Online businesses face increase in patent-infringement claims

WASHINGTON—A growing number of companies are facing patent-infringement lawsuits from patent holders claiming rights to fundamental and commonly used online business processes such as electronic shopping carts.

The claims spell potential trouble for thousands of companies, which must decide whether to pay the licensing fees or fight the patents in court at costs that could reach millions of dollars.

"Every time there is a technology breakthrough, there is a big spike in patent litigation," said John Hangartner, an attorney at Sheppard, Mullin, Richter & Hampton LLP in San Diego. Hangartner is representing companies fighting lawsuits filed by San Diego-based Pangea Intellectual Properties LLC (PanIP), which claims that many companies with "interactive" e-commerce sites are violating its patents (see story).

PanIP holds two patents on technologies and processes that appear to cover any business conducting online commerce. If a customer inputs information on a company's Web site and the site also processes financial information, the company may be infringing on the patents.

PanIP has sued 51 companies, all relatively small businesses located outside of California, and is seeking $5,000 for a license to use what it claims is its patented technology. Some cases have been settled, but at least 16 companies have banded together to fight PanIP in court.

Similar patent-infringement litigation is being pursued by Chicago-based Divine Inc., which owns a patent it claims covers the first Internet shopping-cart implementation.

Divine has filed 15 lawsuits alleging patent infringement and has settled six, including one with Downers Grove, Ill.-based florist FTD.com Inc. More than 150 companies have acquired licenses, said Rich Nawracaj, assistant general counsel at Divine. Divine isn't disclosing the FTD settlement terms; FTD wasn't available for comment.

Divine doesn't contend that all online shopping carts are infringing. It depends on how a business has structured its technology, according to Nawracaj. But the company believes that the number of infringers is potentially large and that Divine has a responsibility to maximize revenue for its shareholders, he said.

A patent issued by the U.S. Patent and Trademark Office is presumed valid unless proved otherwise. That burden rests with the alleged infringing company.

Challenging a patent is a difficult decision, said Michael Overly, a partner at law firm Foley & Lardner in Los Angeles. Patent litigation "is the sport of kings—it is very expensive," he said.

Mounting a Challenge

One company being sued by PanIP is DeBrand Inc., a chocolate maker and retailer in Fort Wayne, Ind. When a sheriff delivered the lawsuit notice from PanIP earlier this year, DeBrand co-owner Tim Beere said he was stunned. "The patent seemed so vague. I thought it was a joke," he said.

Business owners such as Beere have three choices when confronted with a claim: pay the license fee; redesign their systems, if possible; or fight it. Beere chose to fight, and he contacted other businesses being sued. "If we don't stop this now, they are going to just go on and sting hundreds of other businesses," he said. The group so far is only at a preliminary stage in its effort.

PanIP attorney Kathleen Walker acknowledged that the patents are broad. "They do cover a lot of e-commerce, and that's because they were very novel at the time they were issued," she said. The patents were issued in the mid-1980s and have since been updated.

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For More Info

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On PanIP's patents: www.panip.com

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On the effort to fight PanIP's lawsuits: www.youmaybenext.com

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On Divine's patents: www.divine.com

Copyright © 2002 IDG Communications, Inc.

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