Amazon.com fired the shot heard around the World Wide Web last October when the powerhouse online retailer filed a lawsuit against e-commerce competitor Barnes & Noble for using the company’s patented “one-click” shopping method.
In early December, a judge sided with Amazon, sending Barnes & Noble scrambling to modify its Web site in the midst of the busy holiday shopping season.
Although it was the not the first e-commerce patent battle to surface since business began migrating to the Web, Amazon’s actions sparked strong emotions. In a late February open letter to the company, computer book publisher Timothy O’Reilly accused the Web retailer of “pissing in the well” of online commerce because of its ultra-aggressive protection of business methods that he saw as fairly universal.
Amazon argued that its “one-click” patent, which allows previous site shoppers to order a book and have it billed to them with one mouse click, had been filed more than two years earlier. Nevertheless, the Web retailer was quickly lumped in with other companies, such as Microsoft and Priceline.com, which have also sought legal protection of their online business methods.
Even though these high profile squabbles among powerhouse dot-coms may generate headlines, the bigger question is what these patent cases will mean for the countless start-up e-commerce companies which have yet to be a blip on anyone’s competitive radar screen. The answer seems to depend on whom you ask.
Even two local attorneys, both entrenched in e-commerce law, have different views on what effect e-commerce business method patents may have in the long run. Whether they derail scores of Web start-ups or prove to be the ultimate competitive advantage for innovative entrepreneurs who have the foresight to protect their work, there seems to be one underlying truth: The advantages and dangers of any Web patent depend upon who’s holding it.
The battle over Web business method patents was fueled by a 1998 court decision that computer software is, in fact, potentially patentable. The decision opened the door for the approval of Web patent applications such as the one Amazon had for its “one-click” system, although the road to patent approval is far from a rubber stamp.
David Cochran, an attorney who focuses on intellectual property issues at Cleveland’s Jones Day Reavis & Pogue, says the most difficult burden is proving that you have, in fact, broken new ground with your invention. Since less than a handful of the 150,000 patent applications filed each year are 100 percent original creations, patent approvals are a bit of a gray area.
“Not all software is potentially patentable. You still have to prove it’s new and it’s obviously different from what others have done in the field,” Cochran says. “It’s the same thing with these Internet business methods. They’re not all patentable, but some of them could be. You have to analyze what you’ve done that’s new.”
Obviously, the infancy of the Web helped Amazon’s cause, while also making it a prime target for media coverage once the Web retailer decided to flex its muscles against Barnes & Noble. But Cochran doesn’t buy into any “the sky is falling” mentality when it comes to the effect of Web patents.
For one, he says, most of those filed with the U.S. Patent Office are obsolete by the time the arduous approval process is complete. In his eyes, the Amazon and Priceline patents were just two early bets that ended up paying off handsomely.
“You file these patent applications and they take two or three years to mature,” explains Cochran. “Meanwhile, the market develops, and if you’re lucky, develops in the way that you predicted via your patent applications. And when your application finally issues, you’ve got something of value.
“Keep in mind for every one of those that works, there are thousands that just don’t do anything.”
So far, the threats tied to Web patents have yet to filter down past the level of the industry heavy hitters. Michael Stovsky, an attorney with Cleveland’s Ulmer & Berne LLP with expertise in the area of Internet law, says patents have yet to be a threat to any of his clients.
“Has it played a large role in start-up companies we’ve represented to date? No, it hasn’t,” he says. “We have not had one dispute over a company violation of a business patent yet ... Whether smaller companies are going to be held over a barrel by companies that own the business method patent is yet to be seen.”
Although the threat seems to be minimal, Stovsky says issues of trademarks, trade secrets and the possibilities of business method patents should be considered from Day One when it comes to the Web. He believes issues of intellectual property will only become more important as Web start-ups begin to provide serious competition to those e-commerce companies that seem to be holding all of the cards.
“My suspicion is the more mature clients become and the more successful they become, the better competitors they become in the marketplace, the more the holders of these business method patents will sit up and take notice and seek to enforce those patents,” says Stovsky. “And I guess the flip is true. The more mature our clients become, the more concerned they will become about their ability to get patent protection for what they’re doing.”
Cochran, on the other hand, doesn’t worry so much about industry players such as Amazon launching an aggressive campaign to knock off smaller companies. He does agree with Stovsky, however, when it comes to the importance of Web entrepreneurs working to protect their own e-commerce business method innovations. Once Web entrepreneurs realize the importance of patenting their original work, he believes it will be the tool that finally levels the playing field for smaller companies.
“I represent a lot of small fry inventors, particularly in the software area, and these guys need any edge they can get,” says Cochran. “When you’re going up against a Microsoft or an Oracle or some other huge company and you don’t have something to offer back, you’re hosed.”
Several years ago, an e-commerce company named Open Market Inc. issued a press release announcing it had patented the concept of an e-commerce “shopping cart.”
So why hasn’t the company filed lawsuits against the scores of Web companies that have integrated this feature into their own sites? It turns out the list of claims outlined in the patent application was very narrow and Web designers had little trouble creating their own “shopping cart” concepts without infringing on the Open Market patent.
“Just like the deed for your house describes your plot of land and nothing more, the claims that are in the back of a patent application describe what the patentee is entitled to keep other people from doing,” explains Cochran. “Of course, no one reads the claims except for patent attorneys and federal judges.”
So Amazon did not patent the concept of “one-click” shopping; it simply patented a way to deliver this feature to customers, which Barnes & Noble happened to copy too closely. The claims of a patent are always limited in some way, explains Cochran. However, he admits that Amazon attorneys wrote the “one-click” patent claims in such a way that Web designers will not be able to sidestep them as easily as they did Open Market.
“That one definitely is broad,” he says. “If (Amazon) did decide to assert it, that one could be difficult.”
Essentially, Amazon looked at mistakes like those made by Open Market and learned to play the game. That was evidenced by not only the “one-click” patent, but also a 1997 patent application for its “affiliates” program, which allows Webmasters to link to Amazon and receive a small cut of sales that emanate from their sites.
Although the program may seem a fairly ubiquitous Web business concept, Amazon took care to write the claims in that patent application very broadly.
So if Amazon ultimately succeeds in its quest to make these two very familiar business methods purely its own and entrepreneurs cannot create a viable alternative, the pioneering online retailer may have another source of revenue as e-commerce companies line up for licensing deals. For Stovsky, this is the type of scenario in which he believes Web start-ups could end up feeling a severe pinch or, in the worst case, crumble under the stress.
“You can just imagine the state of affairs where a start-up company now has to negotiate with a much larger company like an Amazon or Priceline, which was a start-up just a few years ago, but now it’s sort of like negotiating with an 800-pound gorilla,” says Stovsky. “What’s the effect of that?
“You may see businesses not coming to fruition that may have otherwise because they simply don’t have the resources to get the technology that they need.”
How to reach: Ulmer & Berne LLP, (216) 621-8400; Jones Day Reavis & Pogue, (216) 586-3939
Jim Vickers (email@example.com) is an associate editor at SBN.