IBM sues Amazon over patents use

Scott Hillis

SAN FRANCISCO: International Business Machines Corp. said on Monday it had filed two lawsuits accusing Amazon.com Inc. of violating patents on features used in its online shopping network.

The suits, filed in federal courts in Texas, assert that Amazon violates IBM patents for features that allow users to order items from an electronic catalogue, displaying advertising in an interactive service and storing data in an interactive network.

"We believe that Amazon's entire business model is built upon these patents and that damages could be substantial," said IBM spokesman Scott Brooks.

Brooks said IBM was interested in striking a licensing deal with Amazon, which is the world's biggest online retailer with $2.14 billion in second-quarter revenue.

"Many companies that do e-commerce have worked with us on license agreements, and frequently these are cross-license agreements," Brooks said. "It gives both companies greater freedom of action."

IBM, which holds more U.S. patents than any other company, said it had first notified Amazon of the infringement more than four years ago, but that the Seattle-based company had "shown no willingness to have meaningful discussions".

Amazon spokeswoman Patty Smith said the company does not comment on legal matters.

Marc Kaufman, a partner in the Washington office of law firm Nixon Peabody LLP, said both companies had incentive to settle. Amazon would want to avoid jeopardizing its Web site, and IBM would not want to risk having other licensing deals invalidated if its patents were overturned.

"This is pretty much the standard dance that parties trying to negotiate a license will go to if they can't come to an agreement early on," Kaufman said. "Like most cases, this is likely to be settled prior to any trial."

Amazon has famously been on the other side of patent litigation.

It sued the online unit of the Barnes & Noble book chain in 1999 for allegedly infringing its "1-Click" patent that lets shoppers order an item in a single step. The firms settled in 2002.

Amazon founder and Chief Executive Jeff Bezos has been an advocate of patent reform, and once invested in a venture, BountyQuest, that let companies challenge patents by offering cash prizes for evidence that could overturn them.

Other services IBM maintains are covered by its patents deal with presenting applications in an interactive service and adjusting Web links with weighted user goals and activities, which IBM said would apply to Amazon's popular feature that recommends products to users.

"We filed this case for a very simple reason. IBM's property is being knowingly and unfairly exploited," John Kelly, IBM's senior vice president of technology, said in a statement.

The suits were filed in two separate U.S. District Courts for the Eastern District of Texas, known in technology and legal circles for the large number of patent cases it hears and for the speed with which it handles them.

Shares in Amazon, which reports quarterly results on Tuesday, rose 31 cents to $32.88 on Nasdaq. IBM gained 1.2 percent to $91.56 on the New York Stock Exchange.

(Additional reporting by Michele Gershberg in New York)