Beyond the Headlines: IBM sues Amazon for refusing to negotiate patent license fees

Issue December 2006 By Andrea R. Barter, Esq.

On Oct. 23, 2006, IBM filed suit against alleging that Amazon willfully exploits several of its patented technologies that govern how Amazon's Web site handles customer recommendations, advertising and data storage.

While other companies have licensed the patents, IBM asserted that Amazon has refused to negotiate licensing fees. IBM claims that it has been attempting to resolve the patent issues with Amazon since September 2002.

The patents at issue, some of which are 18 years old, are: "Presenting Applications in an Interactive Service," "Storing Data in an Interactive Network," "Presenting Advertising in an Interactive Service," Adjusting Hypertext Links with Weighted User Goals and Activities" and "Ordering Items Using an Electronic Catalogue."

IBM holds more than 40,000 patents worldwide and has been awarded the most U.S. patents for 13 consecutive years. The company has a long history of licensing its patents covering e-commerce. Over the past five decades, IBM has entered into numerous patent-licensing agreements with companies in a broad range of industries.

Many local attorneys are anxiously watching this case and wondering about its fallout. Attorney Stanley B. Kay, Wellesley Hills, represents small- to medium-sized clients involved in a variety of business sectors, including software development and e-commerce. Aside from the general question as to whether this type of technology should be patentable rather than in the public domain, his concern is whether an IBM victory would set up a licensing tollgate.

"If IBM is successful and it seeks to enforce its patent claims across the Internet spectrum, there will be a large increase in operating costs that will affect a smaller to medium size company more seriously. It may be affordable for Amazon, but it could create problems for smaller clients like mine," said Kay.

Attorney Bruce Jobse, Rissman, Jobse, Hendricks and Oliverio LLP, Boston, has over 18 years experience in the patent field and is a former corporate patent counsel with IBM Corp. Jobse's experience leads him to believe IBM will resort to litigation only when licensing has failed to resolve the matter.

"IBM wouldn't have brought this action unless it did a thorough analysis of its patents and their validity. This is not like the rash of suits you're finding with Napster and copywriting; IBM is not about to launch 80,000 suits against smaller companies," said Jobse.

Attorney Stephen Y. Chow, Burns & Levinson LLP, Boston, has over two decades of experience with developing patent portfolios and litigating patent, copyright and e-commerce cases. He agrees with Jobse. "They're not going to go after every retailer, but that's the same as the motion picture industry not going after every file sharer."

He pointed out that many of the electronic commerce systems that retailers use, such as Oracle, are already licensed e-commerce engines. But Chow found IBM's suit "not unexpected."

"They are a heavy investor in intellectual property and spend millions of dollars on their IP and get over a billion dollars in patent royalties. I believe they were negotiating with Amazon and it was just when negotiations broke down they decided to sue," said Chow.

As for the claim that IBM has patented an obvious business practice, no different than making a purchase at the grocery store but conducted electronically, Chow explained that patents are granted for ideas that are not anticipated and not obvious in light of "prior art." Given that some of IBM's e-commerce patents are 18 years old, coupled with the dramatic advances in e-commerce since that time, they are naturally broader in scope.

"A patent is much like in the old days when people were allowed to stake claim to land… in essence, that's what patents are about — it's staking a claim to some space," said Chow.