(COMTEX) Digital-commerce ploy is patently offensive
Digital-commerce ploy is patently offensive
Not since Nostradamus has there been so much angst over one man's
prescience. Did Charles C. Freeny Jr. really predict _ and more
important, patent _ electronic commerce? Or are his vague visions
groundless?
The answer could change the way the Internet works. If Freeny really
patented in 1983 the idea of selling software over a computer network,
then thousands of companies today infringe on his idea.
And that would mean millions of dollars in licensing to the owners of
the patent: E-data Corp. of Secaucus, N.J., a company that does
nothing.
Arnold Freilich, president of E-data, bought Freeny's patent in 1994
from an Illinois company called Avedas Inc. Avedas had purchased the
legal rights from Freeny himself, who had applied for them in 1983 and
received them two years later as U.S. Patent No. 4,528,643.
The patent itself contains no hard details, no blueprints for a
computer or programming algorithms. It simply describes an idea:
''information-manufacturing machines'' that can purchase ''digital-data
products.''
And _ take a deep breath here _ Freilich says the patent covers ''the
system and method where products specifically made from digital data
are offered for sale from a catalog with a specific price code, and
after that price code is met, the purchaser is given authority to
reproduce or download it.''
Whew.
What does that mean? Well, in Freilich's interpretation, the definition
encompasses anyone selling software, music or pictures that you can
download online. That includes Ziff-Davis, CompuServe, IBM and other
companies that sell programs on the Web.
Last year, E-data started sending ''amnesty packets'' to sites that it
believes violate the patent. These packets request a portion of the
E-commerce profits as a licensing fee; $10,000 in sales could add up to
$100 a year to E-data, Freilich says.
E-data didn't receive many responses. So it sued 43 companies in U.S.
district courts in New York and Connecticut. None of the cases has yet
made it to trial.
But, rather disturbingly, 14 of those original defendants _ and four
companies that received amnesty packets but weren't sued _ have settled
with E-data, paying undisclosed sums to avoid the lawsuit. These
include such high-profile companies as Adobe Systems Inc.; VocalTec
Ltd., makers of Internet phone software; and IBM Corp., which settled
before any litigation was filed.
IBM officials refused to comment, and Adobe director of corporate
communications Wink Grelis would only say, ''We saw it as a nuisance
suit, and we paid a nominal fee to make it go away.''
Freilich isn't surprised.
''Of course they think it's a nuisance suit,'' he says. ''It's an
extremely minor part of a $3 billion company.''
VocalTec, meanwhile, says the agreement it made does not acknowledge
the veracity of E-data's patent but simply avoids larger legal costs.
''It's the old legal question,'' says Rich Nagle, spokesman for the
company. ''Do you spend all this money to fight a suit? It's a question
of economics more than anything else.''
What's galling, though, is that through these payoffs, E-data is
earning profits through intimidation. E-data doesn't even use the
system to which it supposedly owns the rights.
''We intend to use the revenues from the patent to finance data
commerce,'' Freilich says. E-data's only business, aside from patent
suits, is a minor ''dial-a-gift'' operation. And even with the 18
settlements, E-data's Web site only sports information about its legal
rights, not any software-distribution business.
Freilich hastens to add that ''we don't want to waste our business plan
on litigation. After being granted a patent, though, you must make all
reasonable efforts to retain ownership in order to keep the patent.''
But who is going to make all reasonable efforts to knock down the
patent in court? CompuServe, Broderbund and other companies are going
forward with defenses for now, and Internet users can only hope they
persist and succeed.
For if all E-commerce must go through E-data's toll booth, it could
mean more taxes on buyers, and a chilling effect on online sales for
years to come. Freeny's patent, after all, doesn't expire until 2003.
THE LINK
E-data's Web site includes a full transcript of Freeny's patent,
details of pending lawsuits and information about ''amnesty'' packets.
Check it out at e-data.com
For an examination of the patent and its implications, visit
slwk.com
(Stephen Lynch can be e-mailed at minnesota(at)pobox.com)
(c) 1997, The Orange County Register (Santa Ana, Calif.).
Visit the Register on the World Wide Web at ocregister.com
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AP-NY-06-11-97 0700EDT< -0-
By Stephen Lynch>
Orange County Register |
