March 2000

Software Patents Tangle the Web

Continued from page 1

By Seth Shulman

Edison 2.0

It will be years before the ultimate winners and losers emerge from this growing thicket of intellectual property claims. But one thing is clear: e-commerce patents are pulling in capital as surely as an electromagnet attracts scrap metal. No one better embodies the current trends than Jay Walker himself, a man who was compared recently to Thomas Edison on the cover of Forbes magazine. With a nod to his illustrious forebear, Walker likes to call his firm, Walker Digital, an "idea factory." But it operates far differently than Edison's outfit ever did. Fully a third of Walker's 60 employees staff its legal department: electronic scribes who spin out an average of two highly conceptual patent applications every week.

One of these patents-governing "buyer-driven sales" over the Internet-led to Priceline.com, a Web site begun as a means to allow consumers to bid for unused seats on airplanes and now scrambling to broaden its offerings to include everything from hotel rooms to groceries. The company, like so many Internet startups, has never turned a profit. But this hasn't stopped investors from driving Priceline's stock market value north of $10 billion, with Walker himself amassing a staggering paper fortune in the process. And much of this enormous windfall owes to the 20-year, government-sanctioned monopoly that Walker's patent provides on Priceline.com's core business method: using the Internet to let buyers name the price they're ready to pay, and letting sellers decide whether or not to meet it.

If Priceline.com's ability to attract investment is any measure, Walker Digital's formula is working, and the firm has hundreds more patents in the works. Yet many of these are certain to raise eyebrows, like the one that describes the invention of ordering fast food from your Palm Pilot before arriving at the drive-up window. According to Boyle, even if you accept the notion of patenting business methods, some ideas are just "far too obvious" to merit a patent. By allowing Walker and others to own these ideas, he says, "the Patent Office is creating a ridiculous situation." Not surprisingly, Dean Alderucci, head legal counsel for Walker Digital, concurs with PTO commissioner Dickinson that these kinds of ownership claims represent "a very logical extension of the patent system" we have always had. "If you have a new and useful business method," Alderucci says, a patent can "force the money out of it and benefit the public."

While Walker may excel at the game, his is not the only company with a strategy at the patent office (see table on last page: "Will Patents Rule Commerce on the Net?"). The firm CyberGold, for instance, has patented the idea of using incentives to reward consumers for paying attention to Internet ads. Open Market, a Massachusetts-based startup whose motto is "The Future of Business," now owns three patents that are arguably indispensable to conducting e-commerce. One, U.S. Patent No. 5,724,424 lays claim to the very idea of making secure credit card payments over the Net. And Patent No. 5,715,314, covers the notion of electronic shopping carts, a system used by many e-commerce Web sites to let shoppers mark items for later purchase. The list goes on and on.