Patent Fever

The Risks Of The Patent Process

You should know that many dotcoms believe winning patents isn't all it's cracked up to be. Even successful companies say licensing patents can distract a start-up from running its business.

One such company is Gigex.com, an application service provider in San Francisco. In 1998, the company, which offers Internet delivery, distribution and marketing services for publishers of game and software demos, won a technology and business method patent for a "push" technology it developed. Its new patent also covers a scrolling ticker for Web sites that's updated in real time, similar to a stock ticker.

"We are actually kind of patent skeptics," says Mark Friedler, 36, founder and CEO of the 12-person Gigex.com. "While patents are great to get, and everyone's impressed by them, their actual value in terms of generating revenue for a company is not clear."

Friedler says the patent process is time-consuming, expensive and of questionable value. During the past three years, he's spent more than $30,000 in legal, maintenance and filing fees to obtain and maintain his patent. (Experts say most patent application filing fees cost between $15,000 and $30,000.)

Friedler also says his patent had nothing to do with his ability to attract investors, even though some patent proponents insist having a patent can be a key ingredient in getting necessary funding. "While investors often ask if you have any type of patent advantage, I don't think they're eager to have you spend your money going around suing people to try and get licensing fees," Friedler says. "Our patent didn't add any value in our venture rounds-our investors were most concerned about our business plan, not our patent."

But, of course, there are those who disagree. Patent proponents say both the process and the patent you may receive as a result can be invaluable. "While the patent process is rigorous, it was extremely useful for helping us to clarify a lot of aspects of our business, especially in terms of getting our application together," says Conklin. "The process helped us define what our core competency is and what it is that's new and different about us. All of that translates into a value proposition for our customers."

Too Much, Too Soon?
Skeptics question whether the rush to patent dotcom methods is a good thing.

Following Amazon.com's lead, many dotcoms are rushing to file for business-method patents-leading some intellectual property gurus and lawyers to question whether the growth in patents is a good thing.

These skeptics believe many business-method patents are too broadly defined and cover obvious and widespread technology. They say an influx of patents could eventually harm the growth of e-commerce by hindering start-ups that fear violating existing patents.

They may have a point. After Amazon.com won its One-Click patent, it was also awarded a patent for its affiliate program technology and its recommendation service technology. Critics blame the U.S. Patent and Trademark Office (PTO) for this growth in seemingly frivolous patents. They say the patent office doesn't have enough information about previous Web innovations, so it grants patents for claims that aren't new.

The PTO is taking action in response to this criticism. Earlier this year, Q. Todd Dickinson, the undersecretary of commerce for intellectual property and director of the PTO, announced an initiative to beef up efforts to uncover prior art and incorporate checks and balances.

Highlights of this action plan include a new, formal customer partnership with the software, e-commerce and Internet industries, as well as the banking and insurance industries; enhanced training of patent examiners; a new second-level review of all business-method patent applications; and the convening of a round-table forum with stakeholders on the issues surrounding this technology area.

In his announcement, Dickinson said e-commerce is an extremely important component of today's booming economy and that the need to ensure quality in the patent process has never been greater.


Melissa Campanelli is Entrepreneur's "Net Profits" columnist.

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Melissa Campanelli is a technology writer in Brooklyn, New York, who has covered technology for Mobile Computing & Communications and Sales & Marketing Management magazines. You can reach her at mcampanelli@earthlink.net.

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This article was originally published in the December 2000 print edition of Entrepreneur with the headline: Patent Fever.

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