On October 13, 1999, Priceline.com filed suit against Microsoft Corporation and its Expedia Inc. subsidiary, claiming that Expedia.com's recently introduced hotel service infringed on priceline.com's U.S. Patent 5,794,207.  The first claim of the '207 patent reads as follows:

In negotiations between Jay Walker of Priceline and Bill Gates of Microsoft, Mr. Gates is alleged to have said "he would not allow U.S. patents to stand in the way of Microsoft's business objectives." n2

 

Late in 1999, Amazon.com sought, and later obtained, n3 a preliminary injunction against BarnesandNoble.com [now bn.com] concerning infringement of Amazon's US 5,960,411, filed on September 12, 1997.  The first claim of the '411 patent reads as follows:

On October 5, 2000, about one year after the filing of the Microsoft suit, shares of Priceline.com went down 38%, after the demise of its licensee WebHouse Club, which offered name-your-own price gasoline and groceries. n4 For the moment, rival Carclub.com seems willing to fill the breach. n5 The stock price of amazon.com had previously been adversely affected by negative reports by analysts, notably by Holly Becker of Lehman Brothers.

 

On October 2, 2000 arguments were heard in the appeal of the preliminary injunction in the Amazon case.  The lawyer for Amazon argued that the invention reduced the number of steps that customers had to take when making a purchase on Internet.  The invention also solved the problem of customers abandoning their electronic "shopping carts" in the middle of a transaction.

 

The attorney for Amazon also made comments distinguishing the Amazon case from the Priceline case: "A lot of people have mistakenly called this a business method case." The Amazon attorney also suggested the Amazon patent "isn't a lot different than hardware-software" patents.  The attorney suggested that a true Internet business method case is the current dispute between Microsoft Corp. and Priceline.com over the validity of a patent on online reverse auctions. n6 The position of bn.com is that the Amazon patent is invalid in view of four pieces of prior art.

 

In an interesting twist in the Amazon case, OpenTV announced on October 5, 2000 that it filed in the U.S. Patent and Trademark Office an application to broaden the scope of one of its patents [presumably a re-issue] to include single interaction 'one click' shopping and set-top box storage of personal information to facilitate television commerce.  Craig P. Opperman, OpenTV's chief intellectual property officer [CIPO] was quoted: 'We believe the U.S. patent (5,819,034) clearly describes single interaction shopping in client/server and interactive television environments."

 

Pertinent text of the '034 (filed April 28, 1994) is: When a viewer wishes to order an item, a button is pressed on the TV remote control.  This button signals the client computer 22 to display a series of instructions and menus necessary to solicit the information necessary to place the order, e.g. the item number, name and address of the viewer, the method of payment, the credit card number (if needed), etc.  These instructions are generated in the client computer as graphics which are overlaid on the television video image.  It is also possible for a computer generated voice to be generated and combined with the television audio either by voice-over, or by replacing the television audio. The viewer responds to the instruction by providing the requested information via the TV remote control.  When the information requested by the on-screen display and/or voice instructions has been entered by the viewer, it is sent to a central computer via the modem in the client computer.  An order confirmation may be sent in the other direction from the central computer.  The first claim of the '034 is: 1.  A distributed computer system comprising: a source of a data stream providing a series of time division multiplexed packets, ones of which contain auxiliary data that represent a video program, and others of which represent a distributed computing application associated with said video program, and wherein said distributed computing application is repetitively transmitted independent of receiving client computer apparatus during times that said video program is transmitted; a client computer, which includes a packet selector connected to said source for selecting and directing packets containing said auxiliary data representing said video program to a video signal processor and selecting and directing packets containing said associated distributed computing application to a further processor; and said further processor including means to assemble said distributed computing application and execute said distributed computing application to form an interactive video program in which execution of said distributed computing application alters said video program.

 

The debate over business methods patents has been characterized in many ways. The traditional view is summarized in the following: "Patents are the legal safeguard that companies utilize when they create new processes, systems and services.  Patents encourage innovation and investment by preventing companies from simply copying the intellectual property of others, thereby unfairly benefiting from their investment and innovation.  The patent system, which has benefited American consumers for over 200 years, was created to prevent what happened here." n7 On the other side, Herby Olschewski states: "The problem with patent law-and the problem for the people at the USPTO who enforce it-is that it's 19th-century construct trying to deal with 21st-century issues." Tim O'Reilly states: "The Web has exploded because it was an open platform that sparked countless innovations by users.  Fence in that platform and who knows what opportunities will never come to light? Patents such as these are the first step in vitiating the Web, in raising the barriers to entry for the technological innovators who might otherwise come up with great new ideas that Amazon could put to use.  If players succeed in replacing that gift economy with a dog-eat-dog world in which everyone tries to keep their advances to themselves-and worse, tries to keep others from replicating them-they'll soon find themselves hostage again to commercial software vendors."

 

I myself recently heard an almost Hobbsian, anti-patent discourse, from an entrepreneur who one might have thought might seek protection of the patent system. n8 His view was that the market should belong to those who responded quickest to market needs.  In an area of rapid innovation, he wanted to rely on his on market instincts, not on patent protection, to secure his market share. He was willing to assume the risk of someone designing around him, simply because he thought he was the best and he would get there first.  He did not want to see barriers erected, either by others or by himself.

 

As a separate matter, Congressman Rich Boucher (D-VA) has introduced HR 5364 to resolve some issues associated with the flooding of the PTO with "business method" patent applications.  It gives a definition of business method patent
and requires publication of all business method patents within 18 months after filing.  There would be an opportunity for pre-grant proceedings and post-grant oppositions.

 

NAPSTER

 

On October 2, 2000, n9 the Ninth Circuit Court of Appeals heard oral arguments in an appeal concerning a preliminary injunction against Napster.  The attorney for Napster, David Bois, argued, as to a charge of contributory [copyright] infringement, that the Napster service was analogous to the sale of videocassette recorders in Sony Corp. of America v. Universal Studios Inc., 464 US 417 (1984). In contrast, the attorney for the record companies argued an analogy to the operators of the swap meet [who allowed sales of counterfeit recordings] in Fonovisa Inc. v. Cherry Auction Inc., 76 F.3d 259 (CA9 1996).

 

As to the VCR analogy, the comparison of a device to a service is imperfect. Also, the "flow chart" of copying is different between VCR (generally, authorized signal to many individual VCR users) and Napster (numerous individual to individual contacts moderated by Napster; so-called peer-to-peer or P2P client-based internet software).  Further, from a practical point of view, the act of copying to a VCR tape (or, even earlier, to an audio tape) renders an imperfect copy, unlike a digital copy, which is basically as good as the original, and, as such, more valuable, and more easily recopied. n10 Napster allows customizing of individual's preferences, allowing each customer to download just the desired music.  As to the flea market analogy, the swap meet owner had a chance to view and to control his premises.

 

In the Oct. 16 issue of the National Law Journal [NLJ], results from a NLJ/DecisionQuest juror survey indicated that 41% of those polled did not think people who copied copyrighted music over the Internet should pay for it; 53% said they should pay. n11 The Napster experience is changing expectations and creating a new set of attitudes.

 

IN PASSING

 

One notes the odd article "Granting patents can foster crime," that appeared in the Sept. 25, 2000 issue of National Law Journal. n12 Of the re-examination of the first BlackLight patent alleged by Bob Park in the August 18 "What's New", Q. Todd Dickinson indicated he was aware of no re- examination and Professor Park (who has been in the hospital) is not yet returning emails on the topic.  Samson Vermont discusses John W. Schlicher's analysis of "quid pro quo vs. incentive theory" in the Oct. 9 "Patent Strategy and Management." As to the analysis therein, I would like to introduce Mr. Vermont to my entrepreneur friend, who thinks the inventor captures value by moving quickly and who views disclosure as inevitable (ie, trade secrets irrelevant).  For a fast-moving technology with lower investment costs, society benefits from the creation of a rapid-paced dynamic with lowered barriers and transaction costs.  For more phlegmatic areas, with large investment costs (e.g., pharmaceuticals), protection to ensure recoupment is necessary for society to obtain the invention.  Time and money both have to be measured, and it is unlikely a "one size fits all" mold is the optimum economic model for societal benefit.  In short, the development of Internet-related inventions is not like the Manhattan project.  As to the remark about the few journal articles which cite patents, I would dispute the relevance based on the different custom and practice between journal cites and patent cites, and, separately, because neither journal nor patent citation practice necessarily establishes or credits discovery.

 

 

ENDNOTES

 

n2 Paul Davidson, Priceline.com: Microsoft violated patent USA TODAY (10/14/99); Priceline.com Sues Microsoft For Patent Infringement.  (BUSINESS WIRE) -- Oct. 13, 1999.

n3 Amazon.com Inc. v. Barnesandnoble.com Inc., 73 F. Supp. 2d 1228, 53 UPQ2d 1115 (ED Wash. 1999)

n4 Denise Lavoie, "Priceline.com shares plunge 38%," AP Business, Oct. 5, 2000; Julia Angwin, "Priceline founder closes online bidding site for gas and groceries," Wall Street Journal, B1, B7 (Oct. 6, 2000).  The article quotes Holly Becker: "The name-your-own-price model is obviously not that extendable beyond air, hotel, and car rentals."

n5 Michael Liedtke, "WebHouse's Collapse Fuels Rival," AP, Oct. 6, 2000.

n6 Jonathan Ringel, "Federal Circuitry," American Lawyer Media, Oct. 2, 2000.  Jonathan Ringel, "Federal Circuit Devotes Extra Time to Amazon's Single Click Patent," American Lawyer Media, Oct. 3, 2000.

n7 Attributed to Evan R. Chesler, Esq., head of the litigation department of Cravath, Swaine & Moore and lead attorney for priceline.com in its suit (BUSINESS WIRE) -- Oct. 13, 1999.

n8 On a related note, Time magazine quotes Aly Aydar as stating that Napster could not have been written by a team or by anyone 21 or older.  Separately, Time spoke of the possibilities of the [copyright] law either endorsing file sharing or driving it into the criminal underworld and of programming which could either share copyright information or encrypt it so that it could never be shared.  There are multiple potential solutions to each of these intellectual property problems, and it is not clear that the innovators are aligned with the classic patent/copyright paradigm.

n9 Coincidentally, the October 2, 2000 issue of Time magazine ran a cover story "What's Next for Napster" with a picture of Shawn Fanning.  Time noted that the Napster software does everything a Web application is supposed to do: it builds community, it breaks down barriers, it is viral, it is scalable, and it disintermediates.  Time noted, after discussing CD to MP3 conversion, "Then, as if everyone had just been waiting for it, Napster -- some kid's Big Idea -- appeared.  And suddenly all these pieces of the puzzle fit together.  We could all become music pirates because it was just so damn easy to do -- easier than ordering a CD online.

n10 Note the possibility of "watermarking." Watermarks are digitized instructions, placed within the digital copy, that might identify the computer the music was initially downloaded to and place limitations on subsequent manipulation.  In a different direction, music files from unknown sources might contain undersired entities such as cuckoo eggs, Trojan horses, or file-destroying viruses.

n11 Victoria Slind-Flor, "Juror Outlook Survey: Many want to copy music, movies for free, "Nat. Law Jour., Oct. 16, 2000.

n12 Dan Markel, NLJ, A21 (Sept. 25, 2000).  "Not wanting to judge the value of a given work or device, Congress tells the Copyright and Patent offices to stick to neutral criteria.  As a result, creators of child pornography, or other works involving actual illegality, such as drug use, can register copyrights for these works.  Similarly, corporations may receive patents on drugs or devices that they've developed with stolen materials or that they've tested illegally on human subjects -- all in violation of applicable criminal laws."