Several years ago, the U.S. Patent and Trademark Office (PTO) was flooding the market with more than 20,000 new software and Internet patents annually, stirring critics to question how many of the technologies and processes being patented really required patent protection. Now, the trend continues to hinder Web innovation as Internet “trollers” step up their efforts to monopolize patents for the sole purpose of making money.
What makes Internet patenting unique is that it seeks to patent business methods as well as technological innovations. The issue was legally ruled on in the 1998 Federal Circuit decision of State Street Bank & Trust Co. v. Signature Financial Group, which said that business methods and software were patentable. Consequently, the PTO has seen a dramatic increase in Internet patent applications, particularly from corporations looking to protect their intellectual assets.
Meanwhile, there are thousands of Internet patent holders who “land grab” patents, register them, and then “troll” the Internet for any Website or e-commerce merchant they can call out for using their method. These professional trollers are in it to make a business from the settlement and royalty fees and may not be in any e-commerce businesses themselves.
“Patent trollers are professionals who are very good at maximizing their profits,” says attorney Brett Trout, who has authored a book on cyber law. “They get whatever they can -- whether it’s money, stock options, ongoing royalty payments -- and they can be very aggressive.”
Business methods have not typically been patented in the physical world, so why should cyber patent holders grab up patents on critical e-commerce processes to exclude competition or extract settlement fees or royalties?
Trout says that courts are reluctant to grant injunctions when an Internet business patent holder goes after an e-commerce merchant whom he says is using his business model. A more likely remedy is a monetary settlement or an agreement to pay ongoing royalty fees to the patent holder for the right to use the business method.
“Business methods patents were not allowed before 1998,” says Trout. “The market is very adept at taking advantage of new opportunities like this, and the legislature has not caught up with it.”
Unfortunately, many Internet businesses are launched without due diligence on whether the business methods they are using for their Websites are public domain. For example, if you want to launch a retail site with a shopping cart, a checkout, and payment by credit card, how do you protect yourself from patent trollers who might come to you and say they have a patent on that process? Trout offers the following advice:
- Look at who else is in your market, and how closely their business methods resemble yours. If there is close resemblance, they might have a patent on that process.
- Understand that every Website has its unique aspects. There is a modicum of protection that you have when you are doing what everyone else is doing. It is when you step out and deviate from common usage that you might see an Internet patent troll.
- Talk to an attorney early in your business planning. This is expensive, but an upfront hour of legal counsel can save you from more expensive problems later.
One example last month was Internet Media Technologies (IMT), which announced an update on the content delivery network it has been developing as part of its plan to market digital entertainment to consumers through satellite kiosks and vending machines.
IMT is one of many companies now taking steps to perform the upfront due diligence to acquire the patents needed for technologies and business methods, while patent-protecting its own new methods and technologies.
Patent litigation costs millions of dollars; and patent licensing earns companies hundreds of millions of dollars a year. Advocates for open standards and a free Internet argue that these patents damage their ability to innovate, and the government patent office is now more aggressive in rejecting Internet patents. But it is clear that due diligence and patent risk assessments need to be in every Internet merchant’s game plan.
— Mary E. Shacklett, President of Transworld Data