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 ofState 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.
I read the following article in which Linux creator labelled patent trollers as 'rogue states in a cold war':Torvalds
criticizes patent trollers
Is it a case of the small firms/individuals beating up on the big corporate guys?"“Well, I think it does favor the corporate world in the sense that if
you see patents as a cold war thing, it clearly helps to be big and
have lots of patents because they’re the equivalent of having lots of
nukes, and small companies and individuals can’t have nukes; it’s
practically not very accessible,” Linus said, according to a transcript
of the interview released Monday. “So, the model does favor large
companies. On the other hand, again, that’s where the rogue state
problem comes in. Large companies, in some ways, are more vulnerable to
being blackmailed over patents, so when you have patent trolls, the
trolls usually want to go after the big money, so they actually go
after the large companies and now it doesn’t help to have lots of
patents".
So in the end, don't you think that these patent trolers will actually help to minimize the growing internet patent? Nobody likes a 'cold war' scenario on the internet but if the big corporate guys want to go the patent way, then these "rogue states" will definitely be "a thorn in the flesh" for them.
It seems like an efficent way to address the problem, and you're right. Companies pouring millions of dollars of R&D into products should be entitled to a reward for their efforts.
There is a lot of sense in what you say, because patenting business methods that are exponentially being improved upon every day presents constant quandaries as to who owns the process. Of course, the open source community is diametrically opposed to these types of patents--and Europe has also adopted a "handoffs" rule that incorporates common sense.
At the other end of the spectrum, there are some cases where companies are making a lot of money off others' technology and processes--and it is also sensible to require the users to pay the innovators some kind of royalty for the right to use.
It is difficult to draw the line between what should appropriately be public domain, and what should not--and this is where the current legal dilemma inte U.S. appears to be.
From an auditing/due diligence perspective, any company considering doing business with a SaaS vendor should "vet" the vendor by requiring documentation from the vendor that the vendor has the right to use the underlying software.
There should also be an indemnification clause on the contract signed with the vendor, whereby the vendor agrees to indemnify the user from any patent issues.
Also as part of company due diligence, the vendor's financial should be requested to ensure that the SaaS vendor will remain viable.
If something should happen, every company should have a risk management strategy that can be applied to the problem.
I have a simple method for staying out of patent trouble: I don't read patents.
The rationale is simple. If the idea is truly non-obvious and thus worthy of a patent, then I am highly unlikely to stumble across it by accident. If I were to accidentally run afoul of a patent, then there is a pretty fair chance that other people have done the same thing, which would bolster evidence of obviousness.
Of course, defending such an assumption in court could be extremely expensive. It is thus fortunate that I live in Europe, where patents on software, algorithms and business methods are, if not totally outlawed, then at least practiced in moderation.
Patents were introduced to stop someone from taking the design of a mechanical or electrical device, and manufacturing it for a profit to the ruin of the original inventor. Patenting genuine inventions still makes sense in these other fields, because the different roles of invention and manufacture can be more efficient when decoupled.
But in a world where Free Software and open standards are becoming ever
more relevant, the concept of patenting a mere list of instructions -
which an algorithm or a business method boils down to - seems silly. There is no real manufacturing step here to be decoupled.
Perhaps more to the point, computer scientists and software engineers build on each others' shoulders at a very rapid pace - what was genuinely new last year is common practice this year. In this environment, copyrighting (or copylefting) the implemention while talking openly about the general techniques behind it makes the most sense for overall progress.
Software companies who invent technology are better served by using their superior insights to supply high-quality software and support, rather than simply being able to say "here's how to do this but we aren't going to let you".
As much as I want to defend it - being a software developer myself - I think that these patents might start to slow down the growth. Small companies will have more setbacks because of this, but this isn't a concern for bigger, more profitable companies.
Probably all of those trollers are making money because the users don't
know what's going on, they probably didn't even know they copied it
from someone else.
There has to be a more effective way of protecting the creator's idea, but whatever it is, it should be globally known - which is an incredible challenge by itselft.
There is another twist on “Internet Patents” Many things were ‘free’ on the desktop, but will be ‘royally based’ on Internet connected devices.Media codecs are chief among these.
Early in the life if the “Internet” everyone was worried about growth, not revenue, so PDF, Flash, Jpeg, GIF, Java, MPEG and MP-3 developed around a ‘client for free’ distribution model. Sometimes the codec could be bundled with the OS, sometimes it required only a free download.But, ‘free as beer’ software proved to be a ineffective business model as evidenced by the collapses of all the “dot Com” Linux wonderfirms at the end of the last century.The survivors, like Macromedia, look at billion dollar business like You-Tube enabled by their technology, but wonder why their slice of the pie is limited to a few thousands dollars of tools at now at Google.
As the Internet become more anchored on devices, not PC’s, this will all change.The popular codecs, like MP-3, are now part of well defended patent pools with RAND (Reasonable and non-discriminatory) licensing.These patents have teeth- they have been defended in all the courts at all levels, and indeed, the devices that use them all pay.These are far from Patent Trolls- these patent pools are the best companies, working very hard, to develop superior technology, with clear standards, that they all can use a cooperative framework.The reason an OEM must pay for this technology is clear- these devices all cross borders between factory an market, and a shipment of devices containing unlicensed codecs can be stopped at the border with a simple injunction.
So, now the media for the device centered internet will be based on royalties bundled into device costs.Most people will not know it, but they are paying royalties now and will increase as technologies like Adobe AIR and Microsoft Siverlight become the norm for devices.
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Edmunds separates customers into segments based on the info it collects on its site and from partners, and uses that to push out custom content, said Brian Baron, director of business analytics for Edmunds.com, at Predictive Analytics Innovation Summit.
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