Patents: the Weapon of Choice for E-Biz Giants

Using an e-business patent has become the weapon of choice for Internet giants in recent months, with a series of patent cases between powerhouses determining who can -- and who cannot -- use key Internet shopping technologies.

Although patent rights are often used by the big guy to crush the little guy, a new trend is emerging in which major corporations are bringing patent cases against significant rivals with reasonable success .

Last week, Jupiter Media Metrix (JMM) settled its patent infringement case against PC Data, with PC Data agreeing to stop using technology that infringes on JMM's patent covering Internet-use tracking.

Continuing its patent assault, JMM then turned around and brought a pair of new patent cases against NetRatings and NetValue USA over the same Internet audience tracking technology.

"These battles are often about who has more money and can withstand litigation the longest," intellectual property attorney and author Richard Stim told the E-Commerce Times. "The smaller companies may have had the money before, but it's harder for them now."

The Best Defense

E-tailers can use patent lawsuits offensively against a major competitor, as Amazon.com demonstrated when it got a court injunction stopping rival Barnesandnoble.com from using a one-click shopping system.

However, in February, a federal appellate court overturned that injunction, saying that Barnesandnoble.com "raised substantial questions as to the validity" of Amazon's 1-Click patent. The technology in question allows returning online shoppers to buy a product without repeatedly entering personal data and credit card information.

In other cases, e-tailers use patent lawsuits defensively. For example, when a company is sued for patent infringement, it may sue back under another patent, to create a bargaining chip and set the stage for a cross-licensing deal .

Patented Process?

Whichever way the patents are used, however, the latest round of patent wars have revealed the controversial nature of Internet software patents, or "business method" patents.

Business method patents, which were only recently legitimized by the U.S. Patent and Trademark Office (PTO) are so called because the invention they describe is a process, rather than an invention based on the mechanical functions of a physical object.

"The use of patents as an offensive weapon against competition has always been present," Stim said. "What's happened in the last three or four years is we were used to thinking that patents were about (tangible) inventions, but now the world of business method patents has exploded."

Just Business

Not every high profile patent case concerns a business method such as the 1-Click patent. Last month, NCR, which is in the business of offering automated-teller systems and point-of-sale networks, filed a patent infringement lawsuit against both Handspring and its rival handheld computer maker, Palm.

As it turns out, NCR obtained two U.S. patents in 1987 on a handheld device that performs financial transactions. Now, looking back, the patent claims appear to describe what is now known as a handheld computer.

So, NCR filed a lawsuit against Palm and Handspring, claiming that the PalmPilot and the Handspring Visor violate NCR's 13-year-old patents. NCR is reportedly arguing that both Palm and Handspring knew about the NCR patents but decided not to obtain licenses to use the technology.

Palm was quick to issue a statement saying that the suit has "no merit."

Shaky Ground

One reason that so many e-business patents are being challenged has to do with the sheer number of patents being issued by the PTO and the lack of resources at that agency. According to Greg Aharonian, publisher of the Internet Patent News Service, over 20,000 software patents are approved each year.

"Most software patents are of questionable validity," Aharonian told the E-Commerce Times. "The problem is the PTO doesn't have a lot of time or money to see if someone had the same idea before. If the examiners don't have the time to hunt down what people have already done in the past, they have no legal grounds to say that you can't get the patent -- because they need specific documents (to deny a patent claim on the ground of obviousness)."

For a patent claim to be successfully contested, publications must be presented showing that the alleged invention existed at least one year prior to the filing date of the patent application. The evidence of earlier invention is called "prior art."

The problem is that the PTO does not have a comprehensive database of prior art for emerging technologies, so patents are issued in large numbers without being properly tested.

Bounty Hunting

The result is a system in which virtually every e-commerce patent has grounds for being challenged. In order to get the proof of patent invalidity, e-tailers are even offering online cash rewards to people who can locate and document prior art.

Last month at BountyQuest, US$10,000 was awarded for the submission of information challenging DoubleClick's patent on banner advertising. Interestingly, the Web site, which lists Amazon chief executive officer Jeff Bezos as a primary investor, also placed a $10,000 bounty for the location of a document describing Amazon's patented 1-Click purchasing technology.

Aharonian said that although the PTO has recently implemented higher quality checks for e-commerce patents, there will likely be plenty of e-tailers squabbling over business method patents in the near future.

"Software is just the latest thing to stress the heck out of the system, but it's a solvable problem," Aharonian said. "You're not going to see e-commerce operations jeopardized or altered because of software patent issues. Without a lot of extra cost and effort we can improve the patents that are issued, so a lot of silly cases go away, and the cases remaining are more legitimate."