Richard Poynder
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Internet sparks patenting controversy


Since patenting began the birth of each new industry has tended to trigger a new patenting debate. A hundred years ago, critics questioned whether agricultural inventions could be protected, on the grounds that agriculture was not an industry. Twenty years ago, it was argued that to grant pharmaceutical patents would be unethical. And today the biotechnology industry finds itself as the centre of the so-called “patenting of life” controversy.

It should, therefore, come as no surprise that a development as radical as the Internet should spark its own patenting wrangle. In particular, a cluster of patents issued by the US Patent Office covering e-commerce methods and techniques has set off a clamour of criticism.

The main complaint is that many of these new patents are far too broad in scope. Massachusetts-based Open Market, for instance, has been granted several patents that, some claim, could potentially allow it to demand royalties from almost any company engaged in e-commerce. These include a patent on a secure, real-time payment method using debit and credit cards, one covering electronic shopping carts, and another on a technique for analysing how users browse web content.

To date, Open Market has chosen not to take any legal action. In contrast, which claims to have been granted a patent that covers the sale of any digital audio or video recording over the Internet, is currently suing CDNow — which runs the two most successful music sites on the web. The company has also written to a number of other prominent music sites demanding royalties on every sale that involves downloading music to a customer.

All is asking for, insists CEO Scott Sander, is the same reward that any inventor could expect. “Sony and Philips received a royalty for each compact disk that was sold while their patents on CD technology were in force,” he says. “We’re seeking the same right.”

But e-commerce is different, responds Cary Sherman, Senior Executive Vice President at the Recording Industry Association of America, because it requires such a wide range of technologies. “You may have to use compression technologies, watermarking technologies, encryption technologies, clearing house technologies — all of which could be an essential component of a digital distribution system,” he says. “Paying royalties on all these technologies adds up, and represents a significant cost factor.”

Compounding the problem, says Chuck Williams, CEO of Cylink, a Californian company that has itself been granted a number of patents covering encryption, is that the Internet is developing too quickly for the patenting authorities to keep pace. “Like everybody else, the US Patent Office been caught out by the Internet,” he says. “It simply doesn’t have time to learn what makes sense, and what doesn’t.”

The US Acting Commissioner of Patents & Trademarks, Todd Dickinson, disagrees. “We have a highly skilled group of patent examiners with a technical background that matches up very well with the kind of technologies they are seeing — and we think we issue patents of an appropriate breadth.”

A recent ruling in the US Court of Appeals, endorsing the principle that business methods can be patented, has further inflamed the debate — and critics fear that the door has now been opened to allow anyone to take a familiar business method from the physical world, add the word “network”, and then patent its use on the web.

Frequently cited in this regard is which, amongst other things, claims to have patent rights on Internet-based “reverse auctions” — where buyers propose a price for a product or service, and sellers bid to supply it. Likewise, Netcentives has been granted a patent covering the use of a promotional programme in which consumers earns points for making online purchases.

“A lot of commentators have worried that patents will issue on business methods that have been used for years,” says Dickinson. “But that is not going to happen because if they have been used for years, and publicly, then a patent cannot be issued as the method is not novel.”

Novelty, however, is a contentious issue. When Cybergold was issued a patent on pay-per-view advertising (where users are rewarded for looking at Internet-based advertisements) many questioned its novelty. A criticism Cybergold’s CEO, Nat Goldhaber, dismisses. “When I explained what we were doing to one of the leading men in American advertising, he told me our business model was so innovative that he would have to go back and re-learn the business.”

Until recently it was assumed that the controversy was not relevant to Europe. Historically, software (which e-commerce patents by definition are) has not been patentable in Europe; nor is it generally accepted that business methods can be patented.

But quite apart from the inherent problems of trying to enforce a geographically defined legal system on a global network, current harmonisation initiatives are eroding national differences. Thus, in response to the EC Green Paper on patenting the European Patent Office has recently proposed that Section 52 of the European Patent Convention should be replaced with wording agreed during the Uruguay Round of the GATT Accord.

“If this were to happen not only would it open the door to the patenting of software in Europe, but to business methods as well,” argues Bob Hart, Chair of the Computer Technology Committee of the UK Chartered Institute of Patent Agents. “Which would make it highly likely that many of these e-commerce patents would be granted in Europe too.”

Certainly a search on Derwent’s World Patents Index reveals that applications for most of the controversial e-commerce patents have been filed at WIPO, as well as the EPO.

But as intellectual property attorney with Washington DC's Howrey & Simon, Alan Fisch, points out, it will be the courts that have the final say in the matter. “Litigation serves as the best test of a patent's validity and enforceability,” he says. “Some of these patents simply won’t survive a court challenge.”

This article was first published in IP MATTERS, on April 30th 2001

Richard Poynder is a freelance journalist and co-author of Hidden Value, the Derwent Guide to Managing Intellectual Property, published by Derwent Information, and editor and co-author of Caught in a Web, Intellectual Property in Cyberspace.

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