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Imagine what the tech business community would be like if only one company controlled e-commerce, and that that one company would control not only who could use e-commerce, but also how much they could be charged for using it. How unrealistic is the idea that one company could control the cost of licenses to use e-commerce, in addition to deciding who would be the licensees allowed to conduct e-commerce on the Internet? Believe it or not, it is real, and it is happening right now. Here is the story.

On April 4, 2002, Dickson Supply Co. was served with a patent infringement lawsuit that poses a potential threat to nearly every business, large and small, in the United States. Along with ten other unrelated companies scattered throughout the country, Dickson Supply has been accused of infringing upon two patents currently held by a company called PanIP, LLC of San Diego.

According to PanIP, its patents apply to any web site that both: (1) contains a combination of text and graphics, and (2) is capable of obtaining credit card or other financial information from the user. Yes, you may want to read that last sentence again. The odds are that, if you conduct any business transactions on a personal or business website, the parameters of this lawsuit apply to you. What it really comes down to, in fact, is that PanIP believes that virtually every e-commerce web site in the country is infringing on its patents. Right now, PanIP is that one company that thinks it has the sole right to determine exactly who uses e-commerce, and to decide exactly how much that usage will cost.

While most of the eleven defendants are confident that the judicial system will ultimately prove that PanIP has grossly misinterpreted the power of their patents, other companies are looking for a quick and relatively painless way out of very expensive litigation. Two companies have already settled, and the terms of these settlements are undisclosed. While these settlements may have been better for the individual right at this moment, it is important in cases such as these to examine how individual actions will affect the larger business community. These settlements may in fact be helping PanIP to establish a "war chest", a financial leaping point from which to launch the next round of litigations to enforce, license, and collect on these patents. I believe that these cases represent an extraordinary abuse of the legal system and amount to a direct attack on small business in America.

Dickson Supply is located in the shore community of Brielle, New Jersey. It is a third generation family business, established in 1946. The company is a distributor of Plumbing, Heating, Hardware, Gas Barbeque Equipment and Irrigation products. "Among our industries, Dickson Supply has developed the reputation of being an innovative, early adopter", said Allan Dickson, President. "As a small business trying to compete with much larger businesses, we are continuously looking for ways to work better, cheaper, and faster. We recognized the benefits of technology early on; my family bought our first computer in 1981, we put our web site on-line in 1996, we had our first on-line sale in 1998, and we have been hooked ever since."

"We are a small company, but we work relentlessly, every day developing further our world class web site. Our company employs twenty-five people, and we grossed just over five million last year. We have a very talented staff of six part time web programmers and designers, most who originally came to work with us as high school students. As far as our web site goes, it may be of the best quality in our industry, but when it comes down to it, it is still just like everyone else's. There is no unique reason that we should be facing a patent suit, other than that we are far away from California, and that our Dunn & Bradstreet report shows anyone, including this PanIP outfit, that we pay our bills on time - all the time," Mr. Dickson explained. "We are committed to our E-commerce venture, and although it is still only a small segment of our overall business, it is growing and holds a great deal of potential. We haven't done any thing wrong, we won’t give it up, and we certainly do NOT owe anyone a license fee for it", said Mr. Dickson.

The Hard Choice
As the unlucky recipients of these lawsuits, Dickson Supply Company and the ten other small business Defendants sued by PanIP must choose whether to fight or to settle. Neither choice is overwhelmingly appealing. The cost of defending a patent litigation, particularly one on the other side of the continent, can be extraordinary. Typical defense costs may run as high as $1 million per patent for cases such as these that involve technical issues. By contrast, the direct cost of settlement for any particular defendant would be far less - PanIP has offered to sell a license for its patents for about $30,000.00 per defendant.

On the surface, this sounds like an easy business decision. Pay hundreds of thousands of dollars and spend untold hours over the course of several years pursuing an uncertain result, or pay tens of thousands to make the problem go away today. What would you do?

Small Business E-Commerce - Watch out Now! Large Firms - you may be next.

Obviously, the decision is not that easy. The defendants firmly believe that PanIP's patents do not cover their respective e-commerce sites or any other typical e-commerce web sites, and that the patents themselves will ultimately be invalidated by the Court. The defendants also believe that PanIP knows that it is likely to lose this case, and that it specifically targeted these Defendants because it believed that they would quickly pay a licensing fee rather than put up a fight. On the whole, the PanIP Central Distribution Defense Group sees this as nothing more than a modern extortion racket - using the federal patent law as a blunt instrument to extract a check that the plaintiff is not entitled to receive. The Southern California District of the Federal Court System, located in San Diego, also happens to be the busiest Federal Court in the U.S. Federal Court System. This is a court that has put into effect a self proclaimed Judicial Emergency. Judges there last year had the heaviest case loads in the nation; the court is inundated with cases resulting from the highest percentage of border crossing violations in the world, in addition to the crime associated with the human and narcotics trafficking that accompanies the border violations.

Beyond the moral costs that would result from caving in to such threats, the pure economic comparison described above does not take into account any of the hidden costs of buying a settlement. The costs to society as a whole are extraordinary. If each of the current eleven defendants settled for $30,000.00, PanIP would receive a $330,000.00 windfall just for the cost of filing a few lawsuits. An easy settlement such as that would provide enormous incentive to continue. PanIP would undoubtedly return promptly to Court and file against another ten, twenty or a hundred more small companies, using its recent settlement to induce more and more companies to purchase a right that they already possess. Next, once the easy pickings of the smaller companies have been exhausted and their "war chest" is sufficiently lined, PanIP will move on to the larger and wealthier companies.

We Need Your Support
Dickson Supply Company, along with the majority of the other defendants sued by PanIP, has chosen to stand its ground and fight. Although settling out of court may be the easiest and least costly way out of this situation, it would be wrong. In doing so, however, these companies are taking on a financially daunting task, and are asking for support from the business community. There is absolutely nothing unique that distinguishes these eleven e-commerce web sites from thousands of other e-commerce sites around the country, so it is possible that should PanIP win this time, any business with an e-commerce site is equally likely to be the target of PanIP's next lawsuit. It is necessary to nip this extortion attempt in the bud - the small business community can not set a precedent now by backing down to bullies such as PanIP. The results would be disastrous.

To provide others with more information about their situation, several of the other defendants sued by PanIP have set up a special web site containing information about the cases. The site includes a guest book / bulletin board, as well as an opportunity for interested parties to sign up with their e-mail address so that they may be kept informed of events in the case as new development arise. "The defendants want this web site to inform and serve as a wake-up call to the e-commerce community as well as to the consumer, who will ultimately shoulder the burden of a higher cost of goods. Action needs to be taken now to protect our current methods of business and to prevent "patent pirates" of the future from taking advantage of what they perceive as easy money situations. We welcome any ideas or assistance that other members of the business community may provide," said Allan Dickson.

The site also contains links to documents filed in this lawsuit, including the complaint that PanIP filed and the patents that are at issue. That web site is http://panipcase.homeip.net/threat.asp

Contact Info:
Dickson Supply Co. Inc
http://www.dicksonsupply.com/
Allan Dickson 
allan@dicksonsupply.com
1-800-456-5267 
Online: 7/12/2002