Patent Spending

 
 
By Kevin Fogarty  |  Posted 2004-11-11
 
 
 

Technology companies are aggressively asserting their rights to payments from disputed patents, violated copyrights and abuse of intellectual property. Now, the mayhem is spreading to customers who use contentious technology, and it may require them to take extraordinary measures to avoid intellectual property litigation.

The biggest risk: A company developing software for its own use might infringe on other companies' patents or, even trickier, become the target of firms that buy up patents and look for opportunities to make money by enforcing them.

In the latest high-profile intellectual property lawsuit, a federal district court jury sided with Eastman Kodak in a two-year lawsuit charging that Sun Microsystems' Java programming language infringed on patents owned by the photography company.

Kodak acquired the patents, which cover ways in which software objects communicate data among themselves, when it bought Wang Laboratories in 1997.

Kodak had demanded more than $1 billion in damages, raising anxiety among Sun customers that such a large judgment might sink the financially troubled company. Before the damages phase of the suit, however, Kodak agreed to settle the case in exchange for a $92 million payment from Sun.

Meanwhile, the SCO Group has filed a $3 billion lawsuit against IBM for allegedly publishing proprietary SCO Unix code in the open-source Linux operating system. And Amazon is at odds with Soverain Software, which initiated action alleging the online giant has infringed on several patents originally granted to companies other than Soverain, including a shopping-cart function patented by the defunct OpenMarket.

Next Page: Is your company next?

?"> Is your company next?

Defending patent infringement claims is unfamiliar ground for technology managers, especially at non-technology companies, but it's an area they'll increasingly have to consider, says Andy Gibbs, chief executive officer of PatentCafe.com, a patent management software developer.

To be fully protected, Gibbs advises companies to patent any internally developed software that's sufficiently novel to qualify for protection under the law; keep less innovative technology a secret; publish details of non-critical technology to keep anyone else from patenting it; and get written indemnification from software vendors stating they have full rights to sell the products they're offering.

You shouldn't let concern over patents change the way you develop applications, according to Jonathan Singer, an intellectual property attorney from Fish & Richardson in Minneapolis, who is defending a group of non-technology companies accused of patent infringement.

And yet you can't ignore it.

The number of patent infringement lawsuits in the United States has surged 81 percent during the past 10 years, to 2,814 in 2003 from 1,553 in 1993, according to the U.S. Federal Courts administrative service. Only a small percentage of infringement cases actually go to court; more non-technology companies are choosing to settle and paying up for alleged infringements.

"You really have three choices," Gibbs says. "You can patent something, keep it as a trade secret and hope no one else invents it, or you can publish it as open source so no one else can patent it."

Gibbs advocates choosing three or four core applications—such as a customer identification data-mining application, a specialized transaction module or other software that supports a key part of the business—and patenting them. Gibbs says it costs about $10,000 to get a patent, and little or nothing to publish it.

Why patent your applications?

"If you have something you keep as a trade secret, and someone else invents it and gets a patent, you can no longer practice your own trade secret," Gibbs explains. Patenting your application isn't difficult. The U.S. Patent and Trademark Office issues patents that cover a broad range of functions; in fact, it hands out so many of them that it's almost impossible for one company to steer clear of every potential infringement, according to Gregory Aharonian, editor of the Internet Patent News Service and Bustpatents.com.

"There are over 100,000 software patents," Aharonian says. "You're not going to be able to pay for an investigation of every one. But if there's a specific area you're concerned about, that might be worthwhile."

Next Page: What is a technology executive's first step?

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

4 Rules…To Avoid Intellectual Property Lawsuits

1. Patent any novel, useful application or process.

2. Make your technology suppliers sign a contract indemnifying you from patent squabbles.

3. Keep innovative technology completely secret so no one knows to sue you or steal your idea.

4. Reveal all. It costs virtually nothing to publish details of your technique on the Web and make it public property or public knowledge, preventing anyone else from patenting it.