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. Indeed, the Web brought the Internet to the masses, much as Microsoft Windows brought the personal computer to the masses. With both Windows and the Web, a business tool was born from what had been a purely scientific tool. And when a tool is provided to the arsenal of a business person, with a market-driven mindset, that tool will lead 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. Early on, Congress recognized that to survive, the new country must be able to compete as an economic newcomer. This requires substantial innovation. However, investment in innovation would not follow without a corresponding reward. The U.S. patent system continues its original mandate to promote innovation by providing limited monopolies to those that teach their innovation to the public. As might be expected, those who first think of innovative ways to use the Internet as a business tool have taken advantage of the patent system to build their enterprises and to maintain a competitive advantage in the marketplace. They use patents to limit competition and to increase the value of the company. A vibrant patent position also provides a defense mechanism over someone that seeks to extract license fees.
Understanding the patent minefield in the Internet arena requires a little background to understand what might be patented. There are two parts to this question. First, is the innovation within the realm of patentable subject matter? That is, there are certain exceptions to patentability. Traditional exceptions included such things as printed matter (books) or algorithms (mathematical equations). If the innovation is within the realm of patentable subject matter, then you can ask the question as to whether the innovation reaches a certain level to convince the government that it merits the grant of a patent. One former exception to part one, that is, the question of patentable subject matter, was an exception for something that was merely a "method of doing business." In 1998, this exception was largely eliminated by the famous State Street Bank case. This timed nicely with the genesis of the Web to provide a foundation for substantial innovation in the way we do business.
The patent process takes roughly two to three years from the filing of a patent application to the grant of a patent by the government. It's no surprise that the latter half of 1999 showed a ballooning in the number of issued Internet/e-commerce patents. It is surprising to some who wonder how some a variety of the things that are emerging in this space merit the award of a patent. Of course, much of the conversations stem from the patents that make the press, such as the Amazon.com "one click" patent (U.S. Patent No. for Method and system for placing a purchase order via a communications network), as well as their customer referral system (U.S. Patent No. 6,029,141 for Internet-based customer referral system). The latter patent 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 weekly. Once issued, patents have a strong presumption of validity. If you infringe, you're in for a difficult and expensive process to try to prove that the Patent Office shouldn't have issued the patent in the first place.
Any company that's entering or extending their business into the e-commerce arena should be aware of the patents that their competitors have already secured. This is accomplished by a search of the prior art, including a reasonably detailed search of the earlier issued patents. Armed with this knowledge, a company can frequently alter its design to avoid these patents. Also, in any development, it is likely that there is some innovation that itself may be subject to patent protection. In the e-commerce space, a reasonable search and analysis can usually be accomplished.
Many large corporations will file applications on their own 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, analogously to the "mutually assured destruction" philosophy of the cold war. If the other side shoots first, you will have the artillery to reign terror right back at them. Of course, this facilitates a quick and amicable settlement.
In summary, new companies targeting e-commerce established brick-and-mortar companies expanding into that space, should consider strongly undertaking an investigation of the patent minefield they're getting in to. While not knowing whether you have a disease is comforting for the short term, it short circuits preventative medicine, as well as defers administering medication.
Reprinted with permission by SBN magazine
) 2000 Arter & Hadden LLP. All Rights Reserved