Is Your Online Store Infringing On A Patent?

You have a thriving business selling your products on the Web. You have developed your site, set up your merchant account, stocked your products, and filled out all the necessary paperwork to ensure that your online business will follow all the rules in regards to commerce and tax issues. Now, just when you thought it was safe to start making money instead of spending it... along comes another expense you hadn’t counted on. Is it legitimate?

PanIP, a company based in San Diego, California, is suing several small businesses who operate e-commerce sites on the Web, contending that these sites violate PanIP’s patents on e-commerce functionality. PanIP LLC has sued more than 50 companies in the last seven months, claiming that their E-commerce Web sites infringe its two U.S. patents. The patents, No. 5,576,951 and No. 6,289,319, cover, respectively, an "automated sales and services system," and an "automatic business and financial transaction-processing system."

Double "H" Western Wear Inc., whose Web site promises "Fair Prices & Honest Values" on its line of clothes and its horse feed, was served recently. Mike Hodges, president of the Salem, Ore., company, says PanIP has offered to license use of its patents for a one-time fee of $5,000. With extensions, he has until Dec. 1 to respond to the lawsuit.

Back in April, when PanIP sued its first 11 defendants-all in separate suits-the cost to license the patents was at least $30,000, according to people involved in the litigation. PanIP has continued to sue other businesses, individually, in groups of 10 at a time: a group at the end of August, two groups in September, and the most recent group earlier this month. The change in licensing fee "was an internal decision," says Kathleen Walker, a private attorney representing PanIP. Walker says there’s no commonality among the defendants PanIP is targeting for these lawsuits other than that "all of them are infringing the patent[s], and that’s all we need to bring a lawsuit."

What does this mean to you, as a small e-commerce business? Well, there are several schools of thought as to the validity of these patents, as well as PanIP’s strategy in the filing of the lawsuits. Several informed sources feel that by going after the smaller companies and settling out of court, they are (a) attempting to create a series of legal precedents, and (b) building up a "war chest" to take on the big online retailers like Amazon.com. Will it work? Are their patents legitimate? Only time will tell.

For more information on this situation, please visit this Web site dedicated to the battle against PanIP: http://www.YouMayBeNext.com.

March 1, 2003

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