How can they patent that?

The torrent of patents for e-commerce schemes raises new questions about an old-fashioned system.

Published March 9, 1999 8:00PM (EST)

Hey you, downloading audio or video clips from the Net -- yeah, you! Drop that animated GIF. Put down that QuickTime movie. Forget about those MP3 files. Didn't you know that buying copies of those things over the Internet is patented? If someone doesn't pay royalties, someone's going to be liable.

Patent fear is gripping the Net these days, as media coverage highlights new patents covering the flow of multimedia, music, money and whatnot over the Internet. In the past, news stories about patents were tales filled with strange chemicals, weird industrial processes, arcane contraptions with odd levers or microscopic things. To get a patent in the old days, you couldn't be just any schmoe -- you needed horn-rim glasses and a white lab coat.

But the latest batch of patents that focus on the Internet aren't anywhere near as impressive. In fact, they look as if any schmoe did "invent" them -- by taking some everyday occurrence and adding to it the phrase, "with a computer network."

Consider U.S. Patent 5848161, which describes the flash of genius that hit two Canadians and an American: They "invented" the practice of locking up the data traveling over the Internet between the customer and the store -- that is, they use encryption functions to hide credit card account numbers from prying eyes.

Or consider patents 5191573 and 5675734, created by Arthur Hair when he lived in Pittsburgh. He claims to have invented the concept of "selling electronically ... through telecommunications lines, the desired digital video or digital audio signals" -- in short, pay-per-view over the Internet.

It's not really fair for me to single out these three patents, because there are many more like them. Plus, it's hard to summarize the scope of a complex legal document in a short paragraph. (And no doubt some readers will want to point to similar patents I've been granted over the years: They're not exactly a cure for polio, either -- they don't even make the short cut of my risumi.)

The problem is that the patent system wasn't meant to be just an opportunity to pad the resume of a person or corporation. Patents are meant to reward inventors of products by giving them the sole right to control who uses their invention. This is usually enforced by another invention popular in America, the lawsuit.

Most people don't really begrudge the inventor of something truly new, novel and useful the right to force royalties from everyone using the invention. This sort of quid pro quo is what the Founding Fathers imagined when they deemed that inventors would get exclusive rights for a limited time (the current period is 20 years) in compensation for disclosing the invention to the public; after that time, the invention is free to everyone. This is a pretty good deal for the public if the invention is something like a vaccine for a big disease.

But no one is happy when a bright person grabs a patent on something that doesn't seem particularly new or novel -- especially when he or she demands royalties. This is just what some of the "inventors" of the Internet patents are doing, to the consternation of many. They're sending out letters demanding payment of royalties and backing the demand with the threat of a lawsuit. Half the people who get the letter are wondering, "Is that really patentable?" -- and the other half are kicking themselves for not filing the patent first.

The good news is that most of the truly silly patents will fall by the wayside, and the patent system still works for protecting serious and important ideas, providing ample reward for the folks who do something like cure AIDS. The bad news is that the U.S. Patent and Trademark Office isn't particularly helpful, and the process only works when fueled by plenty of cash.

To understand how we ended up where we are today, you must understand the patent process -- and how clever inventors and their patent lawyers are preying on its weaknesses. The system begins the instant an inventor says, "Eureka!" and starts to scribble down a description of the invention. This description is known as the "claims," and it is a structured list enumerating all of the important parts of the invention. The inventor tries to make this description as broad as possible in order to claim the maximum intellectual-property turf.

The patent office has the job of examining the claims and canceling all but the good claims. About this, the law is pretty explicit. For a claim to be good, it must be new, it can't be "obvious" and the inventor must really be the first one to invent it.

Clearly, one person's "obvious" is not the same as another's, so this term generates many fights. But an inventor has many different types of appeals available, and the inventor's lawyer can make life difficult for the patent examiners -- who are often judged by how many applications they process each year. The potential patent holder argues and argues and argues with the patent office until the arguments over "obviousness" fall by the wayside. This explains why so many people are thinking, "That's so obvious."

These arguments between the inventor and the patent office aren't entirely worthless because they often narrow the scope of the claims dramatically. In many cases, the patents aren't really as all-encompassing as they might seem because the negotiations have limited the breadth of the claims.

For instance, patent 5675734 -- one of Hair's patents for online pay-per-view -- doesn't really apply to all sales of audio or video over the Internet. One claim requires that the signal be copied into a "sales random access memory chip which temporarily stores a replica of the coded desired digital video or digital audio signals purchased by the second party." If your Web site doesn't have a "sales random access memory chip" or some equivalent, then the patent doesn't apply to you. Patent 5675734's claims also specify that money is involved. That is, a person must provide "a credit card number ... so the second party is charged money." If there's no money exchanged, then the patent probably doesn't apply.

The give-and-take between the patent office and the inventor's lawyers often narrows the focus to something that seems non-obvious. But establishing who was the first person to think of an idea is a trickier problem. In theory, a patent application must contain a good summary of all of the "prior art" that is out in the world -- that is, a summary of all of the similar ideas that were previously invented. The new patent only covers the new ideas that weren't previously invented, and the scope of previous invention is defined by this search of the prior art.

In practice, no one can do a perfect job with this process, because no one can possibly search all of the world's prior knowledge. So virtually everyone does a half-assed job -- they poke around for a bit and then give up. More diligent people will look around a bit longer to find examples; the fly-by-night inventors will spend much less time. But no one has time to search the world as thoroughly as it should be searched.

The Patent Office tries to check the search and conduct its own, but is has a limited budget for searching, and it's not allowed to talk about the applications. That means the examiner can't call up IBM and say, "Didja ever think of selling videos over the Internet?"

In practice, the job of searching for prior art falls upon the shoulders of the other companies being sued for violating the patent. They often have the most incentive to find it, and they're usually much more resourceful than either the inventor or the patent office. (New online resources like IBM's Intellectual Property Network are helping make this process a bit more accessible.)

It usually isn't hard to come up with some credible prior art. I wrote a book in 1995 called "Digital Cash" and it described several systems that were pretty close to 5848161 (the encryption for credit cards idea). The application for 5848161 was filed on May 16, 1996, so my book preceded it. That should be a potent weapon for anyone threatened by this patent. But there are also complications: I might not describe exactly the same system as patent 5848161, so the book might not disqualify all aspects of the patent. Plus there are thousands of loopholes and grounds for argument in the system. Nonetheless, the material in the book can't be claimed as an invention by someone after the book is published.

Andrew Milne, an engineer for N2K, is evaluating what patents 5191573 and 5675734 mean to his company's plans for selling music over the Internet. He's already been doing research looking for past products and services that might qualify as prior art, and he's uncovered a wide range. One Wall Street Journal article from 1981 that he cites describes a system for downloading digital music from a Western Union satellite. There are so many other examples, he says, that it's hard to know where to begin. Still, he is not sure how his company will proceed -- the final decision lies with the lawyers who will analyze the results of his survey.

Scott Sander, the president of, the owner of the Hair patents, says he's interested in what Milne turns up, but isn't too worried. He says that his company has been negotiating with many major content, software and computer companies since 1993. Many of these have conducted their own search for prior art and given up.

"Do I assume that people will try vigorously to avoid giving us a seat at the table? " he asks. "Absolutely. But that's what patents are for -- to give little guys like us a seat at the table."

Many patents fall by the wayside because of good searching by people being threatened by a lawsuit. This might not be the best way to run a system -- it forces people who are ultimately innocent to defend themselves against charges of infringement -- but it's the way the system has evolved. Searching is just too complicated and expensive.

Greg Aharonian, a San Francisco patent agent specializing in high-tech patent searching, publishes an e-mail newsletter about patent issues that often takes incendiary positions. He feels that the government, or some of private industry, should fund a better database that maintains some order about computer-related patents.

"You talk to, say, the biotech or the chemical people -- they don't really complain as much about the quality of the patents in terms of stupid stuff being patented," he says. "The reason is that they have access to two very good databases: Chem Abstracts and Medline. These are databases that have additional content. They have staffs that add value. If you have a new idea and it's in one of the databases, then you're not going to get a patent."

Still, he also points out that ideas in computer science are particularly prone to shape-shifting, and it's difficult to keep all of the terminology straight. "Do you consider a Cobol module type of software technology that's 30 years old an 'object'?" he asks. "I've heard some people make the argument that Cobol's been 'object-oriented' since day one. Would I consider an old Cobol program a reference on an object-oriented patent in the '90s? It's hard to tell."

There are deeper philosophical problems that also haunt the system. The law has always forbidden patenting "laws of nature," and that prohibition could cover anything from the principles of mathematics to ways of doing business. But many people are getting patents in these areas by formulating their claims as machines for doing the same thing. In other words, no one would be granted an overall patent for exchanging coins for candy bars, but it would be perfectly acceptable to get a patent on a new kind of vending machine.

The rise of the digital computer and the Internet has blurred distinctions even more, because computers and automation are now part of all businesses. That's why no one ever thought of getting a patent on selling records for cash, but someone wants to patent a mechanism for selling audio files over the Internet.

Part of this problem might be remedied if the patent office were able to say that to take a past practice and conduct it electronically or online is now "obvious." That is, shipping audio signals by digital signals is pretty much equivalent to shipping them by vinyl disk -- an inventor would need to come up with a more significant improvement than that.

This will probably happen over time when one of these cases is litigated. If a court makes such a ruling, all of the older patents will lose some of their value because they won't be as enforceable.

Many big computer companies are developing their own defense against the vagaries of endless patent litigation: They simply cross-license their patent portfolios with each other. It's not unusual to discover that two mammoth competitors like Xerox and Canon have cross-licensed their entire portfolio of patents to each other. This saves them endless fighting, while it keeps out the little competitors.

Anthony Clapes, IBM's former assistant general counsel and author of the book "Softwars," downplays the sinister aspect of this trading. "They're not doing it to be unfair or conspire," he says. "In the Cold War, there was a certain amount of making available information about what was going on on either side. They had the red phones. There was a certain amount of pressure being released by providing information through back channels. That's what this is like. I'll cross-license, you'll cross-license, and we'll get enough freedom of operation."

He also downplays the disadvantage to smaller inventors. "In theory and in philosophy, I don't think there is anything that favors the larger," he says, but adds, "It's just that life favors the larger entity."

But Aharonian, the patent agent, has a different view. He feels the big companies care little about patents because the value of even a great patent is only about $20 million, which adds little to their balance sheet. The little companies don't have the ability to influence Washington.

He says, "No one wants to spend a year or two arguing whether the patent is valid. If we want to encourage the small people and the start-ups, we'll have to clean up the patent system. Those people aren't being served."

Sander of agrees with this pronouncement. "During the turn of the last century, when technology was really exploding, people were putting forth the same arguments that the Patent and Trademark Office had lost the ability to keep pace with that much innovation," he says. "It's essential for companies to protect their intellectual property in times of great change." Otherwise, he adds, "It all ends up in Redmond, Wash.," in the hands of the biggest companies like Microsoft.

By Peter Wayner

Peter Wayner has several large Pascal applications he needs to rewrite.

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