating, at least in part from the customer data, user-specific product offerings from the plurality of products; and
  • sending, by a computer, automated messages comprising the user-specific product offerings to the one or more of the customers.

U.S. Patent No. 8,396,743 - “Sending Targeted Product Offerings Based on Personal Information”

• Patent Identification: U.S. Patent No. 8,396,743, “Sending Targeted Product Offerings Based on Personal Information,” issued March 12, 2013.

The Invention Explained

• Problem Addressed: The '743 Patent addresses the same technical problems as the '846 Patent: the high costs, inflexibility, and lack of personalization inherent in both traditional retail and early e-commerce models that mimicked mail-order catalogs ('743 Patent, col. 1:26-2:2; col. 3:8-22).
• The Patented Solution: The solution described is an "Internet business transaction processor" that integrates product data from multiple distributors with personal customer information to create targeted offers ('743 Patent, Abstract). The system is designed to provide an electronic catalog that is "always up to date" and can be dynamically varied for different users without regenerating the entire catalog, overcoming the limitations of static prior art systems ('743 Patent, col. 4:58-66).
• Technical Importance: The invention is presented as an improvement to the "computerized backbone" of e-commerce, allowing a merchant to combine product and customer data to create a more personalized shopping experience than was previously possible (Compl. ¶20).

Key Claims at a Glance

• The complaint asserts independent claim 1 and dependent claim 4 (Compl. ¶37).
• Independent Claim 1 of the '743 Patent recites:
  • A computer-implemented method for targeted product offering, comprising:
  • receiving product data for a plurality of products from a plurality of distributors for the products via a communications network;
  • receiving customer data from a plurality of customers, the customer data comprising location information associated with customers, the customer location information derived from an IP address associated with the customer;
  • generating, at least in part from the personal information concerning a customer location, at least one user-specific product offering from the plurality of products; and
  • sending, by a computer, automated messages comprising the at least one user-specific product offering to the one or more customers.

III. The Accused Instrumentality

Product Identification

• The "Accused Instrumentalities" are identified as the Sally Beauty website (www.sallybeauty.com), along with its associated back-end servers, hardware, and software systems (Compl. ¶9).

Functionality and Market Context

• The complaint alleges these instrumentalities constitute an e-commerce platform through which Sally Beauty makes, uses, sells, and offers products for sale to customers in Texas and throughout the United States (Compl. ¶5, 9). The complaint asserts that in the modern e-commerce environment, providing "automation and user-specific customization" is crucial for businesses to distinguish themselves, implying the accused functionalities are commercially significant (Compl. ¶22). Further details on the specific operation of the accused systems are not provided in the complaint itself.

IV. Analysis of Infringement Allegations

The complaint alleges that Sally Beauty's use of the Accused Instrumentalities directly infringes the asserted claims of the '846 and '743 patents but references "preliminary and exemplary claim charts" in Exhibits 3 and 4 that were not included with the filed complaint (Compl. ¶32, 37). In the absence of these exhibits, the infringement theory must be inferred from the general allegations.

The narrative theory suggests that the Accused Instrumentalities perform the methods claimed in the patents-in-suit. This includes allegedly receiving product data from various suppliers, receiving customer data including IP-address-derived location information from website visitors, using that data to generate personalized product offerings (such as geographically-targeted promotions or product displays), and sending automated messages containing these offers to customers.

No probative visual evidence provided in complaint.

Identified Points of Contention

Based on the complaint and the patent language, the infringement analysis may raise several technical and legal questions for the court:

• Scope Questions:
  • The patents claim a method of "receiving product data... from a plurality of distributors." A central question may be whether a single retailer like Sally Beauty, which sources products from various third-party suppliers for its own inventory, meets the "plurality of distributors" limitation as contemplated by the patent's specification, which also describes a system for selecting among different distributors to fill an order ('846 Patent, Fig. 5).
  • Does the display of standard e-commerce features, such as showing a user their nearest store location or prices in local currency based on IP geolocation, constitute the "generat[ion]" of a "user-specific product offering" as required by the claims?
• Technical Questions:
  • The complaint does not provide factual evidence detailing how Sally Beauty's back-end systems operate. A key question will be whether discovery shows that the accused system uses "location information derived from an IP address" as a direct input to "generat[e]" a product offering, or if location data is used for other purposes, such as analytics or fraud prevention.

V. Key Claim Terms for Construction

For U.S. Patent No. 8,712,846 and 8,396,743

• The Term: "receiving product data... from a plurality of distributors"

• Context and Importance: This term appears in the first step of both asserted independent claims and is fundamental to the patents' architecture. The viability of the infringement case may depend on whether Sally Beauty's supplier relationships and data systems fall within the scope of this term. Practitioners may focus on this term because its construction could determine whether the patents apply to integrated retailers or are limited to marketplace/aggregator platforms.

• Intrinsic Evidence for Interpretation:

  • Evidence for a Broader Interpretation: The specification suggests the term can be broad, referring to "multiple distributors" and noting that for some "small distributors or individual vendors," the system may provide a "secure web site to update their product information" ('846 Patent, col. 10:55-60). This could support an argument that any third-party entity providing product data into the system qualifies as a "distributor."
  • Evidence for a Narrower Interpretation: The specification and Figure 5 describe a "Distributor Selection sub-system" with logic to "determine which distributor will fill the order" from multiple options based on criteria like profit margin or shipping speed ('846 Patent, col. 9:8-25; Fig. 5). This may support a narrower construction requiring a system that presents and selects from distinct, competing fulfillment entities, rather than a single retailer that sources products from various suppliers into its own unified catalog.

• The Term: "user-specific product offering"

• Context and Importance: This term defines the output of the claimed method. Its construction will determine the level of personalization required to infringe.

• Intrinsic Evidence for Interpretation:

  • Evidence for a Broader Interpretation: The claims state the offering can include a "coupon, an electronic coupon, a promotional offer, an exclusive sale, an incentive, a rebate, and competitive pricing" ('846 Patent, cl. 2). Plaintiff may argue that any such item directed to a specific user or user group (e.g., based on location) meets the definition.
  • Evidence for a Narrower Interpretation: The specification provides more complex examples, such as generating "customized portfolios based on purchase patterns" or displaying a "catalog of mixed products appropriate for students with academic pricing" that differs from one for a "business person" ('846 Patent, col. 5:15-20; col. 6:7-14). This could support a narrower construction requiring a degree of personalization beyond simple geographic filtering.

VI. Other Allegations

• Willful Infringement: The complaint does not contain an explicit allegation of willful infringement. However, the prayer for relief requests a "declaration that this case is exceptional under 35 U.S.C. § 285, and an award of CTP's reasonable attorneys' fees" (Compl., Prayer for Relief ¶C).

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

1. A central issue will be one of definitional scope: Can the claim term "plurality of distributors," which the patent specification links to a system for selecting among competing fulfillment sources, be construed to read on the operations of a single, integrated retailer that sources its products from various third-party suppliers?
2. A primary evidentiary question will be one of technical implementation: As the complaint lacks specific factual allegations about the accused system's operation, the case will likely depend on whether discovery produces evidence that Sally Beauty's platform actually "generates" a "user-specific product offering" that is causally and directly based on "location information derived from an IP address," as required by the claims.
3. A threshold legal question will be one of patent eligibility: The complaint’s defensive arguments regarding 35 U.S.C. § 101 foreshadow a likely challenge. The court will have to determine whether the claims are directed to the abstract idea of targeted marketing and, if so, whether the recitation of specific computer components and processes (like receiving data from multiple distributors and using IP-derived location) provides an "inventive concept" sufficient to render the claims patent-eligible.