Avoiding Patent Peril

To followers of technology news, these headlines may look familiar: Akamai Sues Cable & Wireless Over Patents; Cable & Wireless Sues Akamai Over Patents; Akamai Claims Victory in Patent Suit; Cable & Wireless Claims Victory in Wireless Suit.

That’s because for more than two years, the companies have been locked in a complicated and contentious intellectual property battle over who owns the rights to technology that speeds Internet content to end users.

At times, the dispute seemingly degenerates into a school yard game of “did not, did too.” The diametrically opposed claims of Cambridge, Mass.-based Akamai and U.K.-based Cable & Wireless might be comical, if the stakes weren’t so high.

To be sure, wrangling over patents isn’t limited to the content delivery sector; storage (EMC v. Hitachi), semiconductor (Siliconix v. Fairchild) and e-commerce
(First USA v. PayPal) have all have their share recently. But the protracted nature of Akamai and C&W underlines the importance of guarding the fruits of engineers’
research and development labor against poaching.

“As more and more of our economy is based on technology, there is a growing awareness on how important patents can be in the marketplace,” said Edward Naughton, a patent attorney and partner with the Boston law firm Holland & Knight.

Federal statistics bear that out. In 2001, the U.S. Patent and Trademark Office (USPTO) granted a record 166,045 patents for inventions, up 5.4 percent from the
157,495 in 2000. Compare that to 1991, just before the digital economy spawned thousands of IT startups, when 95,513 patents were stamped.

Patents as Competitive Strategy

Not only are companies pocketing more patents, they are more territorial about enforcing them.

Perhaps the most-publicized case is Amazon’s “OneClick” dispute. At the height of the 1999 holiday shopping season, the online bookseller sued rival Barnes & Noble.com over technology allowing a shopper to buy additional items
without re-entering credit card and other information.

Consumer groups and Internet free-trade types, not to mention Barnes & Noble, were appalled that Amazon patented and tried to enforce such an “obvious”
e-commerce checkout feature. The action was eventually settled out of court.

“But it was too late,” Naughton said. “The damage was done.”

By damage, Naughton means millions of dollars in legal bills and lost sales. Barnes & Noble.com, the Internet arm of the national book retailer, could bear those
costs. A smaller company would have almost have been driven under.

More recently, a judge dismissed BT Group’s claim that an Internet Service Provider infringed its patent for hyperlinks, a tool that lets Web users easily move
between pages. If the decision went the other way, it could have spawned dozens of additional suits by BT Group against ISPs using the common technology.

Please see page 2 to learn how to protect your intellectual property assets

Protect Yourself

Despite the merits, or lack thereof, of some lawsuits, failing to file for patents is foolhardy. It’s a little like driving without auto insurance; if you get into a accident,
even if you’re not at fault, it will be a messy proposition to extricate yourself.

If a patent claim gets to trial, it costs an average of $1 million for lawyers fees and research, Naughton said. Being on the losing end, especially if the court finds you
have willfully violated a patent, will hurt much more. Counting profits, fees and penalties, a judgment could cost tens of millions of dollars, Naughton said.

“The first thing we did when we left our jobs to start the company is sit down and write out seven patent applications,” said Ed Hubbard, CEO of United Devices, an
Austin, Texas, startup working in the new field of grid computing .

Like other entrepreneurs, Hubbard, and his United Devices co-founder, CTO Jikku Venkat, are frustrated with the USPTO’s sloth-like pace. They have been waiting
more than two years for word on their paperwork. Their only solace is that their competitors must work within the same system.

“Everybody in the grid space has filed something at some point,” Venkat said. “None of us know when our patents will be approved; it’s out of our hands.”

Lawmakers, besieged with calls from constituents, companies, and tech industry
groups, are pushing USPTO reform. Specifically they want to speed the process and reduce the number of “bad patents” that slip by inspectors.

It will require improved training, technology investments and workload management, according to recent report from the House and Senate Appropriations
Committees. Industry watchers fret, however, that a meaningful overhaul could still be five years away.

In the meantime, lawyers and entrepreneurs recommend the following steps to safeguard your companies intellectual assets and to avoid running afoul of competitors:

  • Research “prior art” by searching patents on file, regularly reading industry Web sites, trade newspapers and magazines.
  • Retain an attorney specializing in intellectual property matters.
  • Assemble supporting documents such as date-stamped plans, e-mails and published papers that support your claims.
  • Set aside funds for filing and lawyers fees. Costs start around $10,000 per patent but can be significantly more expensive depending on their complexity.
  • Familiarize yourself with patent processes for Europe, Japan and Asia-Pacific so your international expansion isn’t hamstrung.
  • Be patient. The wheels turn slowly in the nation’s capital. Many tech entrepreneurs wait nearly three years for word on their application.

Online resources:

U.S. Patent and Trademark Office

Cornell University Law School

World Intellectual Property Organization

Association of Patent Law Firms

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