Valuating Intellectual Property Dealing with Dotcoms - Advanced High Tech Litigation

May 11, 2000

Excerpt:
I. Introduction.

 A. The Chasm Between the Virtual World and the Real World.

 The principles for valuing intellectual property that were developed over the course of two hundred years make no sense in cyberspace.  The litigation between Amazon.com and Barnesandnoble.com over the “One Click” patent demonstrate this chasm between the real world and cyberspace.  Even the New York Times is writing about this chasm.  James Gleick, Patently Absurd, The New York Times Magazine, March 12, 2000.  “One Click” is a registered mark owned by Amazon.com.

 Three factors have created this chasm:

  • The United States Patent Office started granting business process patents for Internet software applications.
  • Wall Street assigns astronomical values to e-commerce companies such as Amazon.com, holder of the “One Click” patent.  Amazon.com has lost money each year since it was formed and yet had a market capitalization on March 13, 2000 of $22.619 billion.
  • There appear to be no significant assets but intellectual property behind pure e-commerce companies.

     Later, we will look at Amazon.com as an illustration of this chasm.

     B. Business Process Patents.

     A business process patent gives the patent holder a legal monopoly to use that business process.  For example, United States Patent 5,995,947 issued November 30, 1999 to IMX Mortgage Exchange in San Ramon, California.  The patent is named Interactive Mortgage and Loan Information and Real-Time Trading System.  This patent basically claims a legal monopoly for online loan applications, including matching lenders, brokers and borrowers.  What is a business process patent worth?

     C. American Inventors Protection Act of 1999.

     The American Inventors Protection Act of 1999 provides limited protection against certain claims for the infringement of business process patents.

     The American Inventors Protection Act of 1999, enacted into law on November 29, 1999, added the following First Inventor Defense:

      “It shall be a defense to an action for infringement under section 271 of this title with respect to any subject matter that would otherwise infringe one or more claims for a method in the patent being asserted against a person, if such person had, acting in good faith, actually reduced the subject matter to practice at least 1 year before the effective filing date of such patent, and commercially used the subject matter before the effective filing date of such patent.”

     35 U.S.C. § 273 (b)(1).  The term method means a method of doing or conducting business.  Id. at § 273 (a)(3).  The effective filing date of a patent is the earlier of the actual filing date of the application for the patent or the filing date of any earlier United States, foreign, or international application to which the subject matter at issue is entitled under the Patent Statutes.  Id. at § 273 (a)(4).  What is the impact of the First Inventor Defense on the value of a business process patent?

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