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Internet business-method patents, like some high-flying dot-coms, have been losing much of their magic lately. Both of these alarming downturns are factors in the decision of Norwalk, Conn.-based Priceline.com to settle two lawsuits with Microsoft and its travel spin-off, Expedia, with Expedia agreeing to pay Priceline unspecified royalties. The terms of the deal are secret. Patent lawyers in the new niche of e-commerce software protection see good news and bad here. The bad is that courts haven’t created any guidance in this new realm of cyberlaw, but the good news is that no radical surgery �- by courts or Congress — may be necessary. Even in the absence of any substantive rulings from U.S. District Judge Alvin W. Thompson in Hartford, Conn., or U.S. District Judge Charles Goettel in Waterbury, Conn., two leading Internet IP lawyers are able to draw some thoughtful conclusions from the tea leaves. For Jeffrey R. Kuester, who chairs the Internet Patent Committee for the American Bar Association, a chief concern is that Congress could pass something like the pending HR 5364, a bill to sharply curtail business-method patents for the software driving Web commerce sites. “Generally, software programmers hate patents — unless it’s theirs,” says Kuester, of Atlanta’s Thomas, Kayden, Horstemeyer & Risley. Nationally, critics who argue that society is best served by keeping software inventions in the public domain have excoriated the Patent and Trademark Office for approving undeserving business-method patents. Another notion was raised by Amazon.com founder Jeff Bezos, who suggested last year that the time limit for software patents be limited to as little as three years. Says Kuester, the fact that Microsoft and Priceline have settled “actually argues that we don’t need any more legislation” or more severe restrictions. Priceline, he notes, got its patent, told Microsoft it was infringing, and worked out a royalty agreement. “That’s the way it’s supposed to happen,” he says. In the Oct. 19, 1999 filing by Priceline against Microsoft, Stamford, Conn., inventor Jay Walker set out an anecdote about a Sun Valley, Idaho, conference he’d attended with Microsoft founder Bill Gates earlier that summer. Gates, the suit alleged, asked Walker why Priceline was so popular with airlines. Walker explained Priceline’s system. When Gates expressed enthusiasm, Walker suggested the two companies might be able to do business, explaining that Priceline had a patented process. “Mr. Gates became very agitated and told Mr. Walker that he would not allow patents to stand in the way of his business objectives,” the complaint states. When Walker said he could sue if Microsoft infringed, Gates said a lot of companies are suing Microsoft, and “effectively suggested that Priceline.com could get in line with all the others.” IP VALUE But according to Keuster, Microsoft has gone from a minor holder of patents to a powerful intellectual property concern over the past eight years, triggered when Stack Electronics won a $120 million patent infringement judgment against Microsoft. While Microsoft had virtually no patents in 1992, in 1997 it received 199 patents, and has been busily buying companies rich in intellectual property potential. In Washington, D.C., former patent policy negotiator Jeffrey P. Kushan, a software and biotech patent lawyer with Atlanta-based Powell, Goldstein, Frazer & Murphy, agreed that Microsoft has become acquisitively invested in software patentability. “They’re an IP company, no doubt about it. They’re one of the most vigorous entities in copyright enforcement,” he said. But Microsoft wouldn’t attack Priceline’s patent validity, Kushan reasoned. “They certainly couldn’t have gone into this with the idea that the best thing for them would be preventing people from getting patents to computerized business processes.” Legal change has smoothed Priceline’s development. In 1986, its name-your-own-price system was filed in the Patent and Trademark Office. Shortly thereafter, courts began to abandon twin views that business methods and “algorithms” are not patentable — notably through the 1998 federal case of State Street Bank v. Signature Financial, decided the year Priceline’s patent was awarded. Kuester, of the Internet Patent Committee, says the system is starting to self-correct, and that the Priceline settlement is an example of that. “It takes a while for patents to react to new things like the Internet. Maybe [the PTO] issued some overly broad ones at first, but this is a new area. They’re going to get the hang of it, and the system’s going to work.”

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