CrakMedia, ClickBooth Win Legal Fight Over Affiliate Program Patent

LOS ANGELES — In a ruling of particular interest to companies offering affiliate programs, a federal judge on Wednesday sided with defendants and, which were both hit with a patent infringement suit over systems used for configuring an existing affiliate network to receive “virtual affiliates” from an affiliate pooling network.

The patent suit, waged by San Francisco-based Essociate, alleged that adult entertainment company CrakMedia and ClickBooth, a mainstream affiliate marketing company, violated U.S. Patent No. 6,804,660.

But on Tuesday, U.S. District Court Judge James Selna handed the defendant companies — as well as other affiliate programs that might find themselves defending against the patent — a huge victory.

Selna granted the defendants motion for judgment on the pleadings, ruling that Essociate’s claims asserted against them were “patent ineligible” and therefore invalid.

Essociate, led by co-founders Evan Horowitz and Michael Landau, sued the companies in December over how a merchant can gain access to customers from a referring entity without having to compete with other merchants for those same customers. 

The suit was another in a number of patent infringement claims filed by Essociate against numerous affiliate networks dating back to 2009.

U.S. Patent No. 6,804,660’s process allows a merchant to avoid or reduce competition while also allowing it to track which and how many customers the referring entity directs to the merchant.

However, Selna, noting that “mathematical algorithms, including those executed on a generic computer, are abstract ideas,” rejected Essociate’s contentions that its patent was valid.

Implementing an abstract idea on a generic computer is not patentable.

Selna, in his decision, agreed with CrakMedia and ClickBooth’s contention that the steps in the underlying patent simply embody the fundamental economic practice of receiving and tracking referrals from referral sources, and providing incentives to those referral sources — both concepts that involve the “mere formation and manipulation of economic relations.”

Selna further ruled that Essociate’s patent does nothing more than seek to limit the use of the abstract idea of receiving and tracking referrals from referral sources to the technological environment of an existing affiliate system. 

“The fact that the two affiliate systems that existed prior to the ‘660 patent—the standalone system and the affiliate hub system — also received and tracked referrals further demonstrates how this concept is a fundamental economic practice,” Selna wrote in the ruling.

Late Wednesday, Essociate counsel Derek A. Newman filed an appeal to the U.S. District Court of Appeals for the Federal Circuit in Washington over Selna’s order on the motion for judgment on the pleadings as to patent ineligibility.

Crakmedia’s CEOs and co-founders, Nicolas Chretien and Xavier Farooghi, in a release this afternoon, said: “Crakmedia respects and believes in intellectual property rights. But we were determined not to give in to a frivolous lawsuit. We did not infringe Essociate’s patent and we never believed Essociate should have been allowed to patent the concept of affiliate pooling.”

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