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Patent Troubles Pending

Small companies say they're being sued for employing common practices for doing business on the Net
PanIP was established as a limited-liability corporation in March. Walker says she doesn't know the other principals of the company, and repeated calls to a number listed for PanIP in La Jolla, Calif., weren't returned.

Lockwood was involved in a famous patent case in 1991, when he sued American Airlines for violating three patents he had obtained for an automated travel-reservation system. Lockwood lost that case in U.S. district court in San Diego, says Joseph Re, an attorney with Knobbe, Martens, Olson & Bear LLP, who represented American Airlines, and then lost on appeal in the Federal Circuit Court in Washington in 1997. The courts invalidated two of his patents.

The U.S. Patent and Trademark Office has been criticized in recent years for granting patents for what appear to many observers to be obvious ways of doing business, especially in relation to the Internet. Among the most famous Internet business-methods patents are No. 5,960,411, for Amazon's one-click online ordering method; No. 5,794,207, for Priceline.com's buyer-driven, name-your-price E-commerce system; and No. 6,460,020, awarded to DE Technologies just this month for automated international-commerce paperwork (see "Here's One That's Just Patently Absurd," Oct. 7, p. 88).

That patent raised eyebrows because of its potentially big impact. But DE Technologies president Bruce Lagerman, a former patent attorney, says the company isn't looking to litigate its claims: "We have no intention to file any lawsuits or make any claims on this patent." Lagerman says the company is focused on commercializing its "borderless order-entry system" to help small businesses conduct complex international transactions.

The PanIP patents are what's called "apparatus" patents, meaning they describe devices as opposed to business methods, says Paul Weidlich, a patent attorney with Chambliss, Bahner & Stophel PC. Still, some observers are struck with how general the language of the patents is. "Those claims seem to be very broad," Weidlich says. "It will be interesting to see if they will be held up as valid by a court."

The Patent Office is unequivocal. "All patents are presumed valid once they're issued," says Brigid Quinn, deputy director of public affairs. DE Technologies' Lagerman defends PanIP's efforts to collect licensing fees as "a completely legitimate way to commercialize a patent."

Attorney Walker says that about 15 defendants in the PanIP lawsuits have settled. That includes Dickson Supply, a Brielle, N.J., plumbing and electrical-supply company that was one of the original 11 defendants. Dickson settled because the demands dropped dramatically "after we filed motions in the case," says Jonathan Hangartner, an attorney with Sheppard, Mullin, Richter & Hampton LLP in San Diego, who represented five of the original defendants, including Dickson. At least one defendant decided to stop doing E-commerce, Delasco's Rice says.

Hangartner now represents a group of defendants from the more recent lawsuits that's pooling its resources to fight the PanIP litigation, possibly even challenging the validity of the patents in court. The group, led by Beere of DeBrand Fine Chocolates, has set up an informational site (www.youmaybenext.com) and is trying to spread word of the lawsuits, pointing out that many small companies doing business on the Web are potential targets. "We're interested in stopping this," Beere says. "We're fighting this fight so you don't have to, because it's going to come to your doorstep next."

— with Tony Kontzer