Business & Finance
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How To Avoid The Patent Trap

IBM's lawsuit against Amazon highlights the need for patent reform and raises a question: Are big tech vendors using their massive patent portfolios to stifle innovation?

Almost two years ago, IBM donated 500 software patents to the open source community, with a pledge that it would not enforce its license rights to the technologies. But the company remains fiercely protective of its vast portfolio of intellectual property, as learned last week when IBM filed a patent-infringement suit claiming the Internet retailer built its business using IBM-developed technology and processes.

Welcome to the tortuous world of technology patents and IP, where community-minded vendors share original ideas manifest as software code one day--then bring the hammer down on suspected scofflaws the next. Over the past two months, Microsoft has released three internally developed technologies--related to Web services, its virtual hard disk format, and its Sender ID--with promises that they can be used by others in perpetuity. At the same time, Microsoft is aggressively licensing--and protecting--other intellectual property.

IBM's top attorney for intellectual property rights acknowledges his company's position can seem contradictory and confusing. "We've referred to our patent policy as apparent schizophrenia," David Kappos says. Yet he maintains that "on a deeper level, our actions are consistent."

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Problems with the U.S. patent process are well documented: It's a costly, multiyear undertaking to obtain a patent, involving overworked examiners who frequently grant patents for technologies and processes many think are too obvious or broad to deserve such protection. Lawsuits fly fast and furious. Last week, SGI sued ATI Technologies (just acquired by Advanced Micro Devices) for allegedly infringing on one of its computer-graphics patents. And earlier this month, chip designer Transmeta sued Intel, charging that the No. 1 chipmaker violated 10 of its microprocessor patents. Also last week, the U.S. Supreme Court agreed to hear an appeal in a patent dispute between AT&T and Microsoft. An appeals court had ruled that Microsoft was liable based on worldwide sales, not just U.S. sales, for infringing on a U.S. patent held by AT&T.

Forces Of Reform
Key players working to change the patent system

Seeks community review of patent applications, abolition of business-method patents that don't include technical innovation, and increased transparency of patent ownership

Wants international harmonization of patent law, a crackdown on questionable patent litigation, and the end of filing fees for small companies and individual inventors

U.S. Patent And Trademark Office
Proposes limiting to 10 the number of times patent applicants can request a re-examination of their applications and the number of individual patent claims contained in any single application

Sens. Orrin Hatch, R-Utah, and Patrick Leahy, D-Vt.
Sponsors of the Patent Reform Act of 2006, which would grant stronger protection to "first to file" patent holders, raise the bar for litigants who claim prior invention, and limit damage awards for patent holders
The number of patent lawsuits continues to rise and so does the size of settlements and judgments, says the Coalition for Patent Fairness, a group supported by large tech companies. Before 1990, only one patent damage award larger than $100 million had been awarded; in the past five years there have been at least 10 judgments and settlements of that size and at least four that topped $500 million, the group says.

To avoid getting snared in the patent trap, businesses must be careful about the technology they use. And intellectual property disputes can encompass more than just patents: SCO Group sued AutoZone and DaimlerChrysler in 2004 for copyright violations related to its ongoing Linux and Unix legal claims.

Tech vendors, IBM and Microsoft principal among them, are trying to change things they don't like about the patent process. In addition to giving away patents to the open source community, IBM wants all patent applications to be subject to public review. And it's urging Congress to do away with patents--including some of its own--based on so-called business methodologies that lack technical merit.

But in suing Amazon, IBM promised to "aggressively defend" its intellectual property and hunt down other companies it thinks are using its IP without permission. IBM says it tried unsuccessfully to negotiate a licensing deal with Amazon for four years before filing suit. Amazon declined to comment.

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