Why IBM's patent suit against Amazon could be bad news for the entire Web

For years, there have been a handful of companies trying to figure out how to erect a toll booth on the Web, if not the Internet altogether. In other words, they've been looking for some way to ensure that the Internet or some portion thereof can't work unless they get to collect a royalty on the majority of the Internet's traffic. Now, if a patent infringement suit filed by IBM against Amazon.com holds up in court, Big Blue may have finally found a way to collar the Web (or most of it).  It may be a decade before we know the answer.

Whether it was simply the prescience of IBM's engineers right around the time that the Web was born, or just a stroke of serendipity (perhaps connected with IBM's original association with the Prodigy online service), IBM appears to have a patent for online advertising.  And now, nearly a decade and a half after IBM filed for the patent, and long after the online advertising environment has matured to a point that it's generating (in aggregate) billions of dollars for everybody from small businesses to Google, IBM's patent infringement suit against Amazon is the equivalent of Big Blue saying "Excuse me everyone, we've got something very important to say." Very important indeed if you own or operate a Web site with advertisements on it.

According to IBM's patent on a "Method for presenting advertising in an interactive service":

A method for presenting advertising in an interactive service provided on a computer network, the service featuring applications which include pre-created, interactive text/graphic sessions is described. The method features steps for presenting advertising concurrently with service applications at the user terminal configured as a reception system. In accordance with the method, the advertising is structured in a manner comparable to the service applications enabling the applications to be presented at a first portion of a display associated with the reception system and the advertising presented at a second portion. Further, steps are provided for storing and managing advertising at the user reception system so that advertising can be pre-fetched from the network and staged in anticipation of being called for presentation. This minimizes the potential for communication line interference between application and advertising traffic and makes the advertising available at the reception system so as not to delay presentation of the service applications. Yet further the method features steps for individualizing the advertising supplied to enhance potential user interest by providing advertising based on a characterization of the user as defined by the users interaction with the service, user demographics and geographical location. Yet additionally, advertising is provided with transactional facilities so that users can interact with it.

Gulp.

I am not a lawyer. And the document is very very long. But translated, the text appears broad enough to include any Web page that has an advertisement in one spot and some information in another. It further appears to cover the sort of caching that browsers routinely do for all images, but in this case, when the images being cached are advertisements (eg: the images found in banner ads). Also, if I read this correctly, it covers contextual advertising. You know, the kind that picks different advertisements to display based on what's in the information part of the screen. Google has a name for this. It's called AdSense. ZDNet was contextually delivering ads in the late 1990's. Finally, it appears as though the patent even covers the idea of being able to click on ads or buy something online. The net result is that IBM could get to charge a tax on just about every page being displayed on the Web (I'm not exactly sure what percentage of all pages are ad-bearing. But it's a lot).

There are a lot of directions the conversation can take now that IBM has suprised us all with this patent. For example, define "advertisement."  Or, is there a bit of hypocrisy here given the way IBM has, over the last year, been so vocal with respect the benefits of open standards vs. encumbered technologies (eg: royalties and execution of license agreements) as they apply to computing (productivity computing and the Open Document Format to be specific). Then there's the discussion about whether or not interactive advertising, which is really no more than a business process, should be patentable. Emphasis on should. Not if. Currently, based on what the US Patent and Trademark allows, business processes are patentable. In fact (another twist to the conversation), Amazon itself requires a license before on-line merchants can use a business process known as 1-Click that it has patented. For example, according to the Terms of Sale for Apple's iTunes Music Store:

1-Click is a registered service mark of Amazon.com, Inc., used under license. 1-Click is a convenient feature that allows you to purchase from the iTunes Store with a single click of your mouse. 1-Click purchasing may be activated by selecting the "Don't ask me about buying ... again" check box in the "Are you sure you want to buy and download ... ?" dialog box that appears when a "Buy" button is clicked. (You may reset this selection at any time by clicking "Reset Warnings" in your Account.) When 1-Click purchasing is activated, clicking the "Buy" button will start the download immediately and complete your purchase transaction without any further steps.

Over the coming days and weeks, I will probably venture down one of those paths. But the one that is most important today has more to do with IBM's choice of defendant. Looking back on the aforementioned abstract, Amazon's Web site touches on the core part as well as the optional parts (caching, transactional, stuff, etc.). In fact, I can't help but wonder if IBM's patent doesn't consitute prior art that either invalidates the 1-Click patent or, at the very least, subjugates it to IBM's patent. But again, I'm not a lawyer.  

To no avail, IBM has apparently been trying to get Amazon to reach an amicable out-of-court deal since 2002. In getting Amazon to license its patent, be it amicably or through an infringement suit, IBM can establish a precedent that the rest of the industry would have little choice but to follow. 

Think of it this way. IBM could lose in which case its legal investment would be a completely sunk cost with no return on investment. But if IBM wins, the first and most important thing is that Amazon can afford to pay in which case, the lawsuit itself would yield a very handsome return on legal investment. But the return doesn't stop there. 

It stands to reason that if Amazon, with all of its resources, can't defend itself against one of IBM's patent infringement suits, then no one can. At that point, the investment (in order to get others to pay up) drops significantly to the cost of a PC, a word processor, and someone who knows how to run mail merge. The letter that goes out (certified mail, just to be sure) starts something like this:

Dear Web site operator,

As you may have heard, we hold a patent on interactive advertising that, even after appeal, has been upheld by the highest court of the land in our lawsuit against Amazon.com.  This letter is to inform you that, based on our calculations, you owe us $x million in back pay.  But, in an effort to be fair (and so as not to put you out of business), we're willing to waive the back pay as long as you agree to the reasonable licensing terms articulated in attached Appendix A.  Should you choose to take the same path Amazon picked (and lost), you cannot expect us to waive the back pay.

As we're sure you understand, IBM keeps close guard on its intellectual property and we will spare no expense in preventing its misappropriation. If you have any questions, please feel free to contact us at one of the numbers or email addresses provided below. Otherwise, we look forward to receiving a signed and notarized copy of the attached license by the end of the month.  

Thank you for your attention to this matter.

You see. Somewhere, in the legal department at IBM, a laser printer is warmed up and ready to start printing million dollar bills. All Amazon has to do is sign a license. Willfully or forcefully, it doesn't matter. Once that happens, it's relatively easy to predict which companies are in IBM's mail merge file: the ones with money and the ones with ad bearing pages or networks. Let's see. That's just about every big online brand there is.

Not good (well, if you own IBM stock, it could be good).