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Amazon To Pay Cash And License Fees To Settle IBM Patent Dispute

Amazon's decision to settle the case could have ominous implications for other Web businesses, depending on how IBM chooses to enforce its patents.

Internet retailer Amazon.com has agreed to pay an undisclosed amount of cash to IBM and will license several key e-commerce technologies from the computing giant to settle IBM's claim that Amazon built its multibillion-dollar Web business on a foundation of purloined IBM technology.

The IBM patents that Amazon has agreed to license cover a broad swath of e-commerce technologies and techniques, including ways to present applications "in an interactive service," store data on an interactive network, present advertising in an interactive service, and adjust Web links with "weighted user goals and activities," according to IBM.

The stunning settlement, disclosed Tuesday, follows a six-month court battle that ensued after IBM filed a patent infringement lawsuit against Amazon in October in the U.S. District Court for Eastern Texas. Amazon later countersued, claiming, among other things, that IBM's widely used Websphere middleware software violated Amazon patents.

IBM followed up by broadening its original complaint to include a number of Web 2.0 startups affiliated with Amazon.com, including Internet Movie Database, Mobipocket.com, A9.com, and Alexa Internet.

Amazon's decision to settle the case could have ominous implications for other Web businesses, depending on how IBM -- fresh off its legal victory -- chooses to enforce its patents. For instance, the patent that governs the presentation of advertising in an interactive service could be broadly interpreted to apply to all Web sites that carry paid ads.

Additionally, IBM claimed that Amazon and its affiliates use technology protected by the "weighted user" patent to create a service found on many Web sites that provides product recommendations to customers based on previous purchases by other, similar customers.

The method uses a search and retrieval technique known as collaborative filtering that creates associations between objects in, say, an online product catalog, based on the number of times they're selected by a single buyer.

On Tuesday, Amazon officials appeared to concede that they improperly used IBM technology in building their online sales platform. "IBM's patent portfolio is the largest and strongest in the IT industry. Our license to its portfolio, and specifically to its Web technology patents, gives us greater freedom to innovate for our customers," said Scott Hayden, Amazon's VP of intellectual property, in a statement released by IBM.

Amazon officials weren't immediately available for live comment.

IBM, in a statement, said it believes "this agreement substantiates the value of our portfolio."

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