Starting a Business

Patent Fever

Rushing to join the patent stampede? Hold on and take a closer look at your business. Smart dotcommers put their patents on one leg at a time.
This story appears in the December 2000 issue of Entrepreneur. Subscribe »

In case you haven't noticed, patent fever has taken over the dotcom world. not long ago, Amazon.com made headlines when it was awarded a patent for its "One-Click" technology, a process that allows online shoppers to purchase goods with a single mouse click. With patent in hand, Amazon.com can now prohibit competitors and others from using the technology-or can charge them to do so.

Amazon.com's not the only one doing it. Corporateintelligence.com, a Web site based in New York City that offers information about intellectual property issues, estimates 57 percent more new Internet-related U.S. patents were granted in 2000 than in 1997 and 1998 combined.

Patents can make fortunes for companies, as they give their holders the right to preclude others from making, using or selling their inventions. When it comes to the Net biz, patents can apply to everything from technologies and products to business processes-or all the above in a single patent.

The Benefits Of A Patent

When companies first learned about Amazon.com's patent, many began rushing to see if their business processes could also be patented-and they did so in droves. In fact, e-commerce- and software-related business-method patent applications doubled from 1998 to 1999, according to the U.S. Patent and Trademark Office (PTO), the federal agency that administers patent laws, examines patent applications and determines who will get patents.

For dotcoms, there are numerous competitive advantages to owning patents, ranging from royalties to good public relations. "Having a patent helps the patent owner maintain an edge over competitors because it can prevent those competitors from using its technology to their benefit," says Joshua Bressler, an attorney with law firm Schulte Roth & Zabel LLP in New York City who specializes in intellectual property, e-commerce and technology law. "In addition, a patent can provide substantial revenues generated from the licensing of rights under it."

Bressler says start-up companies in particular can benefit greatly from patents. "If you're a start-up looking for early-round financing, or if you're planning to go public," he says, "investors like to see aggressive protection of proprietary business methods and other intellectual property, particularly because they've gotten so much press lately."

One start-up that understands the benefits of patents is TradeAccess Inc., a Cambridge, Massachusetts, company that sells B2B e-commerce software that automates the process of negotiated buying and selling. It received a Notice of Allowance from the PTO for a soon-to-be-issued technology and business method patent for its B2B e-commerce negotiation process. The company's founder believes so strongly in patents that he applied some of his last remaining capital to the patent process.

"Given the invention revolution that's going on now around the Internet, I felt having strong intellectual property would really help the company distinguish itself and protect the investments that everyone's made here, vis-à-vis the competition," says Jeffrey M. Conklin, 45, founder and CEO of TradeAccess. "I felt it could be money very well spent and it would provide returns."

Conklin says the patent has already played a major role in attracting premier partners and customers. For example, it's helped the company form a global strategic alliance with Andersen Consulting, a leading global management and technology consulting firm. Says Conklin, "A big piece of why they wanted to do business with us was because of the patent allowance on our system."

Now TradeAccess is looking forward to licensing its application to e-market-makers and corporations, and to licensing its technology to technology vendors.

How To Get A Patent

Although getting a patent may seem like a great idea, keep in mind that obtaining one is a long and tedious process. First, you'll have to determine whether your technology or business method is even eligible for a patent. According to a PTO statute, inventions-business processes or otherwise-have to be new, useful and non-obvious.

The best way to determine whether your invention meets those requirements is to contact a registered patent attorney, who can, among other things, help you determine whether someone else has already patented your invention or obtained a federal registration for a trademark on goods or services similar to what you've developed.

Your lawyers should check prior art-which includes information such as patents, inventions or scholarly articles that show the same or similar inventions-before filing. If there are no other inventions just like yours, you'll be able to apply for a patent through the PTO. Have your lawyer write the patent application to avoid mistakes. Along with your application, you'll have to submit all instances of prior art of which you're aware describing the invention, which can be used to invalidate all or part of an infringement claim. Above all, remember that applying for a patent is an ambitious undertaking that requires knowledge of patent law, agency regulations and examiner procedures as well as a draftsperson's steady hand.

If you need help finding a patent attorney, try the PTO Web site. The agency maintains a roster of attorneys and patent agents who are registered to work with the patent office. Only attorneys or agents who are registered to practice before the office are permitted to file and prosecute patent applications on behalf of others. This roster includes listings by geographical area.

After filing, the waiting game begins. Experts say the average time to receive approval on a patent generally ranges from two to three years. Once a patent wins approval, however, the work is far from done. You must police the market to make sure no one infringes on your patent. As part of their licensing programs, many companies with patented business processes or technologies hire lawyers or use an in-house staff employee to contact and seek payment from any companies that may be infringing on their patents.

"It takes a lot of time, effort and expertise to police your patent and get royalties from infringers," says Lynn Tellefsen, vice president of marketing for CorporateIntelligence.com. Now that dotcoms are actively monitoring their patents for possible infringements, the lawsuits are mounting. Last year, for example, a federal judge ordered barnesandnoble.com to stop using Amazon.com's patented One-Click technology.

To Do List
Don't even think about filing for a patent until you do the following:

1. Do your homework. "Make sure to look at prior art as thoroughly as possible," says Lynn Tellefsen of CorporateIntelligence.com. "In the world of technology and patents, you don't want to duplicate what's out there-and that's very easy to do in this sector."

2. File a priority application. And file it as soon as you can, Tellefsen says. The whole process can take a long time, but if you get started as soon as possible, you'll be able to get a jump on any competitors who may file for a similar patent.

3. Train your attorney to think like a businessperson. Explain to your attorney why you're different and what the problem is that you're solving. "If you don't give them the business insight with strategy, they'll tend to try to patent what's cool, not what's important," warns Kevin G. Rivette, co-author of Rembrandts in the Attic: Unlocking the Hidden Value of Patents (Harvard Business School Press) and CEO and founder of Aurigin Systems, a Cupertino, California, intellectual property management software company. "You shouldn't care about what's cool. You should care about what's important to your company and what will give you a sustainable business advantage."

4. Consider global patent protection. While you probably aren't thinking about selling your product overseas right now, "if your technology is hot, you might want to market it overseas, so file for a patent there as well," says Tellefsen. In addition, she says, you should check the international patent databases when applying for a patent because, unlike the PTO database, which only reveals patents that have already been granted, international databases show you the most recent applications filed.

5. Plan a licensing ROI chart. Figure out what return on investment you could receive from companies that will want to license your technology or business-process patent-keeping in mind cross-licensing opportunities. Tellefsen says cross-licensing is important because your patent might be used in a completely different industry than the one you're in.

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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