CATALINA'S LATEST PATENT EVOKES SURPRISE AND CONCERN

MICHAEL GARRY

ST. PETERSBURG, Fla. -- A patent secured by Catalina Marketing Corp. that focuses on targeted marketing based on customer purchase history is raising questions and concerns about how the patent could have been obtained and whether it will impact the marketing activities of other companies, including retailers.

Catalina, known for its checkout coupon printers located in more than 16,000 supermarkets, originally filed an application with the U.S. Patent and Trademark Office in March 1997. The company announced last month that it had been issued the patent, called "Method and System for Selective Incentive Point-of-Sale Marketing in Response to Customer Shopping Histories." The full text of the patent, which has U.S. patent No. 6,424,949, can be accessed at the Patent Office Web site, www.uspto.gov.

According to the text of the patent on the Patent Office Web site, Catalina's "invention" involves identifying customers at the POS via their "unique ID" and using a database "to perform targeted marketing functions based upon the customer's prior shopping history." It adds that coupons could be offered at the POS or mailed to customers. This is nothing new for Catalina; the company has offered a loyalty card program and database marketing for a number of years. The patent also addresses developing a database for check, credit and debit verification that can be leveraged for targeted marketing.

Rick Mansfield, chief marketing manager for Catalina, said that Catalina "has no formal strategy" regarding its patent and does not intend to be "litigious." "We prefer that people are aware of it so they can do diligence on whether they are contemplating doing things in violation of the patent," he said. "If they are [in violation], we want to work with them on a mutually agreeable solution. We would hope they would come to us and work through the options." As they have received information about the patent, retailers and other observers have expressed surprise and concern about its meaning and potential impact.

"It's ludicrous that they could get a patent for that," said Pat Iasillo, director of consumer relationship marketing, Remke Markets, Covington, Ky. "Lots of people have been making electronic offers via different vehicles based on historical information for a long time." Iasillo uses a data mining tool, Allegiance, from Triversity, Toronto, to mail targeted offers to shoppers based on their shopping history.

"It's hard to believe a retailer or a third party can't direct-market to their customers because of this patent," said Iasillo. "That's insane."

"People have been building databases for years," noted Gary Hawkins, vice president of independent supermarket Green Hill Farms, Syracuse, N.Y., and president of a loyalty consulting firm, Hawkins Strategic, Skaneatales, N.Y. "Citicorp started doing it in the mid- to late 1980s."

According to the text of the patent, the original inventors of the process were David W. Deaton and Rodney G. Gabriel, both of Abilene, Texas. Catalina earlier purchased 20 prior patents, called the Deaton patent portfolio, from Deaton, making the latest patent the 21st. The company has 49 total U.S. patents in its portfolio.

Catalina's Mansfield explained that the latest patent is not unique, but a "continuation" of Deaton's original patents, dating back to 1992. The new patent "adds clarity to and revises parts of the previous patents," he said. In that sense, the new patent does nothing to "change the industry," but does "bring up the consciousness level of people, so if they think they're in violation they can get an attorney to take a look at it." He declined to "get into specifics or interpret what [the patent] says."

Consultant Thomas Hintz, managing partner of SeaHold, Perris, Calif., who has done patent application and strategy work for several retailers and electronic marketing companies, including Catalina, said that in light of Catalina's new patent, retailers or third-party companies that don't have a patent on a similar, targeted marketing process should consider getting one, or at least a license of an earlier patent. "Catalina's patent may or may not stand up in court, but who wants to spend millions on litigation?" he said.

If Catalina sued a third-party electronic marketing company, Hintz noted, it would not be unusual for the company's retail customers to be enjoined at some point from using the company's system, provided Catalina prevailed.

Consultant Barry Kotek, managing partner of Retail Systems Consulting, Naples, Fla., writing in the September issue of the firm's In-Store newsletter, assessed the potential impact of the patent.

"Catalina, in my opinion, won't be suing any retailers for sending targeted offers," Kotek said. "And they might think twice about taking on [third-party companies] or, for that matter, anyone else that is currently in the same space. If Catalina were to take them on and lose, it could potentially hurt the value of their company.

"However," he added, "the real shame here is that this patent could hurt some of the new innovative ideas that are looking for venture capital funding. No VCs are going to be willing to put money in a company that could potentially be sued by a giant in the industry."