Shop Talk - 4 Ways to Make Outside Contractors Deliver

By Amy Africa

Web Exclusive: Legal Matters

Business Method Patents: Beware of the Patent Troll

The words “patent law” cause eyes to glaze over. Yet internet retailers should pay close attention to a patent case, Bilski v. Kappos, now pending in the Supreme Court. The case deals with so-called “business method” patents. These patents aren’t for new machines or technology, but for vaguely worded ways of doing things. Bilski involves a patent application for a way of hedging risk in commodities trading. The question before the Supreme Court is whether someone can obtain a patent for these kinds of business methods.

Why should internet retailers care about this particular variety of patents? The answer is simple: Online sellers are exposed to huge economic risks. The increase in the number of business method patents has been accompanied by a rise in patent infringement lawsuits, with e-commerce merchants often finding themselves named as defendants. Internet retailers have become favorite targets of patent-holding companies (aka “patent trolls”), which claim that a business method patent they own has been infringed by multiple retail websites.

These patent trolls exploit the fear of expensive litigation (the average patent case costs millions to defend) in a faraway forum (the Eastern District of Texas is the plaintiffs’ preferred patent jurisdiction) as a weapon to extract large settlements from retailers whose business is selling goods, not writing computer source code. If the Supreme Court decides that most business methods aren’t patentable, it could put an end to many of these predatory lawsuits, alleviating a major headache for online sellers.

While none of the justices during the oral argument in Bilski appeared to believe that risk hedging in commodities trading is worthy of a patent grant, they did express uncertainty regarding the proper boundaries that should be set on business method patents. The Supreme Court’s decision is expected by the middle of next year. —George S. Isaacson, senior partner, Brann & Isaacson (gisaacson@brannlaw.com)

Q: I hired a company to recast my existing website into an e-commerce site. It was very explicit in its contract, detailing each step in the process. I've spent the last six months, however, begging, pleading and nagging them to finish. Now they won't even return my calls. Any suggestions about how to handle this, or how to avoid it next time?
— Elizabeth Woodson, founder and president, ?Elizabeth W. Gift Baskets

A: I'm not sure what can be done about your current predicament without more details, but here are a couple of things to do in the future.

Spread out your payments. In the best-case scenario, you'd pay for the whole thing after the project was complete, perhaps with a small deposit. In the worst-case scenario, you'd pay a third before the project starts, another third in the middle (assuming the company has met all your deadlines) and the balance on completion.
Ask for a complete list of sites the company has done, with references. Let's face it, when you have names of references, you know they're going to say good things about the company. Do a little extra detective work and review other sites. Some companies require a list of businesses that have left the vendor in addition to a list of those that like and still use them.
List your expectations, and manage them carefully. Folks often let the vendor dictate the plan of action, and then assume it'll follow up. That's nice in theory, but seldom works in practice. You need to know what's going to happen, and then manage the time line to ensure it does. To do this, you need to understand every step. If a vendor doesn't have the time to explain it to you beforehand, choose another vendor.
Know when to bail. You sell gift baskets, which likely means the holiday season is your busiest time of year. If you're going to redesign your site, that means you should start in January or February. If you haven't seen action by April, consider cutting your losses and switching to another development company. The good news is there are a lot of companies who'd really like your business.

— Amy Africa is the chief imagination officer of web consulting firm Eight by Eight. Reach Amy at amy@amyafrica.com.