February 09, 2006
Over the past two months, a half dozen different MarketingSherpa readers have alerted us to say they or their clients are being asked to pay a fee by email patent owner(s). We've interviewed a bunch of patent lawyers to get practical advice for you, if you're the next marketer contacted. Plus, this article includes hotlinks to eight sites and blogs that may be helpful for you.
By Laurianne McLaughlin, Special Correspondent
It starts as just another day at the office. Then you get a phone call or a letter from a company saying they own a patent that covers a crucial aspect of your email operations and you must pay for their "licensing solution" or they’ll drag you into court for patent infringement.
You look at the patent and can’t understand it. The broad language seems to describe email marketing practices or technology that many other companies conduct or use in the course of everyday work.
Last December, MarketingSherpa received about a half dozen queries from readers who were either marketers using email, interactive agencies advising their clients about email, or email service providers. In all cases they and/or their clients had been approached by patent owner(s) about their email programs.
We've spent the past six weeks researching the situation, and it's been tougher than any Case Study or Benchmark Guide we ever published because absolutely no one will go on record. Some sources, including a leading trade association executive and the CEO of a top ESP confirmed that some of their clients had been approached and had paid patent owner(s) a fee. We say "owner(s)" because everyone's been so hush-hush that we can't even be sure if it's simply one patent owner contacting many people, or several patents' owners coincidentally contacting marketers at roughly the same time.
That said, it became apparent that this situation probably extends beyond the half dozen folks who happened to reach out and contact us, and also that we may never get to the bottom of this problem, at least not in a timely fashion. So, we felt it was our duty to get you whatever advice we could.
Therefore we talked to patent attorneys to gather practical advice about what you should and should not do if you’re contacted by a money-seeking patent owner. (Note: we're not attorneys ourselves; please contact your own legal team for advice specific to this situation.)
Your patent covers what?
At the root of the problem, you may find a patent owner whose other lines of business are not prospering, but who owns a business method patent.
What is a business method patent? The most famous example is Amazon.com’s “1-click” purchasing patent. Amazon sued rival Barnes&Noble.com in 1999, alleging checkout procedures were too similar to those covered in an Amazon patent for 1-click checkout. The case sparked a wide debate regarding what is patentable in the online world. But it did not provide the clear answers that patent law attorneys would have liked. The two companies settled the case in 2002 and terms were not made public.
Many other ecommerce and technology companies filed for business method patents in the late 1990’s, following a court decision in 1998 (State Street Bank vs Signature Financial Group) that opened the door for the first time to “business method” patents.
At that time, "some broad business method patents made it past U.S. Patent and Trademark Office reviewers," says Nathan J. Prepelka, a patent attorney at The Webb Law Firm in Pittsburgh, PA, which specializes in intellectual property law. Is the situation getting any better today?
The patent office continues to struggle to reform, notes Prepelka. “Due to the length of time a patent application is pending prior to examination, sometimes as much as 4-5 years prior to the first look by the United States Patent and Trademark Office, many dot com boom-day companies still have applications pending on their technology,” he says. So, the chances you’ll be contacted regarding a business method patent will only increase. If you are contacted, you have several options. All of them will involve paying a patent attorney, to some degree.
Why ignoring is not an option
Above all, you can’t just hope the matter will go away, says Andrew Beckerman-Rodau, a patent law attorney and professor at Suffolk University Law School in Boston, MA.
“It’s important not to ignore a patent,” he says. “In some cases, it can feel like a shakedown. But if the Patent Office has issued the patent, you must contact an attorney.”
You really want a patent attorney, not a generalist, in this situation, Beckerman-Rodau advises, since the language in patents is so complex. “A single word can change the meaning of the patent,” he says.
Don’t waste time repeatedly pouring over the patent yourself. The average business person cannot decipher a business method patent, he says. For example, the patent abstract (a general description placed high on the patent document) often sounds incredibly broad. “The claim is almost always more limited than what the abstract suggests,” notes Beckerman-Rodau. The "claim" is the specific language at the end of a patent that describes what the patent covers.
After a patent attorney examines the patent for validity, your next move may boil down to a business question, he says. “If it’s going to cost $500,000 to litigate or $10,000 for a "license," maybe I want a license. Patent litigation is incredibly expensive.”
Seeking a patent reexamination
What if you feel the patent does not apply to your business, or is overly broad, and you don’t want to pay the licensing fee?
For your first move, obtain a non-infringement opinion from a patent attorney, Prepelka says. “In many cases, such an opinion is effective in reducing certain damages that would otherwise be awarded to the patentee if the company lost in a patent infringement action.”
Once you have this opinion, attorneys on both sides will communicate, and it’s up to the patent owner to decide whether or not to pursue the matter in court. But you may want to also prove the patent was invalid in the first place.
“If the claims of the patent appear to be overly broad, the company should obtain an invalidity opinion from a law firm, and in some cases, file for a reexamination of the patent,” Prepelka says.
Filing for a reexamination means your attorney contacts the US Patent and Trademark Office and asks them to review the particular patent again. Reexaminations have become common on many of the early business method patents, Prepelka says.
Reexaminations will typically cost $7,000 to $8,000, much less than a lawsuit, says Beckerman-Rodau. Business-method patents face a three-part test at the US Patent and Trademark Office. The business method must be useful, new, and not obvious. Attorneys and patent examiners will consider “prior art” (existing examples) in deciding whether the method is new and not obvious. Searching for those business method examples can be tough and expensive, more so than with say, scientific examples, Beckerman-Rodau says.
Keep in mind, the reexamination process can take a year or more to play out, and the patent owner can appeal an invalidity ruling in court, he says.
Do some sleuthing
Before you finalize your strategy, Beckerman-Rodau says, it may help to think like your opponent –- and to get to know him a little better.
“If it’s a patent used by a lot of smaller companies, the patent owner may go after a low licensing fee,” he says, because the fees will add up. “If you have something used by only one or two companies, it’s much more likely to go to litigation.”
Is your opponent likely to actually sue? “If you’re a small business, people are less likely to sue,” Beckerman-Rodau says, noting that companies with deep pockets make much more attractive targets for litigation.
Possibly, he says, the patent owner may be bluffing regarding a court battle. “The person with the patent may not have the resources to sue you. You may want to do a credit check on the patent holder.”
Consider a counter-offer
Depending on what you dig up, you may decide not to pay the requested licensing fee but to make a counter-offer for a lower licensing fee payment, in some cases, Beckerman-Rodau says.
“They may negotiate,” he says, making the problem go away without litigation costs or the high licensing fee. “It’s worth it to see what might work out up front.”
Looking ahead: Patent reform
Do the legal rules about business method patents need to change? Business method patents continue to generate debate about usefulness, especially from the software industry. Groups like the Public Patent Foundation are pressing for reform to the patent system, including the number of patents granted.
The US Federal Trade Commission tackled patent reform in 2002 and 2003, suggesting Congress make some changes to the system. But significant reform legislation has yet to make it out of congressional committee, Beckerman-Rodau says.
On the bright side, the US Patent and Trademark Office has started to fix one key issue: "It’s enacting new rules to limit the number of patent application 'continuations,'" Beckerman-Rodau says. Patent applicants today can file for continuations, hoping people will adopt the relevant technology in the meantime, then face a forced licensing situation when the patent is finally granted, he says.
In the past few years, the USPTO has also improved training for examiners. But it faces a tough situation with business method patents, Prepelka says.
“The USPTO continues to struggle in this area,” Prepelka says. “While efforts have been made to increase the level of expertise by the examiners in this area, it should be understood that a small amount of examiners are inundated with applications that cut across a large variety of fields.”
Bottom line for now: If your company is contacted regarding a patent, it is unfortunately going to cost you. At the very least, you must consult with a patent attorney. (If you don’t, you will face higher damages if you are sued.) “This has become one more cost of doing business,” Beckerman-Rodau says.
Useful links related to this article:
United States Patent and Trademark Office Patent Search – search patents (and published patent applications) by number and other criteria http://www.uspto.gov/patft/index.html
Free Patents Online – an alternate, free site for searching for U.S. patents and some European patents http://www.freepatentsonline.com
Groklaw Patent Law resources – blog offering extensive information and links on patent law
American Intellectual Property Law Association – industry association site, provides news on key patent law cases and reform efforts http://www.aipla.org
Public Patent Foundation – advocacy group for patent reform http://www.pubpat.org
Federal Trade Commission report -- “To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy,” suggesting changes to the U.S. patent system http://www.ftc.gov/os/2003/10/innovationrpt.pdf
The Webb Law Firm – Pittsburgh, PA law firm specializing in intellectual property issues http://www.webblaw.com
Suffolk University Law School http://www.law.suffolk.edu