March 2000

Software Patents Tangle the Web

A profusion of new software patents on Internet business methods puts our notions of intellectual property to the biggest test yet.

By Seth Shulman

Here's a natural idea for an e-business: an "experts online" Web site. With a team of specialists willing to answer queries over the Web and a garden-variety search engine to pair these authorities with advice seekers, you could have an Internet business up and running in no time, fielding questions on everything from accounting to xerography. To make the site really slick, you could let users select the credentials they want in their experts and the fee they are willing to pay.

But before you tap your savings there is something you should know: This business has been patented.

Sounds hard to believe, but last year the U.S. Patent and Trademark Office (PTO) granted exclusive rights to this "invention" to multibillionaire entrepreneur Jay Walker and his Stamford, Conn.-based intellectual property firm, Walker Digital. U.S. Patent No. 5,862,223 ("Method and apparatus for a cryptographically-assisted commercial network system designed to facilitate and support expert-based commerce") contains more than 200 separate claims that spell out-in the broadest possible terms-the idea of dispensing expertise via the Internet.

To outsiders unfamiliar with the latest developments in the through-the-looking-glass world of intellectual property claims, Walker's patent might seem absurdly broad. But broad patents on software-enabled businesses are fast becoming commonplace, especially in the burgeoning field of e-commerce. According to Q. Todd Dickinson, commissioner of the Patent Office, which is a division of the U.S. Department of Commerce, his agency is now receiving over 2,500 applications per year for so-called "business method software" patents.

To get a patent-whether for a new type of toothbrush or an energy-saving light bulb-an invention has to be "novel," "useful" and "non-obvious" to an expert in the field. And as Dickinson explained recently to TR, the PTO views ownership claims on business methods like Walker's as "actual, describable, discrete inventions" that meet these time-honored criteria.

Although Dickinson makes the new patents sound like business as usual, the fact is that the patent system has recently moved deep into unmapped terrain. A series of U.S. court decisions over the past several years, culminating in an influential 1998 ruling, has flung the doors wide open to patent claims on all manner of software-mediated business concepts, from online insurance policies to electronic voting.

Most of these new ownership claims have yet to be tested in the courts, but the number of high-profile disputes is mounting. In one closely watched case, a court injunction at the end of 1999 forced the online bookseller Barnes & Noble to remove from its Web site the feature that allows cybershoppers to buy books with one click of their mouse. The reason? Amazon.com's exclusive patent on the so-called "1-Click" purchasing method.

With billions of dollars in Internet sales at stake, the proliferation of broad e-commerce patents is sowing confusion, uncertainty and a good deal of cynicism among many software developers and business leaders. Some legal experts, such as Robert Merges, a law professor at the University of California, Berkeley, believe the sheer number of patents now pending on business methods has "pushed the patent system into crisis."

Others claim that a system designed to protect innovation is being turned into a weapon for crushing competitors. As law professor James Boyle of American University in Washington, D.C., puts it, "The Patent Office is issuing patents for blindingly obvious things just because they are being done with software or on the Internet." Boyle says the patents are already causing "a chilling effect on electronic commerce."