E-Commerce Patent Wars Break Out

We’ve seen big news in Internet lawsuits this week. Priceline attacks the 800-pound Microsoft gorilla for using the”name-your-own-price” business model, and Amazon tries to clobber arch-enemy barnesandnoble.com for using the “1-click” easy-to-buy technology. Are these actions simple coincidence, or is there something in the Internet water that’s making these previously sweet dot-coms pick up the heavy artillery?

“These are the first shots in the e-commerce patent wars,” claims David Kline, co-author of the upcoming Rembrandts in the Attic: Unlocking the Hidden Value of Patents. “The patent war is going to be bloody and it’s going to decide who the winners are in the Internet economy.”

For Internet companies, patents are not just dusty folders filed in forgotten offline offices – they’ve become powerful competitive weapons. They’re tools for an Internet company’s competitive emergence, and they carry high enough regard to help entrepreneurs obtain venture capital.

What’s The Likely Outcome?

Kline offered comments on the individual lawsuits filed this week. He sees the priceline/Microsoft suit as a way for priceline to build its competitive strength beyond brand alone. Brands can be eroded, but strong patents can give a company backbone, he argues.

As far as Amazon.com is concerned, Kline believes that the company is taking on its arch-rival as a warning to all the smaller retailers that have also absconded with the “1-click” technology. He believes that both companies will gain royalty revenues from their legal actions.

Coming Of Age For Internet Economy

Kline likens these new lawsuits to the patent wars that marked the growth of the telegraph business and automotive industry. “Patents were not the only factors that determined the winners in those industries, but they played a large role in putting the ultimate winners out in front,” he observes.

Not long ago, the software and Internet industry was expanding so quickly that it didn’t look back to see if anyone was gaining. Now, Kline sees the patent battles as a predictable stage in an emerging economy. “The cottage industry is over for the Internet,” said Kline. “Once an industry grows up, patents always play a large role.”

Revenue-Generating Business Asset

In a world where information has become the new capital, the systems to use that capital become very valuable. “75 percent of all corporate wealth is in intellectual property or patents,” said Kline. “Some companies have gone bankrupt but still make money because of their patents.”

Eight years ago, IBM decided to license its patents on computer systems, and now the company derives $1 billion (US$) in annual income from them.

Accordingly, Kline says that Dell will flex its patent muscle sometime soon, since it has 42 patents protecting its build-to-order manufacturing and sales system.

So will the priceline and Amazon actions usher in an era of shakeouts, shakeups and competitive wars? Probably so, since Internet companies are no longer cute little trains-that-could for cybernerds.

Now they all have legal guns to fight it out on the playground.