E-Business Vie for Technology Ownership

SAN MATEO (03/03/2000) - Adding to the competitive climate in the cramped e-commerce space, some e-businesses are duking it out in the courtroom.

Patents, once meant to foster and protect innovations, have become another means for companies to garner market share via public courtroom brawls.

Last week, Inc. was granted a patent on its affiliates program, which allows owners of other Web sites to refer customers to Amazon in exchange for a fee. Many critics see this patent as both a harbinger of things to come and a legacy of an underfunded, outdated, and manipulated patent regulation system.

Nine days after Amazon obtained a patent on its one-click shopping process last year, it went after for infringement. The preliminary injunction forced to revert to a two-click shopping process.

In one of the largest ongoing spectacles, sued Microsoft subsidiary Expedia for infringing on its name-your-own-price auction patent.

Expedia filed for the case to be dismissed, citing two other companies that also claim ownership of the same patent, Marketel International and Aden Enterprises.

The Patent and Trademark Office (PTO) issued 399 Internet-related business method patents last year, more than double the 182 in 1998, according to Brigid Quinn, deputy director of public affairs for the PTO. Jay Walker, the founder of Priceline, is leading this patent frenzy with his "idea factory," Walker Digital. About one-third of his employees are patent lawyers.

"We [Walker Digital] have hundreds of inventions. All we do is invent business methods -- that's our business," Walker said.

Walker Digital currently holds about 40 Internet-related business method patents, and several hundred more are in progress. This patent-centric business model has drawn fire from many critics.

"Walker Digital doesn't look like much more than an idea house that comes up with ideas, then sues people who come up with similar ones," said Rob Enderle, an analyst at the Giga Information Group. "I think that kind of behavior is very similar to what happened on the high seas with pirates. It's being done under the auspices of a legitimate business practice, but in fact it's concealing behavior that is anything but fair business practice."

Walker contends that his company is essentially the same as any laboratory creating intellectual property.

"We are inventors," he said. "In essence, we're no different than a genetic engineering laboratory that turns out new formulas for pharmaceuticals. The difference is their formulas are expressed in molecular chemical substances, and our formulas are expressed in business methods that use digital tools."

Yet Enderle compared Walker's patenting of Internet business models to cybersquatting. Walker says that's not true.

"I see no legitimate evidence of that behavior," Walker said. "You can't invent a business method by ultimately hoping that someday, somebody might want to buy that thing ... Cybersquatting would be trying to own something, then hoping they trespass on your property so you can extort money out of them," Walker said.

Walker is not the only one accused of questionable patent practices. claims the patent on selling downloadable audio and video digital content via the Internet, and has demanded a one percent royalty from companies such as CDNow.

"People were downloading music over networks long before Sightsound's patent.

It's a blackmail-type patent," said Gregory Aharonian, editor and publisher of Internet Patent News Service.

But Scott Sander, president and CEO of Sightsound, is quick to point out that Sightsound filed for the patent in 1988 -- long before anyone was downloading movies and music online. "Do you remember the Internet in 1988? The world was such a vastly different place," he said.

Enderle points to FTP download during that time frame as possible "prior art" -- patent regulation-speak indicating the invention already exists -- in response to Sightsound's 1988 claim.

"Granted, it was fairly early. [But] we do remember that people were downloading things across remote servers across what became the Internet at that time," Enderle said.

Open Market, an e-commerce software provider, has claimed broad Internet patents as well. One covers the use of shopping carts, and another claims to own the very concept of secure Internet credit card transactions.

The PTO's Quinn believes that the current patent system inspires innovation and debunked the perception that broad business method patents are being issued for e-commerce. According to Quinn, a patent is granted for nonobvious, useful, and new inventions. In deciding whether something is new and nonobvious, the PTO looks for prior art.

But Henry Petri, a patent attorney at the law firm Howrey Simon Arnold & White, said many instances of prior art escape the PTO's search. In 1993, the PTO granted Compton's New Media a patent on multimedia, specifically the process and concept of retrieving technology in multimedia databases.

With scores of multimedia CD-ROMs already being sold, and the process of indexing and searching multimedia databases nearly 20 years old, the PTO commissioner was forced to revoke the patent.

"In the long run, this will all shake out when the patent office gets some more capabilities to examine these patents based more on what's going on in the industry. Until that time, the validity of all these patents is going to have to be litigated," Petri said.

Aharonian believes that the litigation will become a necessary expense for operating in the e-commerce space.

"Think of it as a tax. You're going to have to set aside money to play these games, to patent your own processes, and to fight off other patents," Aharonian said.

That means sorting out patents that truly threaten the e-commerce space will be left to the drama of the courtroom.