Patently absurd?

Amazon.com's patent on its affiliate program has roiled the Web, but such protections may actually promote innovation.

Topics: Amazon.com,

When Amazon.com last week won a patent for its “customer referral system,” the Web community mobilized with characteristic speed, splashing the Net with caustic comments, letters of protest and calls for a boycott of the bookseller turned superstore.

By Wednesday, some 1,300 people had united at NoWebPatents.org, agreeing to boycott Amazon unless it gives up its strategy of patenting “obvious” and widely used technologies. On the site of computer book publisher O’Reilly & Associates, visitors posted about 3,500 responses to CEO Tim O’Reilly’s critical open letter to Jeff Bezos. Even Amazon’s discussion boards were brimming with anti-patent messages.

The uproar is understandable. About 3,000 sites including familiar names like CDNow, BarnesandNoble.com and Art.com have long established affiliate programs; they encourage content sites, for instance, to send visitors via hyperlink to an e-commerce site like CDNow where any purchases they make earns the referring site a small commission. Affiliate programs account for as much as 25 percent of e-commerce sales, says Evan Schwartz, author of Digital Darwinism. Amazon, critics say, has won a patent on the age-old practice of rewarding business associates who refer customers to you.

Amazon argues that it filed for the patent back in 1997, before many sites were using affiliate programs. But that is no excuse for going ahead with the patent, say its detractors.

O’Reilly, in his letter to Amazon, points out that both the “1-click” technology it won a patent on last year, which could prevent other Net companies from using Amazon’s simplified ordering system, and Amazon’s customer referral system, are based on cookies. And cookies, the code that Web sites use to track visitors, were “introduced in 1994 … well in advance of your 1997 patent application.” He then asks the Seattle, Wash., company to “avoid any attempts to limit the further development of Internet commerce on the basis of patents.”



If O’Reilly’s letter lacks vitriol, the reader responses to it do not. “A buzzword does not an innovation make,” reads one. “Grow up and compete,” reads another. “Play fair” says a third. In Amazon’s discussion area, one poster calls Bezos a “corporate moron.” And a response to the O’Reilly letter lays it out clearly: “What comes around goes around MR. BOZOS … particularly to companies that thrive on greed. I’ll take my book buying elsewhere.”

Amazon did use the 1-click patent to fire off a lawsuit against rival (and Salon.com bookselling partner) BarnesandNoble.com — forbidding it from using the easy ordering method. While that suit is pending, the affiliate patent looms large; it covers the process used to “electronically apply” to be an affiliate; the assigning, recording and extracting of an affiliate “identifier”; the process of providing instructions for creating links and of transacting the sale; and finally, the patent covers the process of “determining and recording within a computer memory compensation for the associate [Amazon's word for affiliate] for the sale.”

In fact, several intellectual property attorneys say patent number 6,029,141 could have the ability — barring a successful legal challenge — to shut down the estimated 3,000-plus sites that give merchants space on their Web sites in exchange for a commission on sales.

But other patent attorneys and experts say that is unlikely and that the Web tirade is premature, even misdirected. Patents are unloaded guns, and Amazon still hasn’t said if it plans to shoot, they say. Holding a patent gives the company the right to sue a competitor that uses the same technology — but the existence of the patent itself doesn’t outlaw the technology.

Many sites that run affiliate programs don’t expect lawsuits or even exorbitant licensing fees to be handed down from Amazon. “Amazon could issue a cease-and-desist order but that would seem to go against the spirit of the Net,” says Michael Kahn, Art.com’s vice president of marketing. “Or they could come to us and ask for a part of our profits. But I doubt they will.” Aggressive patent policing would be expensive and a public relations nightmare. “Corporate moron” or not, Bezos is probably not eager to shoot himself in the foot.

“A lot of people on the Web really have it wrong,” says David Kline, coauthor with Kevin Rivette of “Rembrandts in the Attic: Unlocking the Hidden Value of Patents.” “As a general rule, the American patenting system promotes innovation. There’s nothing like it in the world, and it’s probably the most effective system for promoting innovation ever devised.”

History would seem to side with Kline. Contrary to popular belief, business-method patents have flowed from the Patent and Trademark Office for over 100 years. Many appear at least as obvious as Amazon’s. For example, patent 44,778, awarded to Isaac Bates on October 25, 1864, covers a “method for teaching penmanship,” specifically an innovative position of arm, pen and hand. Meanwhile, patent 660,255 protects a method for teaching speaking and reading to the deaf. It was issued in 1900.

Assuming that these inventors made a living from their “processes,” these patents could be considered business-plan patents. Neither of them caused the uproar now descending on Internet companies like Priceline.com that have patented their business models, but that’s probably because not enough people knew or cared. In contrast, when inventors began to receive electricity patents in the late 1800s, pundits howled.

“The media cried out, ‘How can you patent the movement of electrons down a wire?’” says Kevin Rivette, who balances book writing with his work at Aurigin, a software company building a platform for intellectual property management.

The current trend of patenting business methods may actually be doing us more good than harm, says James Brogan, an intellectual property attorney at the Los Angeles law firm Lyon and Lyon. “By obtaining patents covering various business methods that it is developing, Amazon is ensuring that its knowledge reaches and, in time, may be used freely by the public. This, indeed, is the principal reason for having a patent system — to encourage innovations and information transfer to the public by rewarding, for a limited time, those who are responsible for the innovations.” In other words, the specifics of Amazon’s business methods will one day be available to anyone who wants to use them.

It’s hard to imagine that by then any company that wanted to implement an affiliate program wouldn’t have figured it out. But that’s precisely why patent experts don’t see much of a threat in the Amazon patent. In the time it takes to receive a patent — typically two-to-three years — Internet companies are made, merged and dismantled. In an age full of overnight millionaires, patent protection is about as useful as a Commodore 64. “The barriers to innovation are not that high on the Net,” O’Reilly says. “Compared to a chemical process, start-up business plans can’t compare.”

Low barriers to entry are also low barriers to theft, say Kline and Rivette. Although major players like Amazon and Priceline.com have been the first to win patents — and use them in court — ultimately, patents protect the bit players from the big boys, not vice-versa.

“I find it ironic that so much criticism of intangible business models are coming from people whose entire lives are wrapped up in an intangible world,” Kline says. “Original ideas are the key source of advantage on the Internet, so why shouldn’t you be able to protect them?”

“Exactly,” says Hans Hsu, a Harvard-educated lawyer and CEO of Felicite.com. His gift-registry site lets users post a list of desired items, everything from a Macy’s martini set to a car to a lifetime subscription to the New Yorker. Friends can come and order an item for an agreed-upon price, and Felicite will find it. It’s pretty typical fare for online gift registries, but Hsu has added what appears to be a couple of unique features. One is partial purchase. Instead of paying for your friend’s Range Rover, you can just contribute. Give as much as you like, and hope others will cover the rest.

This idea would not be considered “novel” or “unobvious” — two tests that patents must pass — but that hasn’t stopped Hsu from filing for a patent. In fact, he’s also trying to patent “contingent substitution,” which allows Felicite.com to decide on a second-best item — “tickets to Star Wars instead of the vintage action figure,” Hsu says.

Neither patent has been issued, and no one knows if either one could sustain a challenge. But that doesn’t matter for now. The point is that Felicite.com would probably not exist without the patent system.

“We would never have gone down this road if we didn’t think we could have the protection of a patent,” Hsu says. “We wanted to make sure that Amazon couldn’t copy us.”

Of course, for all his talk of protection, Hsu admits that he never even thought of seeking patents until Priceline.com started winning them last year. As of late August, CEO Jay Walker, credited with inciting the current outrage about e-commerce patents, held 18 business-method patents related to Priceline’s reverse-auction site; 250 more applications were pending. When Priceline sued Mircrosoft’s Expedia travel site for patent infringement in October 1999, the Net quaked. Suddenly, patents had teeth, and everyone wanted them. Intellectual property lawyers morphed into patent attorneys.

“It all started when Priceline sued and Amazon got its one-click patent,” says Randy Lipsitz, a former patent examiner and a partner at Kramer, Levin, Naftalis and Frankel. “That’s when it hit the media, and my clients called to see what it all meant. Then they asked me if they had anything to patent.”

But even before the Priceline suit, Lipsitz noticed a shift toward Internet patents; most of his time these days is spent on patents. “You can make a living at this alone,” he says.

The numbers back him up. At the behest of venture firms, including Kleiner Perkins Caufield and Byers, start-ups have begun to seek patents in droves. The Patent Office received 2,600 computer-related business model applications last year, up from 1,300 in 1998 and 700 in 1996.

Many of these aren’t worth the paper they’re printed on, lawyers say. In many cases, prior art (Patent Office terminology for earlier examples of the same or similar technology) exists, but patent-seekers don’t reveal, or don’t know about it, and neither does the patent examiner on the case. Most people — online and in law offices — blame the Patent Office for the bogus patents, and also for moving too slowly.

Oddly enough, Brogan thinks patents like the one Amazon won for its affiliate program could actually help solve that problem. “By moving forward with the prosecution of its patent portfolio, Amazon is helping the U.S. Patent and Trademark Office develop something that it very much needs — an archive of documents describing online systems and processes,” says Brogan. “Without such an archive, the PTO has no access or very limited access to ‘what came before’ and cannot hope to properly do its job.”

According to Kline and Rivette, the problem is systemic. No one keeps track of prior art, particularly in the fast-paced world of computers. In their book, they propose creating an online database that stores information on every well-known innovation — the first example of cookies, of cascading style sheets, of affiliate programs and so on. This would minimize the ability of companies to claim credit that they don’t deserve, Rivette says.

Of course, even if this idea becomes a reality, it won’t do much to tear down or shore up the Amazon affiliate patent. Again, no one knows how this patent will be used. But challenges have already appeared. On Wednesday, CDNow, the Web’s second biggest affiliate program behind Amazon, issued a statement claiming that the site has been using “‘Buyweb Links’ for affiliate type relationships since November 1994,” three years before Amazon filed for a patent. And James Marciano, founder of Refer-It, a portal for about 2,000 affiliates, says that the part of Amazon’s patent — covering the use of cookies to determine what affiliate site a customer arrives from — can probably be sidestepped, by getting the customer to do a little extra work and fill in the data themselves.

But as the patent holder, Amazon ultimately has the ball in its court. If it holds onto the affiliate patent, maybe using it only as a corporate ornament, the patent issue will die until the next big company grabs one. But if Bezos decides to use the affiliate patent — firing lawsuits like grenades — there’s no telling how bloody the war will become. If nothing else, when thousands can mobilize to splash screeds in a matter of hours, we know it will be noisy.

Damien Cave is an associate editor at Rolling Stone and a contributing writer at Salon.

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