March 2000

Software Patents Tangle the Web

Continued from page 4

By Seth Shulman

Software Showdown

In one emerging battle to watch, Microsoft announced last fall that it would let consumers name their price for hotel rooms on its travel Web site Expedia. As expected, Priceline.com has now sued Microsoft and its Expedia subsidiary, claiming infringement of its patent on buyer-driven commerce. Industry observers say Priceline.com had little choice but to sue, since to have done otherwise would have welcomed more competitors and been an admission that its patent might not hold up in court.

Although neither side would comment on the specifics of the case, Priceline.com may have a considerably more difficult time proving its patent is "novel," "useful" and "non-obvious" in court than it had at the Patent Office. For one, the patent could be invalidated if Microsoft successfully produces a single piece of evidence of prior art. Expressing confidence in his firm's patents, Walker Digital's Alderucci says the company takes great pains to research prior art with an eye to possible lawsuits. "Any patentee has to consider the chance of litigation," Alderucci says. "We have anticipated it and are very well prepared for it."

Even without a prior art knockout, the case could raise the $64 billion question of whether applying Internet technology to facilitate buyer-driven sales is an "obvious" use of the technology. And Priceline's investors may not like the answer, especially since juries tend to take a more commonsense approach to the question of what is obvious than the PTO has. In 1997, for instance, the software firm Quantel sued San Jose, Calif.-based Adobe Systems for $138 million claiming that Adobe's popular Photoshop software infringed five of Quantel's patents covering painting with a stylus on a computer. The jury sided with Adobe, in an outcome widely seen as highlighting the difficulty of enforcing questionable patent claims on competitors.

Whatever their outcome, the Priceline.com dispute, as well as Amazon.com's ongoing tussle with Barnes & Noble, are likely to set important precedents. If the e-commerce patents stand up, it will certainly precipitate even more patenting of business processes, more litigation and potentially a backlash led by large online firms increasingly hit by debilitating infringement suits. Losses by Priceline.com and Amazon.com could mean fewer companies enforcing e-commerce patents, although in no case is the patenting likely to stop, as the business claims will continue to prove useful for attracting investors and for cross-licensing.