January 1, 2011, 12:00 AM

Defusing the patent bomb

(Page 3 of 3)

Retailers can seek to protect themselves by inserting clauses in contracts that require e-commerce technology vendors to help defend against infringement claims. But retailers can find it hard to negotiate adequate indemnification clauses with technology distributors, says Thomas Duston, a partner in Chicago-based law firm Marshall, Gerstein & Borun who specializes in patent litigation. “They don’t want to assume liability,” he says.

And when vendors do agree to those clauses, they may try to evade responsibility by claiming the retailer made changes to the software, Brann says. “Vendors say you customized the technology, which means you did anything to it, like putting a logo on it,” he says. “That happens even with an indemnification clause.”

Few expect remedies to come from Congress. Indeed, few are calling for such action with much enthusiasm, worried that technology can quickly outstrip legislation. That leaves the courts to provide a possible remedy. How that might play out is unclear, but Duston says one area that needs clarification is the amount of damages awarded for infringements.

The patent holders aim for high damages—sometimes seeking a cut of the e-retailer’s revenue, rather than a more modest licensing fee. Retailers, meanwhile, argue that using a feature such as a shopping cart does not imply an intimate link between the feature and the products for sale.

“You buy a particular printer online because of features of the printer, not because the web site has a specific online shopping cart,” Duston explains. “There is a big debate on this issue, how to measure properly the value of a patented feature of a web site.”

Another possible way for retailers to win more protection is to band together. That could include a common legal fund or finding a way to use the force of their numbers to win common licensing agreements for technology. “Maybe that monthly fee is based on the number of users a site has,” says Johnson, of Overstock.

Newegg’s Cheng suggests that large companies in patent-dependent industries—pharmaceutical companies, for instance, and e-commerce—reach out to each other to push patent reforms. For now, he sees hopeful signs in the willingness of several e-retailers to file friend of the court briefs in patent cases—such retailers as Crutchfield Corp., The Talbots Inc. and J.C. Penney Co. Inc. did so in Bilski—and says a new reality may lead other web merchants to change their strategy.

“There are retailers who have made business decisions to settle, but they are starting to get hit by the increasing volume of suits now,” he says. “Most companies are realizing they have to take a stand.”

thad@verticalwebmedia.com

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