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Over the past several years, a number of companies have been awarded patents for how they do business on the Internet. Last year, the Patent and Trademark Office received approximately 7,800 applications for “business method” patents, up from about 1,300 such applications in 1998. Roughly half of these applications lead to patent approval. The incredible scope of the monopoly power created by these business method patents has launched a firestorm of controversy. Ultimately, the pendulum may swing back against such patents. THE STORY UNFOLDS This story began in 1998 — a while back in Internet time — when a case called State Street Bank & Trust Co. v. Signature Financial Groupheld that business methods constitute patentable subject matter. Soon after the State Streetdecision, the PTO became crushed by an avalanche of patent applications, not just with respect to hardware and software, but also as to how companies do business in cyberspace. Amazon.com was issued two of the well-known business method patents by the PTO. One of these patents relates to the ability to buy an item on the Internet with single mouse click. Although the “one-click” method of online purchasing may seem that it should be a ubiquitous Internet tool, Amazon policed its one-click patent to the point of suing its competitor barnesandnoble.com for patent infringement. Amazon’s other well-known business method patent has to do with its affiliate program for customer referrals. Priceline.com also was at the heart of the business method patent controversy. Priceline’s founder, Jay Walker, indicated that building up enforceable patents was at the core of Priceline’s Internet strategy. Indeed, Priceline claimed rights to the “name your own price” idea, and sued Microsoft’s Expedia for allegedly using a similar concept. Priceline applied for other business method patents, as did a variety of other Internet players. PUBLIC BACKLASH Perhaps not surprisingly, a public backlash ensued. Richard Stallman, founder of Free Software Foundation, was so concerned about Amazon’s one-click patent that he called for a boycott of the Amazon. Other campaigns to boycott Amazon emerged. A site named nonamazon.com even linked potential purchasers to alternative merchants. JEFF BEZOS TO THE RESCUE Sensing the public mood, Amazon founder and CEO, Jeff Bezos, has jumped into the turbulent waters of the business method patent debate. After having tried to conquer the world by way of Amazon’s business method patents, Bezos suggested restructuring the U.S. patent system. He proposed reducing the life of a patent from the current 17-year term (20 years from time of application) to three to five years for software business method patents. The underlying thought seemed to be that because the software world moves so much faster than the rest of the world, the life of a patent in this realm should be much shorter. Bezos noted that fewer people would apply for three to five year patents, because the return on the investment would not always justify the cost of applying for these patents. In addition, Bezos recommended a one-month comment period before a patent could be issued by the PTO. He also proposed a database of “prior art” to help inform the PTO about existing innovations. Most amazing was Bezos’ suggestion that the recommended short term for business method patents be applied retroactively, even to Amazon’s patents. OTHERS CHIME IN While Bezos’ proposals have some appeal, they have not received overwhelming support. Indeed, for companies that survive based on the protection of their intellectual property, Bezos’ plan could be their worst nightmare. And others are worried that a shorter patent term for software could lead to the erosion of the term of patents in other industries. The PTO responded to Bezos’ plan succinctly by stating, “We believe the existing patent law works very well for all technologies.” A spokeswoman for the PTO also pointed out that limits on patent life spans exist as a result of the re-registration process. If a patent holder does not want 17 years of protection, the patent holder simply can chose not to pay re-registration fees at the four, seven and 11 year junctures. Others believe that the root problem is not so much about the state of the law, but has more to do with funding for the PTO. Accusations have been made that the government has diverted fee-income funds from the PTO to other programs. It has been argued that this has caused the PTO to be ill equipped to train and retain skilled examiners and to develop prior art databases. Indeed, Rep. Howard Coble (R-NC) issued a statement urging sufficient funding of the PTO to allow for the hiring and retention of more examiners to ensure that only “quality patents” are issued. THE WORM BEGINS TO TURN IN THE COURTS The momentum against Internet business method patents is building not only in public debate, but also in the courts. Indeed, Amazon’s one-click patent, the poster child of cyber-business method patents, recently was dealt a major blow by a federal appellate court. The U.S. Court of Appeals for the Federal Circuit found that “Barnes & Noble has mounted a serious legal challenge to the validity of Amazon’s patent,” and overturned a preliminary injunction that prevented Barnes & Noble from using a one-stop shopping feature named Express Lane. The case has been sent back for trial, which likely will occur in the fall of this year. EXPERTS DEFEND PATENTS BEFORE CONGRESS Congress, of course, is interested in the business method patents controversy, and just a couple weeks ago entertained comments from experts in the field. The House Intellectual Property Subcommittee was told that the practice of the PTO in awarding business method patents should not be stopped as it has been improved by recent internal reforms. Specifically, Michael Kirk, head of the American Intellectual Property Association, reportedly stated, “[T]here is no basis for excluding new and non-obvious business method innovations from protection under existing patent laws.” And only Andrew Steinberg, Vice President of Travelocity.com, spoke out in dissent, reportedly stating that “the proliferation of these patents is a serious threat to the growth of electronic commerce.” STAY TUNED The debate rages on, and as it does, you can still count on more business method patent applications and litigation seeking to enforce business method patents. Like the Oklahoma land grab, people feel the urgent need to stake our territory — but this time not on Earth, but instead in cyberspace. Eric J. Sinrod is a partner in the San Francisco office of Duane Morris LLP and he focuses on technology issues and litigation. His Web site is sinrodlaw.com , and his firm’s site is Duane Morris LLP .

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