By Kevin Fogarty  |  Posted 2004-11-11 Print this article Print

Companies, particularly non-technology firms, face millions in costs to defend the intellectual property rights of the software they buy or develop.

s First Step?"> What is a technology executive's first step?

The most aggressive defense is to patent any system or process that may seem novel, non-obvious and useful (the three tests a technology or business process must pass to qualify for a patent), says Greg Kirsch, partner at Atlanta-based law firm Needle & Rosenberg, where he leads the software, electronics and communications technology patent practice.

That approach seems extreme to attorney Singer, who represents nine manufacturers, including Rockwell Automation and U.S. Steel, in a conflict that began when Chicago-based Solaia Technology demanded that the companies pay royalties for infringing on a broad-based patent on manufacturing automation.

There are limits to the patent-everything strategy, says David Marston, U.S. lead for licensing management and head of intellectual property and product privacy at PricewaterhouseCoopers.

"If you've got something very definitive to patent, a specific algorithm or something that's so black and white there's no question, then it makes sense," he says. "Other than that, it might not."

Solaia was formed three years ago to buy and assert the rights to the intellectual property of a French company called Schneider Electric.

Operating on a similar track is ThinkFire, a spin-off of Intellectual Ventures, a venture capital firm led by former Microsoft chief technology officer Nathan Myhrvold and former Microsoft chief architect Edward Jung, though a ThinkFire spokesman differentiates his company's pursuit by saying it asserts patent rights on behalf of the inventors.

Aharonian says companies seeking patent-related payments thrive because targets may prefer to settle rather than risk a court challenge that might ultimately cost millions and last two to three years.

Even seeking a second opinion can dent a budget.

"Say you get a letter in the mail saying you might be infringing a patent; it might be smart to get a lawyer's opinion, but that [alone] might cost you 20 or 30 grand," Aharonian points out.

Press reports have quoted Solaia attorney Ray Nairo saying his company has contacted about 300 U.S. firms and taken in more than $24 million in license fees from more than 60 of them.

"Some of these claims can be legitimate," Singer says. "They can be a good way to get money for genuine inventions; the problem is that a lot of the claims that go to these companies are thin at best, and that's being charitable."

Mark Green, CIO of Portland manufacturer United Pipe & Supply, suggests questioning technology suppliers to raise red flags that may drag a customer into a patent squabble.

"We talk to so many software vendors who bundle other products with theirs, you have to ask, 'Is there anything that would require me to question whether they have the rights to sell me this or not?'" says Green.

"If you buy a business reporting package that has Crystal Reports embedded in it, you have to ask if they have the right to resell it, and am I liable if they don't?"

Green's concerns have precedent.

After filing its lawsuit against IBM, SCO went after DaimlerChrysler AG, which uses Linux. The best course is to demand indemnification—that is, any contract should include language certifying that the selling company has all the appropriate rights to sell or resell the technology involved, and will protect or reimburse the buyer for any subsequent legal action—if you can get it.

"We do ask for that," Green notes, "but so far not a single vendor has come through with it. They make promises, but those go away pretty quickly in the sales cycle."

Next Page: Rules to avoid lawsuits


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