Jury to decide LendingTree patent case

03/09/2014 12:00 AM

03/08/2014 10:21 PM

A federal jury could begin deciding Monday whether competitors infringed on technology patented by Charlotte’s LendingTree, in a case that highlights the growth of patent litigation in a high-tech era.

The trial started last month in Charlotte, more than three years after LendingTree filed its lawsuit. The case pits the online lending marketplace against three competitors, including Internet giant Zillow, a real estate database.

LendingTree says the companies infringed on patents it filed beginning in the late 1990s to protect its methods for matching borrowers with lenders.

The stakes are high for LendingTree, which allows customers to comparison shop for various types of loans, such as mortgage and auto, on its website, Lendingtree.com. The company patented its technology at a time when a website that allowed borrowers to peruse offers from multiple lenders was still a novel idea.

A verdict against LendingTree could be a boon for its burgeoning competition, some industry analysts say.

“I don’t think it will cost them market share directly,” said analyst Hamed Khorsand, who is familiar with the litigation. “What it will do is create the risk that you’ll see more competitors enter the space freely. I think those patents have prevented that from happening.”

A ruling in LendingTree’s favor could provide another source of revenue, analysts say.

“It will be a big milestone for them,” said analyst Shawn Rassouli. “Not only can they get licensing fees from these competitors they sued, (but) it sets a precedent where they can use this judgment and pursue other competitors for patent infringement.”

LendingTree, part of Ballantyne-based parent company Tree.com, wants to be awarded compensation for damages, including profits it says it lost as a result of the alleged infringement.

Zillow and the other defendants, Adchemy and NexTag, say they have not infringed. In counterclaims, the companies argue the patents fail to meet the conditions for a patent. The companies are seeking judgment that the patents are invalid.

In a statement to the Observer, LendingTree said its patents “have stood the test of time, and we’ve used them for many years.”

The jury is expected to start deliberations Monday, after closing arguments.

In a twist, LendingTree and Tree.com are accused of patent infringement in two separate federal civil cases. LendingTree did not provide comment on those cases.

In one, Montana-based The Money Suite Co. says LendingTree infringed on a patent covering the use of computers to receive multiple quotes for financial products, such as mortgages. Money Suite has sued other companies, including MetLife, alleging infringement of the same patent.

LendingTree’s argument

Lenders pay LendingTree to generate leads for them. Borrowers submit information, such as the size and type of loan they are seeking, to LendingTree. The information is then sent to lenders, who make offers to borrowers, who pick the best deal.

In its lawsuit, LendingTree says its website launched in an era when comparison shopping for a loan “was a daunting task.” Before LendingTree, borrowers would have to fill out separate applications with multiple lenders if they wanted to compare offers, according to the lawsuit. “When it launched, the LendingTree invention changed the home mortgage industry forever,” the suit states.

LendingTree founder Doug Lebda and former Chief Technology Officer Richard Stiegler filed for patents beginning in 1998, during the days of the dot-com boom. Two patents for “Method and Computer Network for Co-Ordinating a Loan over the Internet” were awarded in 2002 and 2003.

Lebda sold LendingTree to IAC/InterActiveCorp in 2003. He returned as head of the company in 2008 after it was spun off as Tree.com. The company, which had as many as 900 employees in 2010, is down to roughly 200 after selling its mortgage origination operation in 2012.

Patent strategies

The LendingTree case comes at a time when patent litigation continues to pile up, said Thad Adams, a Charlotte-based patent attorney who is not involved in the LendingTree lawsuit.

Over the years, many applications have been filed for business methods and technologies involving the Internet. Holders of those patents have sued others who they claim have infringed on those patents.

According to LendingTree’s lawsuit, the patents cover the computer hardware and software “used in facilitating business between computer users and multiple lenders on the Internet.” The patents list both Lebda and Stiegler as the inventors.

LendingTree filed its lawsuit in 2010. Since then, it has reached settlements with two other companies, Quinstreet and LeadPoint. The terms of those settlements have not been disclosed.

In a statement, LendingTree said the success of the company “does not depend on the outcome of this litigation.”

Tree.com has been adding products to its lineup as part of a diversification plan. Last year, the company began allowing consumers to shop for reverse mortgages on Lendingtree.com. Also last year, it launched a credit card comparison tool.

Last year, during Tree.com’s third-quarter earnings call with analysts, executives pointed out that new products have helped the company grow revenue. In the quarter, revenue totaled $37.3 million, up 60 percent from a year ago. Executives also pointed out that company’s revenue from nonmortgage products grew 22 percent from the second quarter.

Khorsand, the analyst, said it’s unclear how much market share LendingTree could lose if the jury verdict goes against it. The company’s brand should help it weather more competition, he said.

If its patents are made invalid, LendingTree’s technology would enter the public domain, said Deborah Gerhardt, an assistant professor at UNC School of Law in Chapel Hill.

At that point, she said, “anyone can use the invention that’s described in the patent.” Researcher Maria David contributed.

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