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Thu, Nov 18, 2004 - Page 12 News List

Patent sale raises lawsuit concerns

TECHNOLOGY Industry watchers are concerned that development might be blocked because the buyers could use the patents to challenge certain Web services

NY TIMES NEWS SERVICE , SAN FRANCISCO

More than three dozen patents said to cover key facets of Internet transactions will soon be auctioned off by Commerce One, a bankrupt software company. But even before the sale, some tech executives and lawyers are worried that potential buyers might wield the patents in infringement lawsuits against companies that are engaged in online commerce, like IBM and Microsoft.

The 39 patents cover basic activities like using standardized electronic documents to automate the sale of goods and services over the Internet. Some intellectual property experts said that these patents, which have broad reach, could be used to challenge Web services like the .Net electronic business system from Microsoft or Websphere software from IBM. Those firms declined to comment, saying any discussion now would be speculative.

Bidding for the portfolio of patents will begin at US$1 million in the auction, which is scheduled for Dec. 6 in federal bankruptcy court in San Francisco.

One of the inventors involved, Robert Glushko, who no longer holds the patent rights, fears the winner of the auction might use the patents mainly to impede other companies or to press competitors to pay licensing fees for practices already common in Internet commerce. He is not alone.

"The big issue is what people call `patent terrorism,"' said Jack Russo, an intellectual property attorney in Palo Alto, California.

The sale and the controversy surrounding it are a striking example of a change in the use of patents in high-tech industries.

The historic role of patents, as defined by the US Constitution, is to protect the exclusive rights of inventors for a limited period of time to foster science and invention. But increasingly, patents are emerging as a weapon used by corporations in their efforts to control markets.

Indeed, there are now companies in the business of acquiring large patent portfolios to sell patents to the highest bidder.

"There is a potential risk to society in business models that says we're neither going to come up with an innovation nor create products ourselves," said Mark Lemley, a patent law expert at Stanford University. "As a business model it makes sense, but it's not clear that innovation is going to flourish."

The patents cover a technology known as "Web services," software at the heart of computerized systems designed to automate the buying and selling online.

If the patents are upheld by the courts and are used "offensively" in an effort to obtain licenses from Internet companies, they could limit innovation, said a representative of the World Wide Web Consortium, an Internet standards body.

"The consequences are potentially substantial," said Daniel Weitzner, the head of the technology and society group at the Web consortium.

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