News & Politics

A Patent War Afoot? Kingpins of E-Commerce Ready for Battle

When America's original patent law was written in 1790, the idea was to give inventors financial incentives and protection. But today the patent laws are being manipulated by e-commerce giants like Amazon.com, who are claiming exclusive rights to unoriginal online business techniques. The resulting lawsuits could chok off innovation and creating a "cold war" in the industry. Meanwhile, the Patent and Trade Office is getting rich.
Why share when you can own is a maxim as fundamental to American thought as the freedom to rebel against your parents. Perhaps that's the reason the Internet was doomed to become a predominantly commercial space once American corporations got their hands on it. Sure you can still access a treasure trove of analysis on James Joyce's "Ulysses" or find a multitude of cures for hiccups online, but lately the real excitement surrounding the Internet stems from the desire to stake some electronic turf and make a profit.Americans are obsessive entrepreneurs, invention freaks, always looking for the next new thing to capitalize on. In many ways, the law has abetted this tendency. When Thomas Jefferson, Henry Knox and Edmund Jennings Randolph signed the original patent law in 1790, their idea was to give inventors a means of protection and a financial incentive. The Patent and Trade Office (PTO) has been busy ever since. But whereas it took 46 years to produce a total of 10,000 American patents, now the patent office issues that many patents every three weeks. This means big business for the PTO. According to Kevin G. Rivette and David Kline, the authors of "Rembrants in the Attic: Unlocking the Hidden Value of Patents," patent licensing revenues have shot up 700 percent in the past eight years alone, from $15 billion in 1990 to well over $100 billion in 1998. Revenues, they say, could reach a half-trillion dollars annually by the middle of the decade.What's surprising, or perhaps not surprising at all considering the money-making potential of the Internet, is that a good bulk of today's patents are for e-commerce ideas. In the last few months, online companies have gotten patents for everything from rewarding customers for looking at ads and securing credit card payments, to creating profiles of Internet users and auctioning cars. Online business techniques that may seem "obvious" or unpatentable are being given the PTO's benediction, making way for a possible patent war that could impede innovation and keep intellectual property lawyers waist-deep in lawsuits.The most egregious and well-publicized examples of e-commerce patents won and enforced have come from the big guns of the Internet. Last September, Amazon.com got a patent for its "one-click" technology, an ordering system that allows cyber customers to pull up their credit card and buy items with a click of the mouse. A few months later -- at the height of the Christmas shopping season, no less -- Amazon won a court injunction that forced its main competitor, BarnesandNoble.com, from using its similar "Express Lane" method. Barnes & Noble scrambled to change their ordering system and now its customers complete transactions with a superfluous click.Jeff Bezos, Amazon's founder and Time magazine person of the year, is, as one would suspect, emboldened by his success. He has a dozen other patents pending and just got a new one for Amazon's "affiliate program" -- a system of letting Web sites refer customers in exchange for commissions. But according to Salon.com, about 3,000 sites have long-established affiliate programs (a few of which predate Amazon's patent application) that account for as much as 25 percent of e-commerce sales. And these sites are not letting Bezos off easily. He has been beset with accusations of foul play; warned that if he begins firing off lawsuits, an Internet-style bloodbath will ensue -- replete with a cast of creative hackers and tirelessly irate free software activists.Internet entrepreneurs are wringing their keyboard-weary hands. For if Bezos sues and wins, e-commerce will become controlled by a small club of monopolists who had the bright idea of patenting their "ideas" first. "This is a disaster," Lawrence Lessing, a Harvard law professor and cyberspace expert, told the New York Times. "This is a major change that occurred without anybody thinking through the consequences. In my view, it is the single greatest threat to innovation in cyberspace, and I'm extremely skeptical that anybody's going to get it in time."Bezos is not alone in his march to patent widely used technologies. Jay Walker, a Connecticut entrepreneur whom Forbes magazine called the "New Age Edison," holds 18 patents on Internet business ideas and has about 250 pending. At his company, Walker Digital, he has a legal department staff of 60 who generate an average of two patents every week. Industry critics are aghast at the lack of novelty of his so-called inventions, such as the one he received for ordering fast food with a Palm Pilot that allows you to skip the hassle of talking to an actual person at the drive-up window. Walker's fast food-Palm Pilot patent, like Amazon's one-click patent, passed because there was no "prior art" -- documented evidence of a similar idea -- in the PTO's archives. And it is probable that neither company's lawyers provided the PTO with examples.Eyebrows are also rising in reaction to Walker's patent for "buyer-driven sales," which led to Priceline.com, a Web site that allows customers to bid on everything from airline tickets to groceries. But doubt about the patent's validity has not stopped investors from driving up Priceline's stock market value to $10 billion (even though the company, like so many highly valued Web sites, has not turned a profit). Nor has his patent kept him out of court. A San Francisco company called Marketel is suing Priceline for stealing trade secrets. Walker, in turn, is suing Microsoft's travel Web site Expedia for infringing on its patent for buyer-driven commerce. Who benefits? Certainly lawyers who will make a bundle off e-commerce suits that, on average, cost more than $1 million. Obviously savvy Internet entrepreneurs rushing their applications off to the Patent and Trade Office. Yet the larger question, as Harvard's Lessing points out, is: Will the courts or the PTO realize the folly of their decisions sooner rather than later? So far, the courts have given a green light to patenting software-enabled business practices. In 1998, a precedent was set when a court upheld Signature Financial Group's patent on a computer accounting system that was being used by banks around the world. Through sheer numbers, the patent office is bolstering the same trend. MIT's Technology Review estimates that the PTO, which refused to grant patents on software 20 years ago, will have granted close to 100,000 software patents by the end of 2000. Few insiders watching this turn of events have kind words for the PTO. Mitch Kapor, founder of Lotus Corp and now a principal of The Electronic Frontier Foundation, has warned of a "Bhopal of software patents," and predicted that lawsuits would cause a breakdown in the industry. Kapor, like many proponents of the Open Source Movement, which advocates technical collaboration and free use of software, believes the PTO is giving patents to inventions that should belong to everyone.Donald Chisum, an expert on patents and a law professor at Santa Clara University, argues that not all the blame can be put on the patent office. "Sure, certain things could be done to make the patent office better," he says, "but that would take money. It's important to remember that the office is supposed to be self-funding. All these fees come in and Congress rakes a big chunk of it off for budgetary purposes."Gregory Aharion, editor of the Internet Patent News Service, is less forgiving. He argues that bad software patents are being issued because PTO examiners don't know enough about the computer business. "The U.S. Patent Office is just not competent to examine software patents," Aharion told the New York Times. "Eighty percent of software patents effectively cite nothing from the computing literature." "It's a cold war," added Aharion. "It's just people playing legal games." The PTO, however, is not deaf to criticism. In response to accusations that patents are choking off innovation by granting exclusive rights to methods of electronic commerce, Patent Commissioner Q. Todd Dickinson announced on March 29 that the PTO will be making some changes. Starting immediately, the patent office will overhaul the way it examines and awards patents for online practices, requiring a broader search of past inventions and instituting a second review of applications by two senior-level examiners. "We think this second pair of eyes will be very helpful," said Dickinson.Yet it's unclear how the PTO's upgrade will affect existing e-commerce and software patents. The losers in the tug of war among the courts, the PTO and patent-crazed Internet moguls are still sites whose online business practices infringe upon others' patents. "Entrepreneurs have to slow down or live in fear," says Eric Goldman, a cyberspace law expert with Epinions.com. "Back when I was a IP [intellectual property] attorney, I received e-mails from clients saying, 'My God. I can't believe patent number so-and-so has been issued. If it's presumed valid, I'm screwed.'" Richard Stallman, founder of the Free Software Foundation and co-creator of the nonproprietary Linux/GNU operating system, despises the patenting of software but says there are ways to cope with the situation. "We can search for evidence that a patent is invalid," he offers, "and we can look for alternative ways to do a job. But each of these methods works only sometimes; when both fail, a patent may force all free software to lack some feature that users want. What will we do when that happens?"Fortunately, the Web is now the favorite haunt of a new breed of armchair radicals who consider sites that enforce patents enemies to be punished. NoWebPatents.org, which organized to protest Amazon's patents, quickly attracted 4,000 signatures, and 10,000 more people have denounced Bezos through Internet publisher Tim O'Reilly's site -- forcing Bezos to admit, "It's possible that current rules governing business method and software patents could end up harming us all." The media has also been vigilant. Tech writers have ridiculed and condemned Internet entrepreneurs' push to patent dubious inventions. Yet the U.S. is rating pretty low these days for punishing high-profile companies in search of a monopoly. One can only hope that the court system will realize at least one of the things at stake -- an innovative business climate on the Web -- and refuse to back up the PTO's bad e-commerce patents.
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