October 2, 2009, 12:00 AM

Online retailers take their case against patent abuse to the Supreme Court

Seven web merchants have filed a friend of the court brief asking the high court to issue a sweeping decision against a kind of patent that, the brief says, amounts to a steep tax on Internet commerce amounting to hundreds of millions of dollars.

Katie Evans

Managing Editor, International Research

In case after case, holders of patents have filed suit claiming online retailers infringe on business method patents, that is, patents that cover a method of doing something rather than an actual device or formula. Now seven Internet retailers are asking the U.S. Supreme Court to invalidate the concept of the business method patent, which they say amounts to a steep tax on Internet commerce amounting to hundreds of millions of dollars.

The seven online merchants have filed a friend of the court brief in the case of Bernard L. Bilski v. David J. Kappos, in which Bilski is seeking to reverse a lower court ruling that invalidated his patent for a method for hedging risk in commodity trading.

The case is viewed by legal experts as an opportunity for the high court, which has been moving toward narrowing the rights of patent holders, to significantly reduce the scope of business method patents-or even invalidate the concept altogether. An example of a business method patent is one issued to Amazon.com Inc. for a way to enable a preregistered consumer to check out from a web site with a single click. A suit filed last month against more than 20 online retailers involves a method for navigating an e-commerce site.

The Bilski case is important to online retailers because they are often sued by holders of such business method patents, argues Peter J. Brann, the counsel for the seven online retailers, in the friend of the court brief. He argues that there are 11,000 patents related to the Internet, many, if not most, business method patents. The number of patent infringement cases filed has nearly doubled in the 15 years since federal courts first recognized the legitimacy of business method patents, the brief says.

Brann contends that many of the patent infringement lawsuits involving business methods are brought by companies that did not develop the technology themselves but that bought the patents and seek to make money from them through lawsuits. He cites estimates by the American Intellectual Property Law Association that the cost of defending a patent lawsuit in which $1 million is at stake averages more than $2.5 million. Rather than bear the burden of such costs, an Internet retailer is likely to settle by paying a licensing fee of, for instance, $100,000, the brief argues.

The brief argues that most business method patent lawsuits settle rather than go to court, “so long as the license fee is less than the multimillion dollar cost of litigation. Accordingly, Internet retailers collectively spend hundreds of millions of dollars on patent settlements that would be much better spent on innovation, job creation and job retention.”

In concluding the brief, Brann asks that the Supreme Court not only uphold the lower court ruling against Bilski but to go beyond the appeals court to invalidate business method patents. “The court should not only affirm the judgment below,” the brief says, “but do so through a rule that cuts off business method patents at the source, making plain that such methods are not patentable.”

The Supreme Court is expected to hear arguments in the Bilski case this fall and to rule before its session ends in June.

The online retailers filing the friend of the court brief are Crutchfield Corp., No. 105 in the Internet Retailer Top 500 Guide Newegg Inc., No. 9, L.L. Bean Inc., 22, Overstock.com Inc., 29, J.C. Penney Co. Inc., 15, The Talbots Inc., 106, and Hasbro Inc., a toy manufacturer that sells online at HasbroToyShop.com.

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