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Information Age patents: Legitimate business tool or stifler of innovation?

Posted: Thursday, July 13, 2000

SAN JOSE, Calif. -- Priceline.com has dibs on a name-your-price online shopping method. Amazon.com claims exclusive rights to a one-click checkout system. CyberGold has a patent on using incentives to reward consumers for paying attention to Internet ads.

As Internet prospectors staking claims on what they see as rich veins in our online future, these companies are grabbing legal title to cyberspace adaptations of business methods that might seem obvious -- and therefore unpatentable -- in the tangible, offline world.

Getting such patents can make a company's stock price soar and its competitors' sink. It can bring significant venture capital to startups, which can trade the patents or use them as leverage in all manner of business deals.

''A patent is like a hammer -- you could use it to build a house or to kill someone,'' said Thomas Field Jr., patent law professor at the Franklin Pierce Law Center. ''People are pursuing patents more vigorously now and people are more aware of copyrights and patents.''

Ideas are to the Information Age what iron ore and other raw materials were to the Industrial Age -- only you can't put a fence around ideas.

The closest thing is a patent.

Technology companies have been clamoring to get them since 1998, when an appellate court approved a bank's method of managing mutual funds, establishing the precedent that even ''abstract ideas constituting disembodied concepts or truths'' could be patented.

These so-called business method patents aren't even sketchable, like the inventions of the phonograph or the telephone.

Examiners at the U.S. Patent and Trademark Office are swamped. The agency has just 38 people considering applications for business method patents, which doubled last year to nearly 2,700. This year's total could reach 6,000 -- 65 percent of which will likely be approved.

The frenzied pace of technological innovation and an extremely competitive Internet marketplace are behind the surge. Dozens of software developers and dot-com executives could be developing similar business methods simultaneously, so securing a patent can be the key to survival.

''Start-ups that are looking to fund themselves -- they need proof that they have assets or they have something that will endure. At the same time, big industry is moving to use the Web and they realized they have to use patents as well, as a defense mechanism and to boost their portfolio,'' said Greg Maier, a patent lawyer and chairman of the American Bar Association's Intellectual Property Section.

''On top of that,'' Maier said, ''Banks, mutual funds -- anybody now doing business on the Web -- they've been asked to protect their models with patents.''

Consider U.S. Patent 6,085,231, filed in January 1998 and granted to AT&T Communications last week: ''A method and system of delivering a voice mail message via an e-mail address.''

The telecommunications giant now has the patent for a system that appears to cover a core concept for a number of Internet companies, including San Mateo, Calif.-based Onebox.com, which offers a unified messaging service. Onebox.com customers can access their voicemail and faxes via their e-mail. Will Sieck, a spokesman for Phone.com, said the parent company for Onebox.com., had no comment on the AT&T patent.

The debate over whether such patents encourage or stifle the Internet economy has raged in high tech, legal and academic circles this year, heightened by Amazon.com's success at getting a court order forcing barnesandnoble.com to make express online purchasing a two-click effort.

A case involving British Telecom ups the ante even higher. It asserts a monopoly over a basic underpinning of the Internet. After a trawl through its intellectual property portfolio, BT found it had a U.S. patent on hyperlinks, which allow users to click from one Web page to another.

Two weeks ago, BT sent letters to 17 major Internet service providers seeking licensing fees. Those companies have since responded that their lawyers are studying the issue, said Daniel Brod, a spokesman for QED Intellectual Property Ltd., which BT hired to enforce the patent.

To many, such patents seem, well, absurd.

How could BT claim it owns the technology behind the World Wide Web, particularly since it applied for the patent in 1989, when hyperlinks were already in use?

The answer is in the strictures of patent law, which requires that business methods be approved as long as they are novel and not obvious.

Because Internet-related ideas are being developed so quickly and secretively, it is frequently difficult to find documentation on the possible existence elsewhere of what is presented to examiners as a novel idea. So examiners often grant patents not to the innovators but to whomever applies first.

''There's a Cold War going on in the software world,'' said Greg Aharonian, a consultant who runs a patent news service and revels in researching and busting up software patents.

''Over time, we have all these companies whose goal is getting as many patents as possible and they don't care if the patent office is giving good patents as long as you're getting patents.''

The examiners' job could become more difficult still if Congress passes a proposal to cut the agency's budget by $188 million, said Q. Todd Dickinson, the agency's director.

While Dickinson said he has no apologies for the surge in approvals of business method patents, he does say the Patent Office is working to improve its research and training.

''People can dominate the market in many ways, and patents is just one way,'' he said in a telephone interview. ''People are entitled to a patent if they meet the standards.''

Hoping to better the approval process, the Patent Office has called a July 27 meeting in Arlington, Va., to hear public criticism and suggestions.

Dickinson is well aware how high the stakes are.

In 1998, revenues in the United States for patent licenses generated more than $100 billion. IBM holds more patents than any other company and it alone took in more than $1 billion from licensing last year.

On Jan. 19, Geoworks more than doubled its stock price after it announced it held a patent on a core wireless application protocol (WAP) technology.

Companies that don't win the race to the patent office or are accused of infringing on another company's patent can back down, pay licensing fees or go to court.

Expensive propositions, all: Litigation costs can soar past $1 million for each side when a relatively simple patent is in dispute, legal experts say. The more complex the patent, the higher the price tag.

Patent ownership affords a 20-year sanctioned monopoly, granting the right to market a technology or charge royalties for its use. In exchange, the patent owner must fully disclose how the invention was made.

The principle dates back to 1790 when it was embodied in the Constitution, intended by the nation's founders as a means for promoting the progress of science and useful arts.

These days, especially in the virtual world, patents are typically used to carve out a market niche.

Patent critics say some companies make it a practice of hoarding patents -- although they may not be the true inventor or the idea is of dubious validity.

''Most people don't understand patents. That's why you have to have lawyers,'' said Marty Reiffin, a former in-house patent attorney for IBM.

Reiffin would know. Also an inventor, he holds a dozen patents.

In 1979, after securing royalties from major companies like Sony and Toshiba for patents on amplifier technology, he quit IBM, which he had defended in some of its most significant patent cases in the 1970s.

Today, at 75, he has his own patent infringement lawsuit against Microsoft -- one of many David-and-Goliath battles in the patent landscape.

Reiffin claims the software maker is infringing -- using without permission -- his patents on a multi-threading technology for word-processing and spreadsheet programs to do more than one thing at a time, such as spell-checking while you are writing.

Reiffin filed the suit in federal court in 1998 and considers himself lucky. Were he not a lawyer, litigating the case would have already cost him several million dollars.

Intellectual property law, which includes patents and copyrights, is the fastest growing segment among American Bar Association members. Last year, it grew 9 percent to occupy 19,000 lawyers.

And the demand for lawyers to file, enforce and litigate patents is expected to grow with the torrent of applications, setting the stage for a new wave of cyberpatent court battles.

''There are serious questions about whether business methods should be patentable and questions of the ability of the Patent and Trademark Office to review these patents given the lack of prior art databases,'' said Peter Menell, a law professor at the University of California at Berkeley and the author of Intellectual Property in the New Technology Age.

''There are hurdles ... to check the validity of these patents, but unfortunately, that check may come only after timely and costly litigation.''

On the Net: U.S. Patent and Trademark Office, http://www.uspto.gov



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