InformationWeek
Defining The Business Value Of Technology
February 22, 1999
 Print this story |
continued...page 2 of 3
| Related links: |
|
|
| And from our sister publications: |
|
|
Another company that's aggressively guarding its IT assets by legal means is DHL Worldwide Express, the $5 billion transportation company in Redwood City, Calif. DHLmakes legal protection part of its application development process. "We have a development methodology where at a certain milestone, we bring in the legal department," says Jeff Lucchesi, VP of application development at DHL. Typically, a project manager contacts the legal department once application specifications are set. The lawyers recommend a method for protecting the software--usually a combination of copyrights and trade secrets.
For software DHL distributes to its customers, the company uses copyrights to prohibit users from modifying an application or duplicating it for redistribution outside their organizations. For example, DHL copyrights DHL Connect, which customers download from DHL's Web site and install on their PCs to ship packages from their desktops. Before customers install the app, they must accept a license agreement, which states that DHL owns the product. The license also forbids users from reverse-compiling the software's object code to get to the source code, which DHL holds as a trade secret.
For software it develops for internal use, DHL uses copyrights to prohibit employees and contractors from modifying, duplicating, or redistributing code. In addition, DHL holds information about internal-use software as trade secrets. When employees join the company, they sign an agreement obligating them to keep trade secrets confidential while they're at DHL and after they leave. They also sign "invention assignment" agreements, which document any technologies employees invented prior to joining the company. After employees sign the agreement, all technologies they invent while employed by DHL belong to the company.
The most powerful legal protection a company can use to protect IT assets is a patent, which essentially gives its owner a monopoly on an idea. Patents are also the most expensive. Applying for a software patent costs from $9,000 to $12,000, and legal fees mount if a company negotiates with the patent office over a rejected application. That's why patents for IT systems have been limited mostly to software vendors and industry heavyweights.
But that's changing. Last month, the U.S. Supreme Court gave its blessing to a U.S. appeals court decision in State Street Bank & Trust Co. v. Signature Financial Group Inc. in favor of Signature, which sued State Street for allegedly replicating its patented investment application. Signature's patent covers not only its application but also its unique "hub-and-spoke" method of centrally calculating investments for several mutual funds--a method built into its software.
"The immediate and important effect of the State Street case is that you can patent business methods," says Frank Scherkenbach, principal at Fish & Richardson, an intellectual-property law firm in Menlo Park, Calif. Previously, many U.S. courts had relied on an outdated rule that said business methods were too abstract to be patented. They also relied on a rule that said software couldn't be patented because mathematical algorithms aren't original inventions. The State Street decision laid those rules to rest, stating that software and business methods produce tangible results, and if the method of producing those results is unique, it can be patented.
Deutsche Financial Services in St. Louis holds a patent on a credit system. After the State Street decision, it applied for another patent on what it considers a unique E-commerce business model. The company maintains that the Internet has made intellectual capital more valuable and protection more necessary. "E-commerce has created an environment where many companies, at a very modest cost, could compete with us in very short order," says Phil Fasano, executive VP and CIO at DFS.
Many Internet startups are now scrambling to file for patents. The U.S. Patent And Trademark Office assigned 1,016 Internet- and networking-related patents last year, a 109% increase over 1997. One high-profile patent went to CyberGold for its system of inducing consumers to interact with Internet ads. This month, ProFlowers.com applied for a patent on its system of distributing flowers ordered over the Internet. Last month, Digital River applied for patents on six technologies related to buying and downloading software over the Net.
Walker Digital's 25 employees file two patent applications a week for business methods and systems they develop. The company's goal is to license its patents. So far, it has commercialized only the reverse auction technique that gave rise to the spin-off Priceline.com. "All of the world's business systems are being reinvented in light of the Internet and rapidly accelerating IT capacity," says Jay Walker. "If business methods that are novel are patentable, might that mean that the future of my business might be owned by someone else? The answer is yes."
That's what scares a lot of companies. "We're concerned about how to protect our processes, but also about how to avoid stepping on new patents for things that used to exist that are now being done on the Internet," says UPS's Schenken. For instance, several patents are pending on ways to accept credit-card information over the Internet. If one is allowed, it's unclear if UPS would have to pay a royalty every time a customer uses a credit card on its Web site.
Such fears are overstated, says Todd Dickinson, acting commissioner of the U.S. Patent And Trademark Office. To be patentable, a business method must meet the same standards as other inventions: It must be useful, original, novel, and non-obvious. "If a business method has been used publicly for years, it's not non-obvious," Dickinson says. Patent examiners use a test for obviousness: If a person of ordinary skill familiar with a field would view an invention as the field's next most likely development, the invention is obvious. But if the invention would produce new and unexpected results, it's probably non-obvious.
Still, UPS is moving faster than ever to file patent applications on new systems and business methods as soon as they're invented. Also, the company is taking precautions against infringing on software and business-method patents. "When we have reason to think there's an issue, I have direct communication with the CIO and technology development team," Schenken says.
continued...page 3
return to page 1
Read sidebar story, "Wal-Mart V. Amazon.com: The Inside Story."
Back to This Week's Issue
Send Us Your Feedback
Top of the Page
