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DeBrand's co-owner
tangled in patent web
Beere is fighting what
he says is an extortion scam.
By Lynne McKenna Frazier
of The News-Sentinel
Tim Beere is drawing a line
in the World Wide Web's sand.
The co-owner of DeBrand's
Fine Chocolates has found himself marshaling a group of online merchants
to fight what he regards as an extortion scam by a company claiming patents
on technology used on their Web sites. The effort is consuming his time
as the company heads into its peak season, but is also beginning to draw
national notice.
"This is just wrong," said
Beere of the patent claims by PanIP. "Everyone can see it for what it is
- legalized extortion."
A lawyer representing PanIP
said Beere's claims are exaggerated. Not every online retailer is infringing
on the company's patents, Kathleen Walker said. But the company is suing
the ones its research determines are using the technology without paying
for a license.
"There are a very large group
of potential infringers out there," she said. "Basically (the companies
sued) were selected because they're infringing."
Beere is answering dozens
of e-mails generated from the Web site he helped set up to rally PanIP
defendants - www.youmaybenext.com; is beginning to collect donations
to fund the legal fight; and is becoming expert in an area far removed
from gourmet chocolates - intellectual property battles.
Intellectual property is
the property of ideas and that's what's protected by patents. But some
software patents granted have been criticized as not being true inventions,
but instead restatements of already common technology.
PanIP's patent claims
DeBrand's is among about 50
companies from around the nation to be sued by PanIP. The companies all
have a couple of things in common - they're relatively small merchants
and they're far from San Diego, where lawsuits were filed in federal court.
About half of DeBrand's mail
order business comes through its online site, which was launched about
five years ago. The company's signature chocolate-brown and gold logo and
lots of photos of truffles, chocolates and gift baskets fill the site.
And, as at a lot of sites, customers can place orders online.
That, according to PanIP,
uses technology covered by the California company's patents.
What do those patents cover?
PanIP's Patent No. 5,576,951
covers "automated sales and services system" while Patent No. 6,239,319
covers an "automatic business and financial transaction-processing system."
In essence, according to
the youmaybenext Web site, any business that uses graphics and text to
sell online or uses the type of credit card acceptance system that drives
e-commerce could be a potential target of PanIP.
Companies that operate passive
sites, with no customer interaction, are not covered by the patents, Walker
said, although she said the company has heard from several companies concerned
about the matter because of recent publicity.
She would not say how PanIP
determines which companies taking orders online are infringing on its patents.
DeBrand was part of the second
wave of small online merchants to receive an unfriendly letter from the
La Jolla, Calif., company. The letter informed the companies they were
using a patented technology illegally and demanded a licensing fee be paid
immediately or the lawsuit would be pursued.
That's not the usual process
in a patent case, said Jonathan Hangartner, a San Diego attorney representing
DeBrand's and other defendants. Usually, a cease-and-desist letter is sent,
with an offer to negotiate a payment. Then, if that has no effect, litigation
could follow.
Walker said PanIP's owner
- Lawrence Lockwood - had sent cease-and-desist letters a year or so ago,
and had received no response or been refused payments. That's why the lawsuits
were filed.
Walker did not know whether
letters were sent out under Lockwood's name or by another attorney.
Lawsuit trail
PanIP's tactics, the vagueness
of the patents and the history of Lockwood, its only known owner, have
raised red flags about the validity of the claims.
PanIP first sued about 10
small online merchants in March. That, by the way, was the month PanIP
was incorporated. Walker said Lockwood held the patents as an individual
before then.
After settling with most
of the first group, the company filed suits in batches, eventually serving
50 companies.
Despite its patent claims
for extremely basic technology for online commerce, it has not gone after
the giants of e-commerce. Nor has Hangartner been able to find any examples
where companies paid licensing fees without a lawsuit being filed.
There is no requirement infringement
cases be filed in any particular order, Walker said. And since the flurry
of publicity, the company has been contacted by companies interested in
paying license fees.
This isn't the first time
Lockwood has run into companies that refuse to pay for patents they considered
dubious. In 1991 he sued American Airlines, claiming it was violating patents
he held for an automated reservation system. That ended in defeat with
the patents being invalidated by federal court.
Walker was not involved in
that case.
Hangartner, whose specialty
is patent litigation, became involved when he saw a familiar name among
the first litigants - a ski shop in Rochester, N.Y., where he'd grown up.
He knew the family who owned it and called to find out what was going on.
Those initial targets received
demands for $30,000 in licensing fees. PanIP now is asking $5,000 for one-time
licensing fees, Walker said.
According to Walker, 15 companies
have settled and another six are near settlement.
Taking on the case
When DeBrand's was hit, Hangartner
found someone willing to fight.
"He has been unbelievable,"
Hangartner said of Beere. "He thought it was a big scam, and that's the
general conclusion we had reached."
To get out the word, Beere
set up a simple Web site. But with PanIP in the Web address, the company
quickly threatened another lawsuit. He took down that site, but TEK Interactive
of Fort Wayne offered to develop a more sophisticated site, which is the
one up today.
Now it includes a background
on the cases, a discussion board, PDF copies of the original lawsuit and
online donation acceptance as the group begins building a war chest for
fighting the case.
Beere already has received
checks through the mail from supporters.
Walker accuses the site of
unfairly representing the situation. She said the site has engendered death
threats and obscene voice and e-mails against PanIP.
It has drawn national attention,
mostly through online media. The case landed Tim and Cathy Brand Beere
on the cover of Information Week magazine. And he has reported hearing
from media around the nation.
This is one in a series of
patent cases involving online companies that have popped up recently.
Hangartner will be headed
to Washington next week for a conference on intellectual property issues
for small business. Cosponsored by the U.S. House Small Business Committee,
the Nov. 15 forum will hear discussions of cases such as the PanIP lawsuits
and give small businesses a chance to air their concerns.
That's the same day De- Brand's,
along with several other defendants, must file its first response to PanIP
in federal court. That can be either a response to all of the points of
the lawsuit or a request for dismissal.
"We're seriously evaluating
an attack on the patents themselves," Hangartner said. A dismissal could
be quicker, but Beere said the lesson might be driven home harder if the
case goes to trial. Otherwise, PanIP or Lockwood through another company
might return with a similar scheme.
"I feel personally responsible
for people joining the group and sending out the message," Beere said.
"I can't drop the ball on this one."
Beere's message:
"You better think twice about
trying to scam small business." |
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West Blaine Street