John Garred

Monday, 22 July 2002 09:32

e-business strategy

The Internet has been with us since the 1960s.

However, the common perception is that it was born with the introduction of the World Wide Web because the Web brought the Internet to the masses, much as Microsoft Windows brought the personal computer to the world.

With both Windows and the Web, a business tool was born from what had been a purely scientific tool. That tool has led to innovation and applications never dreamed of in its early form.

The U.S. patent system was formed by one of the first laws enacted in this country. Early on, Congress recognized that, to survive, the new country must be able to compete economically, which requires substantial innovation. However, investment in innovation would not happen without a corresponding reward. The U.S. patent system continues its original mandate to promote innovation by providing limited monopolies to those who teach their innovation to the public.

Those who first thought of innovative ways to use the Internet as a business tool have taken advantage of the patent system to build their enterprises and maintain a competitive advantage in the marketplace. They use patents to limit competition and increase the value of the company. A vibrant patent position also provides a defense mechanism over someone who seeks to extract licensing fees.

Understanding the patent minefield in the Internet arena requires a little background.

What can be patented?

There are obvious exceptions to what can be patented. Traditional exceptions include printed matter (books) or algorithms (mathematical equations). In 1998, one exception -- methods of doing business --- was eliminated, timing nicely with the genesis of the Web to provide a foundation for substantial innovation in the way business is conducted.

The patent process takes two to three years, from the filing of an application to the grant of a patent by the government. So it should come as no surprise that the latter half of 1999 reflected a ballooning in the number of issued Internet/e-commerce patents.

What is surprising to some, however, is how the variety of things emerging in this space merit the award of a patent. Much of the surprise stems from patents that make the press, such as Amazon.com's "one-click" patent and its customer referral system. The latter seeks to cover the reward scheme to Internet sites that pass purchasers on to Amazon.com. Such patents represent the tip of the iceberg.

Business method patents are streaming out of the U.S. Patent and Trademark Office. Once issued, patents have a strong presumption of validity. If you infringe, you're in for a difficult and expensive fight to try to prove that the patent shouldn't have been issued in the first place.

What obstacles stand in my path?

Any business owner entering or extending their business into the e-commerce arena should be aware of patents their competitors have secured.

A company can frequently alter its design to avoid these patents. Also, in any development, it is likely there is some innovation that itself may be subject to patent protection.

Many large corporations file applications on their innovations for defensive reasons. While they might not be inclined to sue infringers, they need a defensive maneuver in the event they are confronted. The hope is that if the other side shoots first, they will have the artillery to fire right back.

New companies targeting e-commerce and established bricks-and-mortar companies expanding into that space should investigate the patent minefield they're getting in to. John Garred (jgarred@arterhadden.com) is a partner in the Intellectual Property Group at Arter & Hadden LLP. He represents clients in a wide range of technology-driven issues, including patenting of computer and e-commerce related inventions, and counseling on strategies existing and thriving in the new economy. He can be reached at (216) 696-3340.