Using Patent Re-examination to Eliminate Invalid Business-Method Patents

Imagine receiving a letter from a company offering to let you license a patent covering a computer-related business method for $50,000. Should you pay it? What if the company claims that its patent covers your Web site design or your software product and threatens a lawsuit for patent infringement if you refuse to pay?

Since 1998, when an influential appeals court ruled that business methods can be patented, the U.S. Patent and Trademark Office (PTO) has been overwhelmed with patent applications covering business processes, such as Amazon.com Inc.'s "one-click" shopping cart and Priceline.com Inc.'s auction-based pricing schemes. Scores of dot-com companies filed thousands of patent applications covering their business models, hoping to stake a claim to a piece of cyberspace. Even company executives with no technology background filed patents on methods of advertising, methods of selling cars and a method of teaching a janitor how to clean a building.

Unfortunately, some of the filings involved questionable advancements over existing technology. The PTO was initially ill-equipped to deal with patents involving "technology" that didn't involve hard science. IBM obtained a patent on a method of reserving a bathroom (U.S. Patent No. 6,329,919, titled "System and Method for Providing Reservations for Restroom Use"). A child obtained a patent on a method of swinging on a backyard swing (No. 6,368,227). A patent attorney even obtained a patent on a method of preparing a patent application (No. 6,049,811).

Other, more controversial business-method patents involve Internet and e-commerce technology, such as Amazon.com's one-click patent, Open Market Inc.'s patent involving electronic shopping carts, CyberGold Inc.'s patent for rewarding consumers who view online advertising, DoubleClick Inc.'s patent for collecting data about the surfing habits of online consumers and NetCentive's patent on awarding frequent-flier miles for online purchases. The online dating service eHarmony.com Inc. has recently trumpeted its new patent (No. 6,735,568) for matching single people, leading some to question how online dating can be patented.

Over the past few years, critics have decried the issuance of business-method patents, claiming that they will interfere with online commerce and that they exploit obvious variations of well-known techniques. The criticism has come not only from academics and pundits, but also from those in the affected technology areas, especially computer software and the Internet. Attempts by some companies to enforce vaguely written patents that were issued before the Internet became popular have also been criticized and have met with limited success. A patent that BT Group PLC claimed covered hyperlinking was narrowly interpreted by a judge to cover only pre-Internet technology. Inventor Alan Konrad, who claimed to have invented the concept of querying a database over the Internet and who sued dozens of companies for infringement, had his three patents thrown out as invalid. Other patent owners have had difficulty convincing courts that their patents covered key concepts involving the Internet or e-commerce. And other countries, particularly those in Europe, have refused to follow the U.S. lead, rejecting such patent applications out of hand.

While some of the criticism of business-method patents may be warranted, some of it is unfounded. Although the scope of a patent is determined by its claims -- the numbered paragraphs appearing at the end of the patent -- some commentators refer to the broad titles or abstracts of the patents when complaining about a patent. For example, many U.S. patents are issued with broad titles or phrases such as "Online Banking System" or "Advertising Method." Yet the claims of these patents are much narrower; they require the sequential execution of specific steps or are limited to a particular type of data structure stored in a computer's memory. Without understanding the scope of the claims, there's no way of determining whether the patent is as broad as the marketing hype makes it sound.

Nevertheless, the criticism has prompted changes. The first crack in the wall came in 2001, when the U.S. Court of Appeals for the Federal Circuit questioned the validity of Amazon.com's one-click shopping-cart patent in the retailer's lawsuit against Barnesandnoble.com Inc. The defendant was able to convince the court that the patent might have been an obvious variation of earlier online-purchasing technology. The parties then settled, leaving the patent in force. Wang Laboratories Inc., which tried to enforce its 1988 patent on bookmarking features against America Online Inc., met a similar fate when the same court narrowly interpreted the patent.

A bill that was introduced in Congress to crack down on business-method patents by making it easier to challenge their validity and even making some technologies presumptively obvious hasn't been passed. But both the Federal Trade Commission and the National Academy of Sciences have recently proposed changes to the patent laws to make it easier to invalidate questionable patents.

The PTO also began cracking down on computer-implemented business-method patents, requiring an independent second review of such patents before they are issued. This program has resulted in a decline in the number of such patents, and those that get through are often narrow. In addition, the PTO has spent more money training its employees and hiring patent examiners skilled in various business areas.

Nevertheless, there are many business-method patents that were issued before the crackdown, and companies may find themselves "invited" to take a license under one of these patents. Those who refuse may find themselves hauled into court to defend against charges of patent infringement.

The Re-examination Process

Fortunately, the PTO has a procedure for retracting invalid patents, including those involving business-method inventions. Anyone who believes that an issued patent is invalid because of prior technology can file a request for re-examination of the patent. The challenger must file the request along with earlier patents or publications and an explanation as to why the patent is invalid (for example, it is obvious or not new). If the request is granted, the PTO conducts an expedited re-examination of the patent and takes one of three actions: reconfirms the patentability of the patent, narrows the scope of the patent or cancels the patent.

Asking the PTO to re-examine an issued patent isn't cheap. The filing fee alone is about $2,500, and a patent attorney may charge legal fees of $5,000 or more to prepare the paperwork and legal arguments needed to convince the PTO to cancel a patent. The re-examination process is limited to convincing the PTO that the patent shouldn't have been granted because of a prior inventor's patent or publication -- known as "prior art." In a re-examination proceeding, a patent can't be challenged on the ground that a competitor's product or service was sold or used before the patent was filed. A patent also can't be challenged on the basis that it's vaguely written or lacks enough information. Such challenges -- along with others -- can be made only in court.

Despite its costs, there are several advantages to having the PTO re-examine a patent. First, unlike court challenges, where patents are presumed valid, PTO makes no presumption of validity. Second, the PTO assigns a different employee to review the patent than the one who originally granted the patent. Third, recent statistics show that many re-examination requests are being granted, prompting the PTO to cancel or narrow many patents. Unlike litigation, which can drag on for years, the PTO must re-examine patents with "special dispatch," and sometimes the re-examination is completed in a year or less. And despite its costs, re-examination is much cheaper than fighting a patent in court.

Even if the PTO decides not to cancel or narrow a re-examined patent, the patent owner may be forced to argue that the patent is different from prior technology. These arguments can be relied on by accused infringers in any later litigation to differentiate their products from the patent. For example, if the patent owner argues to the PTO that the patent is different from earlier technology because it requires a specific type of data structure, in litigation, the patent would be specifically limited to that type of data structure, allowing others to use the patented technique as long as the data structure was different.

Conclusion

In 1994, Compton's Multimedia Publishing Group Inc. tried to enforce a patent that it claimed covered basic multimedia technologies. The PTO ordered a re-examination of the patent, and Compton's was stopped in its tracks.

More recently, Microsoft Corp. has been both the beneficiary and the victim of patent re-examination. After a jury found Microsoft liable for infringing a patent on a browser plug-in and awarded Eolas Technologies Inc. more than $500 million in damages, the PTO ordered the Eolas patent to be re-examined. Microsoft's own patent on its FAT file system has also been the subject of a PTO re-examination. Other would-be patent owners have found their patents under attack at the PTO, including an inventor, Bruce Dickens, who claimed that he had invented the solution to the so-called year 2000 computer glitch. Many companies received threatening letters from Dickens offering to license the patent for $50,000. It's unknown how many companies paid the licensing fee rather than risk litigation. Just this month, the PTO granted eBay Inc.'s petition to re-examine the auction technology patents at the heart of MercExchange LLC's $29.5 million judgment against the online auction site.

The Electronic Frontier Foundation has recently launched its Patent Busting Project to file patent re-examination requests on questionable software- and Internet-related patents. The EFF is conducting a contest to identify the 10 worst offenders, for which it will then ask the PTO to conduct re-examination proceedings. The PTO has also recently invoked a rarely used administrative rule under which it can order re-examination of questionable patents even if no request for re-examination has been filed. All of these developments may lead to fewer lawsuits down the road.

Wright is a partner and registered patent attorney in the Washington law firm of Banner & Witcoff Ltd. He advises clients in intellectual property matters including patents, trademarks and copyrights. He earned his electrical engineering degree from MIT and his law degree from George Mason University School of Law.

Copyright © 2004 IDG Communications, Inc.

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