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Amazon's fight highlights online patent problems for NZers
The US Court of Appeals brought to a temporary halt last month Amazon's endeavour to protect its one-click business method patent.
The court overturned a preliminary injunction preventing Barnes & Noble from using its version of one-click shopping.
The decision is the latest instalment in a patents debate which is spanning the globe.
The debate has relevance to New Zealand companies: if you do business on the net you do so in a global context and may face unanticipated barriers.
Amazon.com had filed a suit against Barnes & Noble.com, claiming that the one click ordering system infringed one of its patents. Amazon's single-click system stores a user's billing and shipping information, so that it doesn't have to be re-entered on each visit.
Amazon is one of many software companies that have used patent rights peculiar to the US system to protect their market share. AltaVista, one of the largest search engines on the web, announced in January that it would start to enforce its search-related patents.
AltaVista claims that it was the first to spider and index the web and believes that virtually everyone who indexes the web is in violation of at least several of its key patents. The company announced that it is trying to ensure growth through leveraging their position in search engine licensing, which means it is likely to start by targeting other search engines.
The software-patenting debate centres around the impact of such patenting on innovation, enterprise and competition. Global opinion remains divided; US and Japanese software developers can patent their applications; Europeans cannot.
The European Commission has begun consulting on lifting a ban on software patents. This is in part to address the fact that a limited form of software patenting is taking place in Europe as companies exploit the "technical application" loophole.
European critics of software patenting point to this latest announcement by AltaVista as evidence that "patenting inflation" in the US Patent Office is out of control.
Anti-patenting organisations such as the Eurolinux Alliance and the Free Software Foundation draw distinctions between software design and tangible physical design - the most important being the fact that there are no revolutionary leaps forward in software design, but incremental steps forward, building on previous ideas.
If the ban on software patenting was lifted these organisations believe that companies with a strong patent portfolio would have the ability to strangle the development of the web and related technologies.
Instead of fostering innovation, the same organisations believe that patenting is creating juridical uncertainty thus preventing knowledge sharing and innovation. A software patent is perceived as a trade barrier protecting countries such as the US against foreign innovation.
It is easy to see why companies apply for patent after patent. The motivation extends beyond the protection of property; patents can provide companies with a handy revenue stream in the way of royalties derived from licensing. For some multinationals this creates a $1billion business annually. AltaVista is one of many dot.com companies struggling in the face of the deflated technology market. As advertising revenues fall, AltaVista is looking to its patents to provide income.
In addition to earning royalties, big corporates are increasingly using patents as a means to ward off competition. Some have targeted this as anti-competitive behaviour. The US Department of Justice disagrees. According to its Antitrust Guidelines for Licensing Intellectual Property: "Market power does not impose on the intellectual property owner an obligation to license the use of that property to others."
But how practical is it to actually enforce these software patents? British Telecom claims it patented hyperlinking and announced last year that it intended to collect a royalty from every US Internet service provider. We haven't heard anything since. AltaVista has said that it will start litigation proceedings in the first three months of this year. But that hasn't happened yet.
France and Germany are said to be against lifting the ban on software patents and the UK is currently seeking input on the potential impact of such patents on innovation and growth as well as feedback on the system in the U.S.
If Europe signals that it will grant software patents then New Zealand may be forced to follow suit. This presents both threats and opportunities for those in the software industry here.
Patents are granted territorially. If you wish to do business on the web, you need to consider the risks posed in other jurisdictions, including de facto trade barriers. If there are patents which you are infringing you should consider likely consequences. Conversely if you see your software as having a wide application and wish to break into the US market you should seriously consider the advantages of such patenting.
Patents can provide investors with an incentive to invest. Investors are not going to finance innovations unless they can be assured of a return on investment. Patents guarantee exclusivity of the rights to the invention and provide protection against risks of exploitation.
It is not clear how far the net will expose the New Zealand web community to cross border patent infringement. However if you have a website here which can be accessed from the U.S then you could be a target.
Similarly if you have a technology, unusual business method or a computer software product which may have wide international application you should consider whether there is any merit in using the leverage of an U.S. patent. There is a high cost but there may be a sufficient advantage.
The lesson to be learned from this for New Zealand businesses?
Think globally. In your outlook that is. If you are developing software or have an invention with a great future you should consider the global context and seek protection, which will encompass that potential and be attractive to investors.
Michelle Chignell is a senior associate in Bell Gully's Communications, Technology and Media team
Disclaimer
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.
