FRAMINGHAM (07/03/2000) - Does anybody own the Web and e-commerce? A growing number of companies and individuals say they do, claiming patent rights to such things as hyperlinks, online auction procedures and even Web-based access to databases.
Amazon.com Inc., British Telecommunications PLC, Priceline.com Inc., Open Market Inc., DoubleClick Inc. - and now an obscure Lawrence Berkeley Labs computer scientist by the name of Allan Konrad - are among those sending shock waves through the online business community as they assert ownership over core e-commerce methods.
They're armed with what are called e-commerce method patents granted by the U.S. Patent and Trademark Office or foreign patent offices. And as patent holders staking claim to technology or business processes, many of them have launched patent-infringement lawsuits against competitors, ISPs or large corporations with deep pockets that do Web-based e-commerce.
"Whatever comes out of the Patent Office can impact you," says Bradley Wright, patent attorney at Washington, D.C., firm Banner & Witcoff, whose clients include AT&T Corp., Nike Inc. and Microsoft Corp. "Some of the patents are very broad, some are narrow."
Patents have become weapons used to scare online retailers into forking over licensing fees - typically US$30,000 or so - to keep their cases out of court.
"Cases seldom go to court," Wright says.
Sometimes the intent is to cut off air to a competitor, as Amazon.com did in its suit against Barnes & Noble's online store. Winning the first round in court last year in a case now under appeal, Amazon.com forced barnesandnoble.com to stop letting customers shop in a one-step online process.
That's because Amazon.com holds a patent on "one-click ordering" and convinced a court to see things its way.
Priceline.com, the site where consumers shop through a reverse-auction process that reduces prices, has a patent for that process. Priceline.com has sued Microsoft's online travel service Expedia to block its use of reverse auctions.
This important case, yet to be settled, will decide whether Priceline.com owns the online reverse-auction process - a legal determination that will broadly impact Web commerce in business-to-business and business-to-consumer markets.
British Telecom last month claimed to hold a patent on hyperlinks, granted back in 1989, and claims to be going after ISPs, not individual users, to make them license such links.
But individual companies doing business on the Web are targets for patent-infringement suits as well. These companies typically face the choice of forking over a chunk of change - typically a $30,000 to $40,000 licensing fee, say patent lawyers - to rid themselves of the lawsuit or spending perhaps hundreds of thousands of dollars fighting it out in court.
One extraordinary case involves a patent-infringement lawsuit brought earlier this year by Allan Konrad, a computer scientist working at Lawrence Berkeley Labs, who is suing three dozen corporations, including General Motors Corp., Ford Motor Co., Boeing Co., DaimlerChrysler AG, United AirLines Inc., Kodak and Hilton.
The reason? Konrad holds three patents granted between 1996 and 1999 that together constitute a "Remote Information Service Access System Based on a Client-Server Service Model." In simple terms, this means making use of a Web site that provides interactive database operations, according to Konrad's lawsuit.
Konrad, who appears to be holding the patent to Web-based delivery of information, is going after corporations serving Web information from back-end databases. Konrad and his attorney at Dallas firm Zell, Hofmann, Voelbel and Gette, declined to reveal details about the lawsuits.
As to why a Californian like Konrad has instigated his lawsuits in Texas, the answer is simple, according to patent attorneys. Texas courts have been congenial to plaintiffs in these types of cases, says Jerry Riedinger, attorney at Seattle firm Perkins Coie, a powerhouse in patent law. Riedinger's firm represents Amazon.com in its case against barnesandnoble.com.
The U.S. Patent & Trademark Office (PTO) last year received 289,000 applications for patents, with 2,600 of them for computer-related business method patents. The PTO approved 160,000 patents in all, with 583 of them being computer-related business method patents.
It costs about $8,000 to apply for a patent, and each patent examiner is encouraged to help the applicant through the process, which typically takes two to three years.
The federal government had made the PTO self-sustaining, meaning it has to earn its revenue. In what amounts to a quota system, patent examiners win points for shepherding patents through.
Although public amazement and outrage predictably erupt every time a new e-commerce business process patent is issued, experts say the system leaves business people with no choice but to rush to the PTO with their latest brainstorm. If they don't, someone else might get there first and get the software-related patent.
The PTO's guidelines for patent review say a technology or business method can't be "obvious" and must be "new." Moreover, there cannot be evidence of "prior art," meaning technology or method wasn't in use prior to the patent claim.
The examiners search for prior art. They pore over previous patents and public information such as press stories for evidence that someone else got there first.
If the patent application appears unhindered by prior art, the examiner may issue the patent, giving the patent holder the legal rights to important technologies. At times, though, the PTO will re-open a patent examination, especially when there's a public outcry.
Brigid Quinn, spokeswoman for the PTO, based outside Washington, D.C., in Arlington County, recalls a few years back how a patent for fixing the Y2K problem triggered a lot of public commotion. The PTO withdrew the patent on the second review.
The PTO keeps patent applications secret until they're awarded. Not knowing what basic Web technologies or innovations may be covered under a new patent creates risks for those building million-dollar Web sites.
"We would never violate a patent, and if we were aware of a patent and were developing technology we thought was similar, we would avoid it," says Rich Secor, chief information officer at SmarterKids.com, an online site for educational toys and learning materials.
Secor adds that SmarterKids.com has applied for a patent to cover how an e-commerce site can do "product recommendation."
Although technology patents inflame many, patent attorneys argue that start-ups get the funding to develop their technology in part because they've convinced venture capitalists that the start-up has patent-worthy technology that will give the fledgling operation leverage in the future.
"The patent system has been extremely successful in providing venture capital to the high-tech community," says Perkins, Coie patent attorney Riedinger.
But critics charge that the PTO examiners don't know what's happening in Internet technology or e-commerce, much of which isn't documented in ways likely to be found during a search for prior art.
"They have no idea what's going on in industry," asserts Greg Aharonian, a technical consultant running the subscription-based Internet Patent News Service.
"I bust patents for a living," says Aharonian, who helps lawyers find evidence of prior art. He doesn't believe the Priceline.com patent on online reverse auctions will hold up in court, which is an opinion shared by a number of others following that case.
But about 60% of patents do withstand the appeals process, Riedinger says.
"In fact, I'm not aware of any significant e-commerce patent that has been overturned," he says.
Another important legal battle under way involves GeoWorks, which claims to have patented the Wireless Application Protocol (WAP), according to patent attorney Wright at Banner & Witcoff.
"[GeoWorks] has been telling everyone 'You better sign up for this WAP patent,' but Phone.com recently sued them in California to declare the patent invalid," Wright says, adding, "If you look at the patent, no where does it lock up WAP."
This case is pending.
In addition to its controversial "one-click buying" patent, Amazon.com is stirring up the e-commerce community with a patent on online affiliate programs for Internet-based customer referral.
Spokeswoman Patti Smith said Amazon.com, which has about a dozen technology patents, has not tried to force other online merchants or service providers to license its affiliate program patent. Amazon.com is taking a low-key approach after weathering a public storm over the one-click patent and the barnesand noble.com battle. In fact, Amazon.com CEO Jeff Bezos felt compelled to try to mollify the masses with a letter posted on the Web.
"I now believe it's possible that the current rules governing business-method and software patents could end up harming us all," Bezos writes. However, he still insists that "despite the call from many thoughtful folks for us to give up our patents unilaterally, I don't believe it would be right for us to do so."
Why not? For one reason, Bezos notes, patents, unlike trademarks, can be enforced on a case-by-case basis without the risk of losing rights to them.
Bezos suggests that business-method and software patents should not have 17-year protection of rights, as they do now, but perhaps only three to five years. Bezos says he wants to meet with members of Congress on the subject of crafting a new patent system.
There is no shortage of voices calling for change.
While not opposed to software patents in general, Duke Law School professor James Boyle says much of their impact is "socially bad" and "economically hurtful."
Patents are essentially tremendous prizes handed out by the PTO, Boyle argues, but these days there are too many prizes being handed out on questionable claims.
"The Priceline.com [online reverse auctions] patent is silly and blindingly obvious," he complains. "It is an example of a system gone wild."
Wild or not, e-commerce method and software patents are rolling out from the PTO like a spring flood, with companies seeing little choice but to swim for their lives.
Open Market, for instance, has a total of eight e-commerce patents, and more in the pipeline. The best-known is its so-called shopping-cart patent (U.S. patent #5,715,314), which covers a network-based sales system connecting a buyer computer, the merchant computer and a payment computer programmed to receive payment messages.
For more than a year, Open Market has been seeking to license this patent.
Rumors abound among patent lawyers that Open Market has gotten credit card companies Visa International and MasterCard International to license the shopping-cart patent.
"I wouldn't deny it, but it's not announced yet," says Winn Treese, Open Market's vice president of technology. "We didn't want to drag everyone into court right away, but the claims we have on the shopping carts are fairly broad."
Treese defends the PTO, saying examiners are "careful" about prior art and the general process. But there's no question, he adds, that many patent holders are making aggressive claims on software vendors and businesses engaged in e-commerce.
Although it's rumored that the U.S Patent Office has quietly put a lid on business-method patents (known as Section 705 software- and computer-implemented business methods) because of the public outcry over them, the PTO says that's not the case.
"There is no moratorium on business-method patents," says the PTO's Quinn.
Whether that's good news or bad, of course, depends on whether you are a patent seeker . . . or worried about being becoming beholden to one.
Network World research assistant Deidra Massenberg contributed to this story.