Software and business method patents - eBay

Business method patents probably do not help small- or middle-sized business to grow up. Here I try to illustrate this fact with the MercExchange vs eBay example.

The oldest http://www.ebay.com page I found contains: "Welcome to eBay! The most fun buying and selling on the Web! Take part in an exciting auction, or put your own merchandise on auction, all free for buyers!" Note that almost all sentences end with an exclamation mark, which looks amateur. This page was recorded on June 14, 1997 by archive.org [Internet Way back Machine] and its copyright notice contains "1995-1996 eBay Inc." [Copyright notice not updated] I also found that www.auctionweb.com mentioned eBay on April 9, 1997: "NETIS Auctions On the Web has no affiliation with eBay AuctionWeb online auction service."

I further found this little bio on the eBay site: "eBay was founded in Pierre Omidyar's San Jose living room back in September 1995. The original name of the company was Auction Web. It was from the start meant to be a marketplace for the sale of goods and services for individuals. In 1998, Pierre and his cofounder Jeff Skoll brought in Meg Whitman to sustain the success. Meg had studied at the Harvard Business School and had learned the importance of branding at companies such as Hasbro." This story matches archive.org entries: at the end of 1997 eBay was a successful small company that had already sold 3 millions items.

I think that the story of eBay is made of two phases:

1. Before Meg Whitman. eBay learns its business empirically (because this business is new, this is a valid approach; because eBay was one of the first companies to enter this business eBay is also one of the first companies to know this business; note that this empiricism does not mean that the business model is not well defined: from the beginning eBay is an online marketplace for the sale of goods and services for individuals). In this first phase eBay earns just enough to provide a living to its founders and ignores Intellectual Property issues. For instance eBay has to change its original name, Auction Web, because another company got this name first.

2. After Meg Whitman. eBay adopts state-of-the-art corporate management, including the marketing and legal aspects and files patents.

Since 1998 eBay was granted eight patents and has two other published patent applications. Six of these patents even refer to the MercExchange patents. Though this does not prove that eBay found that they were infringing the MercExchange patents this is evidence that eBay knew MercExchange patents in 2000. The eBay patents do not really look more inventive than MercExchange patents. So if eBay had applied the same patent standard to the MercExchange patents as they did for their own patents they should have concluded that the MercExchange patents were valid and would have sought a settlement with eBay. Also because they were filing patents they necessarily knew how dangerous it was to ignore the MercExchange patents.

5,845,265 is referenced by 6 eBay patents:

1. 6,748,422 is titled "System and method to control sending of unsolicited communications relating to a plurality of listings in a network-based commerce facility". The 6,748,422 application claimed the priority from U.S. Provisional Patent Application No. 60/242,026, entitled "Spam Prevention Tool", filed on Oct. 19, 2000. 6,748,422 was classified as a business method and describes an anti spam facility whose principle is to hide the actual email address of the recipient.

2. 6,732,161 is titled "Information presentation and management in an online trading environment". This is a continuation of application Ser. No. 09/177,726, filed on Oct. 23, 1998, now U.S. patent 6,058,417 that I present below.

3. 6,604,107 titled "Generic attribute database system for storing items of different categories having shared attributes" and filed on April 24, 2000. 6,604,107 presents the prior art in that way: "For the storage of e-commerce goods or consumer product and/or service information into a database, each product (e.g., automobiles and shoes) will have its own category. Typically, in such databases, each category is stored in a separate data structure (e.g., a table), wherein such data structures will include the specific attributes for that category. For example, for a shoes category, the attributes could include (1) color, (2) size, and (3) type of material. Accordingly, a data structure is created that includes these attributes. Similarly, for an automobile category, the attributes could include (1) make, (2) model, (3) year and (4) color. Therefore, a separate data structure is created for these attributes." 6,604,107 claims the use of generic attributes "Accordingly, these different categories have attributes that are different as well as attributes that are the same. For example, the categories of shoes and automobiles both may have a color attribute. In contrast, the category of automobiles may have a year attribute, indicating the year of the automobile, while the category of shoes may not have this attribute." 6,604,107 was classified as a business method.

4. 6,523,037 titled "Method and system for communicating selected search results between first and second entities over a network" was filed on September 22, 2000 in USA. It was also filed in Europe as EP1399832. 6,523,037 discloses a mean to communicate a subset of a search result selected for instance with checkboxes to a second user.

5. 6,466,917 is titled "Method and apparatus for verifying the identity of a participant within an on-line auction environment". The 6,466,917 application claimed the benefit of U.S. Provisional Application No. 60/168,842 filed Dec. 3, 1999. 6,466,917 is presented like this: "A method and apparatus for verifying identity of a participant in a network-based transaction facility are described. According to one embodiment, user interface information is provided to the participant via a communications network. The user interface information specifies an identity verification interface for obtaining personal information of the participant. The personal information of the participant is passed to a third party for verification via the communications network. Subsequently, a verification result is received from the third party via the communications network. The verification result is then communicated to the participant via the communications network."

6. 6,415,320 is titled "Information presentation and management in an online trading environment". This is a continuation of application Ser. No. 09/177,726 filed on Oct. 23, 1998 U.S. Pat. No. 6,058,417, that has been allowed for issue.

6,058,417 does not refer MercExchange patents. It is titled "Information presentation and management in an online trading environment" and was granted on May 2, 2000. 6,058,417 was classified as business method and presented in that way: "the present invention includes features for enhancing the online trading experience for both buyers and sellers. When sellers register an item for sale, they provide information about the item. For example, the seller may associate a textual description, an image, shipping terms, and other information with the item. Advantageously, according to one aspect of the present invention, to associate an image with an item for sale, the seller is not required to provide the image in a particular format or size; rather, the method and apparatus of the present invention automatically harvest images and transform them to an appropriate format for use with the system. According to another aspect of the present invention, prospective purchasers visiting an online commerce site employing the present invention need not navigate to a separate web page for each item to view images associated with the items; rather, thumbnail images for multiple items are aggregated onto a web page to allow quick preview by the prospective purchaser." So the technical part of the invention is a system for resizing images.

6,202,051 referenced by 5 patents of eBay that also refer to 5,845,265:

1. 6,748,422

2. 6,732,161

3. 6,604,107

4. 6,523,037

5. 6,466,917

6,085,176 referenced by 5 patents of eBay that also refer to 5,845,265 and 6,202,051:

1. 6,748,422

2. 6,732,161

3. 6,604,107

4. 6,523,037

5. 6,466,917

In the first phase and probably most innovative part of its existence eBay filed no patents. Then eBay filed patents worded in such way that numerous companies infringe its patents in the same way numerous companies infringe the MercExchange patents. You can observe ironically that eBay was convicted after having filed patent applications and that "for all they that take the sword shall perish by the sword" but this is not the point.

We have seen that an invention is essentially combinatorial and opportunistic. To contribute to the progress of the useful arts people need to find the correct combination of prior art (an iterative development process made of cycles of improvements and result analysis) to eventually get the right thing at the right time. Goodyear, I mentioned above, died with huge debts and spent years in jail for debt primarily because he invented vulcanization fifty years before tyre industry made his invention really useful. Timing is essential for the success of an innovation. To be on the safe side innovators have to start a bit too early and then to cope with the situation in which they must be dedicated to a new business that does not yet make money. At this stage it is essential to last and therefore to not spend too much, which means to be focused on the innovation and accept compromises on aspects, like Intellectual Property, that were not essential for the innovation development.

Usually many people have the innovation idea and can deduce the outlines of the related invention. What differentiates the ones who make the innovation successful from the ones who fail or stay at the idea level is the quality of their development process. The problem with the loose patent system of today is that a winning strategy is to patent the outlines and leave the burden of pulling chestnuts out of the fire to others. The approach that allows the real innovator to deal with Intellectual Property issues from the beginning is to make a business plan, get money from investors and start a fully-fledged company with a focus on management and planning rather than on the innovation. This approach has further drawbacks. It requires more money. It makes of innovation a business of experienced people. It may exclude younger people and minorities from innovating.

The patent system is the best tool we have to regulate and organize the progress in useful arts but we must keep it within bounds. To define these bounds we must study how the patent system impacts business. USA favor innovation. Even when they get convicted for patent infringement companies like eBay remain richer than the patent holders. Creating an innovation start up is still a winning strategy. Outline patenting strategy is a form of parasitism. It seeks to get a share of the innovator profits but the innovator must survive for the outline patent holder to keep getting license fees. Outline patent holders eventually may even have to protect their golden egg gooses and the system self regulates. In other countries the situation may be different. In a place where innovating is already hard enough the burden of outline patenting can kill it and the system cannot self regulate. For such places the best solution is to enforce a higher standard of patents.

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