Got E-Commerce? Paul Allen Wants Your Money

If your E-Commerce site shows customers related products or makes product recommendations, Microsoft co-founder Paul Allen wants money from you. That's the upshot of an amended lawsuit that Allen's company, Interval Licensing, filed last Tuesday (Dec. 28) against Staples, Office Depot and OfficeMax, along with eBay, Netflix, Google, Yahoo, Facebook, YouTube, Apple and AOL.

And if that list sounds familiar, it's because Interval sued all those companies last August for patent infringement. That lawsuit was thrown out for being too vague about what the defendants had done wrong. The new version is very specific—and what happens to the Big Three of office supplies in this case will pretty much dictate what all other E-tailers can and can't do.

For U.S. E-tailers, there's a tiny bit of good news in the new version of this lawsuit: It's no longer a vague, mysterious threat. Now it's clear what Allen wants: royalties from every E-Commerce site that shows related products or customer recommendations. In other words, from every E-Commerce site.

According to Interval's amended complaint, the office-supply sites infringed two Interval-owned patents. The first is U.S. patent 6,263,507, which is allegedly infringed whenever an E-tailer displays related products. Or, as the lawsuit complains about Office Depot:

"In order to help users find additional content that may be of interest, the software and hardware that operate these Web sites compare the available content items to determine whether they are related. When a user views a particular content item, the Office Depot Web sites generate displays of related content items so as to inform the user that the related items may be of interest. For example, when a user views a product page on OfficeDepot.com, the OfficeDepot.com Web site displays both the selected product information and links to other related products. The hardware and software associated with the Office Depot Web sites identified above and any other Office Depot Web sites that perform this function infringe" the Patent in several ways, the lawsuit said.

There are virtually identical paragraphs for Staples and OfficeMax, with only the company and Web site names changed.

Interval also accuses all three chains of infringing U.S. patent 6,757,682 every time an E-tailer shows product recommendations. For example, as the lawsuit complains about Staples:"Staples operates Web sites such as Staples.com, which provides product recommendations to users. The determination of which products are to be recommended is based at least in part on other users' activities, including, for example, viewing, rating, reviewing or buying products. For example, the Staples.com Web site alerts users of products that they may also be interested in. Exhibit 38 also demonstrates how users may perform activities (e.g., reviewing or adding products to their shopping carts or 'Favorites') that can be used to generate recommendations for other users. The hardware and software associated with the Staples Web sites identified above and any other Staples Web sites that perform this function infringe" several Patent claims, the lawsuit said.

Non-retail defendants in the lawsuit are also accused of infringing two other Interval patents by "displaying information to a user in an unobtrusive manner that occupies the peripheral attention of the user. For example, Apple Dashboard creates a transparent overlay that includes information such as weather and sports scores."

That's certainly not vague. It may also be the broadest and most ambitious attack on E-Commerce ever launched.

One of the realities of E-tailing is that, at least since Amazon.com started doing business in 1995, customer ratings and "you might also like" have been the twin pillars of doing business online. No major E-Commerce site would be launched (or relaunched) without them.

Yet that's the situation online retailers may soon have to consider, depending on the outcome of this lawsuit.

Let's be clear: With some of the biggest companies on the Internet as defendants, no one is likely to capitulate without a fight. Notably missing from the list of defendants are two Seattle Internet giants with ties to Allen: Microsoft (Allen was a founder) and Amazon (Allen is the landlord for its corporate headquarters).

But Google, eBay, Apple and Facebook carry plenty of weight—and know how to throw it around in a patent fight. Having friends like that will likely keep Staples, Office Depot and OfficeMax in the game until a judge or jury decides whether Allen's patents are valid and whether modern E-Commerce infringes them. That will take years.

In the meantime, if you're a U.S. E-tailer, you still have a legal threat to worry about. But at least you know what you're facing.

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