How Patents Threaten E-business

Think your business has developed the perfect e-commerce technology? With the advent of the business method patent, you may be entitled to proprietary rights beyond anything you have imagined.

On the other hand, you may have just become a victim of this new legal development. That’s the position in which American bookseller found itself. Last December, a Seattle court issued a preliminary injunction against Barnes and Noble ordering it to stop using its “Express Lane”, which allowed customers to order books without re-entering financial information for each new online purchase. In its ongoing suit against, alleges that the Express Lane infringes on Amazon’s patented “One-click Ordering” system and convinced the court that it would suffer “irreparable harm” if it did not have exclusive use of the “One-click” feature during the busy holiday season.


Until recently, it was generally accepted that mere ideas or mathematical formulae were not deserving of patent protection. However, the U.S. Patent and Trademark Office has taken a more liberal approach. Thus, the advent of patents giving protection to business flow charts and “how-to” descriptions. A key July 1998 court decision held that Signature Financial Group could patent its “hub and spoke” computer system for managing portfolios. As you might expect, American Internet companies started to file patents for all kinds of business methods. For some companies, their entire business plan revolves around buying up all relevant business patents within specific industries.

In the meantime, the lawsuits continue. In April 1999, a U.S. court validated AT&T’s patented method of differential billing of long-distance calls. The case suggests that patents may now be granted for any innovation that produces a useful result. As a result, many common features on Web sites will likely be patented, and Internet companies are at risk of being sued or being presented with demands for license fees if they use similar methods.


New e-commerce methods are continually being developed, many of which are similar to concepts that are already online. The proliferation of patents and lawsuits could ultimately chill the market place, as companies become more cautious about implementing e-commerce procedures that might violate another company’s patent.

In fact, the new, more liberal approach to business patents may end up as the instrument that slows the breakneck speed in the life cycle of e-business. The problem is with the structure of the patent-granting process. A patent creates a monopoly right from the time it is issued and can be used to stop others from using an invention, even if those others came up with the same idea on their own and even if their use began prior to the issue date of the patent. Here’s the real culprit: While issued patents are available for all to see (there are a number of online services to assist you), applications cannot be searched. Patent applications may take as long as three years before being reflected on the public record as a full-fledged patent. An e-business moving at the speed of “Web time” may be beyond its IPO before being able to foreclose all possibility of a conflicting business process patent.

On the other hand, having a patented e-commerce method or process may differentiate a fledgling tech start-up from its competitors. A patent may make the company more attractive to the financial community and licensing arrangements may allow it to draw on a new source of revenue. Companies are already stockpiling e-patents to be used as bargaining chips in future conflicts with competitors.

Patent laws vary from country to country. According to international commentators, under present rules the e-business patents granted in the United States will not be patentable in other jurisdictions, including Canada. But even this may be of little significance in light of iCraveTV’s recent experience in front of the U.S. courts. Because Internet access cannot be limited to specified jurisdictions, an injunction granted in the United States may in practice have a worldwide effect.

Gabe Takach is a partner at the Toronto law firm of Tory Tory, where he heads up the firm’s technology contracting practice. He can be reached at [email protected].

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