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E-Business (Updated on Thursdays)



CYBERLAW

A patently obvious threat to e-commerce



MICHAEL GEIST

Thursday, January 27, 2000

Intellectual property law, which governs copyright, trademarks, and patents is closely associated with Internet law.

E-commerce businesses and their lawyers have aggressively gone after copyright and trademark violations -- and negatively characterized violators as pirates and cybersquatters. But patent law is often overlooked, an increasingly dangerous practice in light of recent developments.

Problems began with the 1998 case, State Street Bank v. Signature Financial Corp. In that case, the U.S. Court of Appeals for the Federal Circuit (one notch below the Supreme Court) ruled that patents could be awarded for business methods.

Such patents are awarded for special techniques of doing business, such as improvements to a company's accounting or sales department. In the aftermath of the decision, companies rushed to file patent claims for a wide range of business practices. And in the e-commerce world, efforts to patent on-line business methods have met with great success.

In 1998, everything from the Internet shopping cart, to awarding customers frequent flier points for on-line purchases, to the name-your-own-price reverse auction became proprietary business methods.

Canada has yet to embrace the concept of a business method patent. But businesses here are forced to quickly become familiar with U.S. patent law and some have obtained such patents in the United States. The Royal Bank, for example, obtained a U.S. patent in 1998 for its buyback program for automobile financing. Many e-commerce firms here will have to follow the lead of the Royal Bank and such U.S. firms as Priceline.com.

That company generated considerable attention by filing 20 patent applications covering all aspects of its business methods. So far, it has received three patents, including the one for the name-your-own price reverse auction.

Not surprisingly, e-commerce patent awards have become the basis of a growing number of infringement lawsuits.

Last fall, Priceline.com launched an action against Microsoft's Expedia travel site for breach of its name-your-own-price patent.

Soon after, Doubleclick Inc., an on-line advertising company, filed a lawsuit against competitor L90 Inc., for infringing on a commonly used method for delivering advertising on the Internet.

Most recently, Amazon.com obtained a patent for a service that allows repeat visitors to move directly to the virtual checkout with one click, as the site completes payment and shipping information in the process.

In December, a U.S. court issued a temporary injunction against Barnesandnoble.com, Amazon.com's biggest competitor, prohibiting the use of the one-click method on its site.

The use of the Amazon.com patent to prohibit others from using a single click approach illustrates both the absurdity of such patents and the danger they pose to e-commerce growth.

The patent system is designed to encourage invention and innovation by providing developers with legal protection for a limited time, enabling them to fully exploit the value of their work. To be deserving of patent protection, a series of criteria must be met, including a requirement that the source of the patent be novel and not obvious.

Amazon.com founder Jeff Bezos has justified the one-click patent by saying that prior to Amazon.com instituting the ordering process, Web businesses did not think that the public would trust such a system.

Although Mr. Bezos's remarks suggest that Amazon.com was the first to recognize the marketing value of a one-click system, they raise the question of whether the method was sufficiently novel to merit patenting. If anything, he seems to acknowledge that a single-click system was obvious but Amazon.com was simply the first to institute it.

Rather than encourage innovation, the legal actions of market leaders such as Amazon.com, Priceline.com and Doubleclick demonstrate how these patents actually curtail innovation by limiting competition. The convenience of a one-click purchase system would likely be adopted by many businesses, yet they now face the threat of legal action if they institute such a process.

Sadly, the costly and complex process of patent applications may well exclude many smaller e-commerce companies who lack the funding and expertise to file such applications.
Michael Geist is a law professor at the University of Ottawa School of Law specializing in Internet and electronic-commerce law. He can be reached at mgeist@uottawa.ca and on the Web at http://www.lawbytes.com.


 


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