IBM sues Amazon in patent dispute

BUSINESS DIGEST

October 24, 2006|By COX NEWS SERVICE

NEW YORK -- IBM Corp. sued Amazon.com Inc. yesterday, claiming that the Internet retailer's Web sites violate IBM's patents involving online commerce.

International Business Machines said the patented technologies are fundamental to the way Amazon does business, including storing data, advertising and product recommendations. IBM is seeking royalties on billions of dollars in revenues.

"IBM's property is being knowingly and unfairly exploited," said John E. Kelly III, senior vice president of IBM Technology and Intellectual Property. "When someone takes our property, without our permission through a license, we have no option but to protect it through every means available to us."

Amazon spokeswoman Patty Smith said the company had not been served with IBM's complaint and typically does not comment on active legal challenges.

IBM filed the lawsuits in federal courts in Tyler and Lufkin, Texas. That state has become a frequent site for patent cases because cases there move quickly and the courts there are perceived as more responsive to intellectual-property claims.

"Amazon has built its business model on the use of IBM's patents, knowing its business was covered by and infringing IBM's patents," the lawsuits said. They accused Amazon of ignoring IBM demands that the retailer either pay up or stop using the technology.

"After four years of stonewalling, Amazon's intent is clear: Amazon would rather take IBM's property unlawfully than pay for its use," the lawsuits said.

Some of the patents were first filed in the 1980s, when IBM created back-end technology for Prodigy, an early online service that grew out of a joint venture between IBM and Sears, Roebuck and Co. One such patent is titled "Ordering Items Using an Electronic Catalog."

"Given that time frame, these are very fundamental inventions for e-commerce and how to do it on the network," Kelly said. "Much, if not all, of Amazon's business is built on top of this property."

IBM, the world's top patent holder with more than 40,000 worldwide, said in its filings that it is "entitled to royalties on the billions of dollars in revenue that Amazon has received based on its unlawful infringement of IBM's patented technology."

Many companies have licensed those patents, IBM said, describing itself as having "a long history of licensing its patents covering e-commerce on fair terms."

IBM said it spends $6 billion a year on research and development and earns about $1 billion a year in royalties.

The IBM case is not the only patent squabble involving Amazon.

The U.S. Patent and Trademark Office said in May that it is re-examining Amazon's patent for "one-click" online shopping. That challenge was prompted by Peter Calveley, a New Zealand actor who provided real-life movements used by computer-generated orcs and elves in the Lord of the Rings films. Calveley said he was getting revenge for a slow book delivery by submitting a filing that noted a similar patent predates Amazon's.

During the Internet boom of the late 1990s, other online businesses argued that Amazon's patent was too broad.

IBM's shares rose $1.08, or 1.2 percent, to close at $91.56 yesterday on the New York Stock Exchange. Amazon's shares rose 31 cents to $32.88 on the Nasdaq stock market.

The Associated Press contributed to this article.

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