There is a growing group of companies, many in Internet-based businesses, that are employing patent lawyers to file “business method” patent applications for their “new and proprietary” business methods (including the most obvious of business practices) and to prosecute campaigns to recover royalties from claimed infringers. I call these techno-legal entrepreneurs patent pirates, because their conduct is like that of the classic high-seas pirate: Without warning, they sail up to commercial vessels plying trade on otherwise open seas, and, under threat of force, demand all of the gold. If a trader resists, the pirates will battle to sink the ship, putting the trader out of business. Unlike the pirates of old, the patent pirates will battle and take your gold under color of U.S. patent law.

Examples of patent pirates include the holder and the alleged inventor of the Y2K “windowing” date fix algorithms; Amazon.com, with its infamous “one-click” ordering system; E-Data (formerly Interactive Gift Express), with its “Freeny patent” that purportedly covers the downloading of content from the Internet to electronic devices; and Walker Digital, which holds numerous patents, including a buyer-driven commerce (reverse auction) e-commerce patent. Walker Digital is believed to have a portfolio of numerous business method patents and hundreds more on the way. Walker Digital, founded by Jay Walker of priceline.com fame, refers to itself as a “research center, invention factory, and patent law office.”

If you are involved in the Internet economy in any substantial way, you may have received a letter from a patent pirate offering your company the “opportunity” to license the pirate’s patented technology, lest you suffer the consequences in a litigated patent infringement case. Of course, the patent pirate may not have proof that your company or its Web site is actually infringing on their claimed patents.

Patent attorneys and patent pirates will reiterate that the patent applications for these business processes meet the standards for patentability under U.S. law. Lastly, they will argue that, if the patent is too broad or improper, blame rests with the United States Patent and Trademark Office (USPTO) for granting the patent and not the holder for merely trying to protect its invention. These are standard legal arguments, but they are generally disingenuous. The pirates, many large corporate holders, are simply taking advantage of an overworked USPTO, an archaic patent system, and a legal system that is well behind Internet time.

The primary problem with many of the recently granted business method patents is that many are overly broad and ambiguous and attempt to protect common, existing business processes that were automated using well-known, commonly available

technologies and techniques. In some cases, there’s nothing novel or innovative about the patented business process, and the methods of automating the process don’t reflect any special, proprietary invention or expertise. Amazon.com’s September 1999 one-click patent is a prime example of a “process” that doesn’t rise to the level of innovation worthy of the monopoly protection that a patent provides. If anything, one-click ordering seems to be more of a simple, public domain idea than a patentable, inventive process.

These patents open the door to endless, costly patent litigation and enable patent pirates to hold existing e-businesses hostage for royalties. Method patents could and will be misused by their holders, who will either prevent competitors from offering similar services or features or charge royalties that effectively prevents price competition. And most important, business method patents will stifle the innovation that has created the Internet economy and has invigorated American business for the 21st century.

While the USPTO is attempting to deal with the onslaught of business method patents, including reexamining existing patents, Congress needs to provide direction by revising patent law to prevent the creation of new business method patents and to provide guidance to the USPTO regarding what inventions are patentable in light of the Internet economy and e-business age. Absent congressional intervention, the growing cadre of patent pirates will continue to make the seas of the U.S. commercial Internet an increasingly dangerous and expensive place to trade.