Retailers Urge Supreme Court Smackdown Of Process Patents

Relief may be in sight for retailers that are afraid someone somewhere has secured a patent covering some mundane process they regularly use in the course of selling stuff—be it the way customers swipe payment cards, their methods for collecting loyalty program data or the functioning of their Web site's shopping cart feature.

The U.S. Supreme Court on Monday (Nov. 9) heard arguments about process patents and there were indications that it might snuff out such patents altogether. Process patents, also called business method patents, have been derided as frivolous because, some critics charge, patent applications are created after the process has been routinely performed by many companies for years but the "inventor" is merely the first to try to get a patent on that process.

Seven E-tailers, including J.C. Penny, Talbots, L.L. Bean and Overstock.com, are urging the high court to clamp down on patent violation lawsuits by so-called "patent trolls," which are often shell companies claiming rights to vague business method patents. The retailers note they routinely settle patent infringement claims related to their Web sites rather than spend millions on litigation.

Many of the Supreme Court justices expressed significant skepticism about whether the current system should be maintained. Questioning one attorney about a financial approach patent, Justice Anthony Kennedy raised a Congressional intent argument. "In your view, clearly those would be patentable: the explanation of how to compile an actuarial table and apply it to risk. It's difficult for me to think that Congress would have wanted to give only one person the capacity to issue insurance."

Justice Stephen Breyer questioned the very premise of the process patent when used in an overly broad manner. "Every successful businessman typically has something. His firm wouldn't be successful if he didn't have anything that others didn't have. He thinks of a new way to organize. He thinks of a new thing to say on the telephone. He thinks of something. That's how he made his money. It's new, too, and it's useful, made him a fortune. And your view would be anything that helps any businessman succeed is patentable because we reduce it to a number of steps, explain it in general terms, file our application, granted?" Breyer asked.

"Well then, if that were so, we go back to the original purpose of the Constitution," Breyer said. "Do you think that the framers would have wanted to require anyone successful in this great, vast, new continent because he thinks of something new to have had to run to Washington and to force any possible competitor to do a search and then stop the wheels of progress unless they get permission? Is that a plausible view of the patent clause?"

The newest member of the court, Justice Sonia Sotomayor, asked how far process patents could go. "How do we limit it to something that is reasonable? Why not patent the method of speed dating?"

Chief Justice John Roberts Jr. also weighed in, questioning legal arguments that a process patent needs to interact with a machine. "If you develop a process that says 'Look to the historical averages of oil consumption over a certain period and divide it by two,' that process would not be patentable. But if you say 'Use a calculator,' then it is?"

The amicus brief filed by the retailers is one of dozens submitted to the high court in the pending case of Bilski v. Kappos. In the case, two inventors--Bernard Bilski and Rand Warsaw--are appealing the rejection of an application for a patent that would cover their method of hedging risk in commodities trading. A federal circuit court found that the method didn't qualify as patentable because it wasn't tied to a particular machine or transformative of any physical object.

Because the case deals with whether patents should be granted for methods, it tests whether software programs--including those used by E-Commerce sites for features such as online shopping carts--can be patentable.The Supreme Court hearing took place six days after Card Activation Technologies, a company that has settled lawsuits it filed against many major retailers for infringing on its "technology for the activation and processing of transactions related to debit-styled cards," announced the hiring of more lawyers and said that as many as "45 retailers and infringers will be sued immediately."

In their Supreme Court brief, Crutchfield, Newegg, L.L. Bean, Overstock.com, J.C. Penney, Talbots and Hasbro argued that "Internet Retailers know--and have paid dearly for that knowledge--that these (federal) doctrines were not designed for, and are not up to, the task of weeding out unpatentable business method claims on the Internet. These patents should be nipped in the bud because they are not the proper subject matter of a patent grant, and not just uprooted only after they have been allowed to flourish."

The retailers said that the number of patents is staggering and that the Supreme Court must step in before permanent damage is done to E-tailers. "It is currently estimated that approximately 11,000 patents cover various aspects of the Internet, many, if not most, of which are business method patents, i.e., patents that claim inventions not of specific technologies, but of vaguely worded 'methods' for doing something. If the aperture is opened wider to include software patents, it is estimated that there currently are more than 200,000 such patents. In other words, literally thousands of people can claim partial invention of the Internet and thus, potentially, can file suit to claim a share of the $178 billion in annual Internet sales."

The chains also tried to link their claims with the original premise of U.S. Patent law, which was to promote important inventions by making them public, but simultaneously protecting the inventors from mass theft. That objective, the merchants argued, is not being advanced by many process patents today.

"The increase in the number of business method patents has been accompanied by a corresponding eruption in the number of patent lawsuits filed," the filing said. "It is apparent that business method patents asserted against Internet retailers are not being used to promote the progress of science and useful arts, but simply to extract hundreds of millions, if not billions, of dollars from the most successfully innovative members of the digital economy through monopoly claims on E-commerce."

A big part in a retailer's decision to settle out of court is the cost and risks involved in producing the reams of documents required in a patent infringement case, according to the brief. In patent cases in which a company’s Web site is alleged to infringe on a business method patent, "plaintiffs often provide only a handful of screen shots in purported satisfaction of their obligation to provide detailed infringement contentions, claiming, successfully, that they cannot provide additional information until they obtain all documentation concerning the design and operation of the Web site, including the highly confidential source code," the brief said.

"Adding insult to injury, because the language of the patent claims themselves is so ill-defined, everything relating to the design and operation of the Web site is considered relevant to such claims and thus subject to the plaintiff’s demand that all documents relating to the Web site be produced so that the plaintiff can discover where and how the alleged infringement occurs. For a retailer with a highly successful retail Web site, this is being asked to hand over the keys to the kingdom."

The retailers contend that patent trolls don't stop upon reaching a settlement but view it as "an invitation to the next suit." The brief notes that Amazon has been sued 131 times for patent infringement, and it points to other companies selling products that "one does not ordinarily associate with patent infringement" as being in a similar boat: Victoria's Secret has faced 29 patent suits and Saks Fifth Avenue has faced 27.

"Virtually every one of these lawsuits has settled. Indeed, since business method patents almost never concern a company’s core business, and thus are not worth millions of dollars to contest as a drug patent might be for a drug manufacturer whose signature drug is targeted by a competitor," the brief said.

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