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Aliens built the pyramids. Elvis is alive and well. And the Internet is an open frontier.
The recent failures of Napster and MP3.com in U.S. courtrooms suggest that the latter claim is in the proper company. In the words of U.S. District Judge Jed Rakoff, who ruled against MP3.com in a key copyright infringement case, "Some companies operating in the area of the Internet may have a misconception that, because their technology is somewhat novel, they are somehow immune from the ordinary applications of laws.... They need to understand that the law's domain knows no such limits."
The judge was referring specifically to copyright law as it applies to digital content distribution, but he could just as well have referred to patent law as applied to e-business processes. That's right: Software-based business methods have been patentable since 1998. And now that such methods often mean the difference between success and failure in e-business, the U.S. Patent and Trademark Office (USPTO) is under a barrage of e-business patent applications - more than 2,600 were filed in 1999, 100 percent more than the previous year - and some patent holders are starting to throw their weight around.
The good news is that your IT organization could be sitting on top of some lucrative, "exclusive" processes (provided you have the time and considerable funds available to patent them). The bad news is that your painstakingly developed e-business model may violate some other company's patented intellectual capital, and you don't even know it yet.
Patent Pending
For approximately 30 years, lower courts have defined a software algorithm as just another set of discrete industrial processes, which have been patentable since 1952. (This notion, which makes conceptual knowledge a commercial asset, is anathema to open-source advocates.) This broad definition was extended in 1998, when a Federal appeals court confirmed a verdict in State Street Bank vs. Signature Financial Group Inc. (1996) that upheld a patent for an automated mutual fund accounting system. The judges in majority - led by Judge Giles Rich, who as a U.S Congressman helped write the 1952 Patent Act - ruled that software-based business methods are patentable if they lead to a "useful, concrete, and tangible result"; in this case, a mutual fund share price.
The floodgates, or rather the doors to the USPTO, were opened. For example, since 1998, one-click ordering, "buyer-driven" commerce, and online shopping carts have all been patented - by Amazon.com, Priceline.com, and Open Market Inc., respectively. Amazon.com has invoked its patent to prevent a major competitor, Barnes&Noble.com, from implementing a similar process, and Open Market intends to make its patents available for licensing.
These activities have been heavily criticized, but most of the blame lies with the overloaded USPTO, which is hardly the final authority on Internet technology. Under State Street Bank, software-based business methods are patentable only if the process involved is "nonobvious," or new and unique. But few people would use either adjective to describe Open Market's electronic shopping cart, which is merely the digital analog of a mundane, time-tested method. And one company, DE Technologies LLC, is on the cusp of receiving a patent for software-based international commerce, even though such processes have been common for years. Thus, never assume the patent-worthiness of an e-business process.
Be Aware
The "offensive" value of patents are obvious, but they have defensive value as well: Because preexisting e-business processes, or "prior art," would invalidate a patent application, issued patents can inoculate your organization against similar competitive processes. Furthermore, they can serve as important bargaining chips in licensing negotiations.
In this unsettled environment, protecting patentable intellectual capital, as well as encouraging its development, could well become a mainstream function for the CIO. The issue deserves your attention.
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