November 13, 2009
Clock Winding Down On Patent Scams?
Retail Realities: Supreme Court Seems Ready To Snuff Out Frivolous Patent Applications
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(IStockPhoto)
Relief might be in sight for retailers afraid that somebody somewhere has secured a patent covering some mundane process they regularly do in the course of selling stuff - be it the way customers swipe payment cards, their methods for collecting loyalty program data or the functioning of their Web site's shopping cart feature.
The U.S. Supreme Court on Nov. 9 heard arguments and there were indications that it might snuff out process patents altogether. Process patents, also called business method patents, have been derided as frivolous because, some critics charge, patent applications are created after the process has been routinely performed for many companies for years but the "inventor" is merely the first to try getting a patent on the process.
Seven e-tailers, including J.C. Penny, Talbots, L.L. Bean and Overstock.com, are urging the high court to clamp down on patent violation lawsuits by so-called "patent trolls," which are often shell companies claiming rights to vague business-method patents. The retailers note they routinely settle the patent infringement claims related to their Web sites rather than spend millions on litigation.
Many of the Supreme Court justices expressed significant skepticism about whether the current system should be maintained. Questioning one attorney about a financial approach patent, Justice Anthony Kennedy raised a Congressional intent argument. "In your view, clearly those would be patentable: the explanation of how to compile an actuarial table and apply it to risk. It's difficult for me to think that Congress would have wanted to give only one person the capacity to issue insurance."
Justice Stephen Breyer was questioning the very premise of the process patent when used in an overly broad manner. "Every successful businessman typically has something. His firm wouldn't be successful if he didn't have anything that others didn't have. He thinks of a new way to organize. He thinks of a new thing to say on the telephone. He thinks of something. That's how he made his money. It's new, too, and it's useful, made him a fortune. And your view would be anything that helps any businessman succeed is patentable because we reduce it to a number of steps, explain it in general terms, file our application, granted?" Breyer asked.
"Well then, if that were so, we go back to the original purpose of the Constitution," Breyer said. "Do you think that the framers would have wanted to require anyone successful in this great, vast, new continent because he thinks of something new to have had to run to Washington and to force any possible competitor to do a search and then stop the wheels of progress unless they get permission? Is that a plausible view of the patent clause?"
The newest member of the court, Justice Sonia Sotomayor, asked how far process patents could go. "How do we limit it to something that is reasonable? Why not patent the method of speed dating?"
Chief Justice John Roberts Jr. also weighed in, questioning legal arguments that a process patent needs to interact with a machine. "If you develop a process that says ‘Look to the historical averages of oil consumption over a certain period and divide it by two,' that process would not be patentable. But if you say ‘Use a calculator,' then it is?"
The amicus brief filed by the retailers is one of dozens submitted to the high court in the pending case of Bilski v. Kappos. In the case, two inventors, Bernard Bilski and Rand Warsaw, are appealing the rejection of an application for a patent that would cover their method of hedging risk in commodities trading. A federal circuit court found the method didn't qualify as patentable because it wasn't tied to a particular machine or transformative of any physical object.
Because the case deals with whether patents should be granted for methods, it tests whether software programs, including those used by E-Commerce sites for features such as online shopping carts, can be patentable.
The Supreme Court hearing took place six days after Card Activation Technologies, a company that has settled lawsuits it filed against many major retailers for infringing on its "technology for the activation and processing of transactions related to debit-styled cards," announced the hiring of more lawyers and that as many as "45 retailers and infringers will be sued immediately."
In their Supreme Court brief, Crutchfield, Newegg, L.L. Bean, Overstock.com, J.C. Penney, Talbots and Hasbro argued that "Internet Retailers know-and have paid dearly for that knowledge-that these (federal) doctrines were not designed for, and are not up to, the task of weeding out unpatentable business method claims on the Internet. These patents should be nipped in the bud because they are not the proper subject matter of a patent grant, and not just uprooted only after they have been allowed to flourish."
The retailers said that the number of patents is staggering and that the Supreme Court must step in before permanent damage is done to e-tailers. "It is currently estimated that approximately 11,000 patents cover various aspects of the Internet, many, if not most, of which, are business method patents, i.e., patents that claim inventions not of specific technologies, but of vaguely worded ‘methods' for doing something. If the aperture is opened wider to include software patents, it is estimated that there currently are more than 200,000 such patents. In other words, literally thousands of people can claim partial invention of the Internet and thus, potentially, can file suit to claim a share of the $178 billion in annual Internet sales."
The chains also tried to link their claims with the original premise of U.S. Patent law, which was to promote important inventions by making them public, but simultaneously protecting the inventors from mass theft. That objective, the merchants argued, is not being advanced by many process patents today.
"The increase in the number of business method patents has been accompanied by a corresponding eruption in the number of patent lawsuits filed," the filing said. "It is apparent that business method patents asserted against Internet retailers are not being used to promote the progress of science and useful arts, but simply to extract hundreds of millions, if not billions, of dollars from the most successfully innovative members of the digital economy through monopoly claims on E-commerce."
A big part in a retailer's decision to settle out of court is the cost and risks involved in producing the reams of documents required in a patent infringement case, according to the brief. In patent cases in which a company's Web site is alleged to infringe on a business method patent, "plaintiffs often provide only a handful of screen shots in purported satisfaction of their obligation to provide detailed infringement contentions, claiming, successfully, that they cannot provide additional information until they obtain all documentation concerning the design and operation of the Web site, including the highly confidential source code," the brief said.
"Adding insult to injury, because the language of the patent claims themselves is so ill-defined, everything relating to the design and operation of the Web site is considered relevant to such claims and thus subject to the plaintiff's demand that all documents relating to the Web site be produced so that the plaintiff can discover where and how the alleged infringement occurs. For a retailer with a highly successful retail Web site, this is being asked to hand over the keys to the kingdom."
The retailers contend patent trolls don't stop upon reaching a settlement but, view it as "an invitation to the next suit." The brief notes Amazon has been sued 131 times for patent infringement and it points to other companies selling products that "one does not ordinarily associate with patent infringement" as being in a similar boat: Victoria's Secret has faced 29 patent suits and Saks Fifth Avenue has faced 27.
"Virtually every one of these lawsuits has settled. Indeed, since business method patents almost never concern a company's core business, and thus are not worth millions of dollars to contest as a drug patent might be for a drug manufacturer whose signature drug is targeted by a competitor," the brief said.
By Evan Schuman
Special to CBSNews.com
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- Our patent laws do very little to protect your ideas and really only serve to make lawyers lots of money. The system is a failure.
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- General ideas for new products should not be patentable. I shouldn't be able to patent holographic television and not describe in the patent exactly how it would work and further, not have to put one dime out of my own pocket to research how my patent would work. Maybe people should have to have a working prototype in order to patent products and concepts.
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- The company I worked for (10 years) was sued for $30,000,000 for patent infringement for selling a product that was being sold and distributed by other companies for years that no one knew was patented. Unless a company buys very expensive patent insurance, normal liability insurance does not cover patent infringement lawsuits.
After $1,300,000 in attorney fees the case against the company I worked for was dropped because the owner of the business bluffed the other party into thinking the company had millions to take the case to a jury trial where of course the other company would lose their bogus lawsuit. The company owner refused to submit to extortion and blackmail and settle the nothing case for 2 million dollars.
The company went bankrupt and everyone lost their job because it had spent all its cash reserves on court costs and the banks would not loan it money to continue becasue of the lawsuit on record.
It happens all the time.
The entire patent system is a joke.
What most people don't know is that a company can sue you personally for patent infringement if you just use a product that they say violates a patent even if you bought it at Wal Mart and their patent is bogus. They can take you court until you run out of money for an attorney, get a default judgement against you, and take everything you own.
There is no defense to patent infringement except the patent is not valid or the company failed to make it known (with proper product markings etc.) they have a patent on the product. Not knowing there is a patent or that you are violating a patent means nothing.
I expect a class action patent infringement action against every American one day.
Now some so called board expert will say I am wrong but trust me, I worked directly with the defense attorneys and I know what I am talking about. - Reply to this comment
- It's pretty funny if they can steal your idea then charge you a royalty for it afterward. I remember being in class and the teacher said that you cannot
make a piece of jewelry depicting a mother and child as that has been patented and the owner of the patent is very zealous of defending it is unlikely that the owner of the patent invented the idea as its a very common theme. On the other hand, I should check to see if the Holy Cross or Star of David has been patented yet. - Reply to this comment
- The court unfortunately mixes up the requirement that patents be "non-obvious" with the question of statutory subject matter. Courts make that mistake all the time. But I hope the Supreme Court does not fall further into that trap by the time they write their decision, or a lot of worthwhile subject matter won't be patentable at all. It would be a real setback to the inventors, but more importantly would reduce the incentives of companies to invest in the development and marketing of their inventions.
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- The court is finally starting to get it. And especially software programs. The general purpose computer was meant to be programmed by software. Not hamstrung by a bunch of patents for the first person to add two numbers, or fill a buffer, or develop a program for inputting text and reading it back. Today it is not the patent that provides protection for research and development costs. It is the speed with which you bring it to market in a commercially-viable way. Rapid and continuous innovation are a businesses best protections. The thought-leaders and marketing-leaders win. Those who copy-cat rarely have the insight or knowledge to advance new technology and the public generally recognizes this.
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- Oh, yes, yes, yes! Please let them fix this. It's gotten so stupid. My old company, we had to file patents for everything imaginable - because if we didn't, some other idiot would patent a simple concept, then sue us to make us pay. It's gotten absolutely insane. Some idiot patented one-click shopping - the "radical" idea of letting you buy something with one click rather than several. So stupid!
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- Fantastic article! Thanks for covering the story. I pray the court kills these method patents, and also all software patents as well.
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