Cherie Ann Sherman
Ramapo College of New Jersey, USA
This chapter discusses recent court decisions, important to both Web site developers and corporations that restrict the software techniques that a developer may use, without legal liability for infringement. It demonstrates that e-commerce may be threatened by patents that have been recently awarded for long-existing software techniques and business methods, which are vital to the operation of most sites. The author explains that some software patents and business method patents were awarded in error because lack of a database of existing software made it difficult for patent examiners to identify whether an invention was truly new. Government and industry have taken steps to create a database of existing software and to adopt more rigorous standards for awarding these patents, which should help alleviate this problem. Nevertheless, the author contends that ultimately, consumers will experience less variety on the Web, as corporations become more aggressive in patenting Web-related inventions and asserting those patents against infringing Web sites. The author hopes to convey the benefits of conducting a legal audit for each Web site.
The lone Web designer of the early 1990s, hand coding a Web site in HMTL, probably did not see himself or herself as a product designer and thought little about the threat of litigation. In those days, managing the technology was a primary concern because software tools were quite primitive. With site development software such as Front Page® and Dream Weaver® yet to be invented, the software designers of yesteryear invested a lot more time and energy in producing minimally functional Web sites than they do today in producing very sophisticated Web sites. Likewise, e-commerce was not yet a reality, little was known about the potential online consumer, and the concept of “reverse auction” was not even a pipe dream.
Today, e-commerce has become a reality and lawsuits of the last decade have altered the Web design landscape. Now, like designers of cars, refrigerators, and toys, the Web site designer cannot afford to design in a vacuum, free from knowledge of government regulation and the possibility of litigation. Whole areas of law, such as product liability, patent infringement, and antitrust, which were promulgated to protect the consumer and the public, also impact the product design process, even for software designers.
The goal of the Web site designer is to provide an interface that best meets the needs of the consumer and the vendor. However, the threat of litigation related to Web design may hamper these efforts and diminish innovation, as companies patent Web-based business methods and assert these patents against infringing Web sites. In a worst-case scenario, designers of the future may become subject to an involuntary template, forged by litigation, which severely limits the functionality and aesthetics a Web site can offer. The behavior of the online consumer will be similarly circumscribed, and this would have profound effects upon the future potential of Web-based e-commerce.
The increase in Web-related lawsuits is a response to the amount of money generated by software and its pervasiveness in the marketplace. Corporate attention has become focused on Web site design and its impact on revenue because Web sites have matured into a productive asset. Simultaneously, changes in the implementation of the patent law have made Web site design both more lucrative and more risky, as software and business method patents have become more acceptable to the United States Patent and Trademark Office (USPTO).
Most recently, corporations such as Amazon.com and Ebay have incorporated patentable business methods into the design of their Web sites and brought suit against other Web sites which have incorporated these methods. Therefore, today’s Web designer must consider not just the online consumer’s wants and needs but also, the legal constraints and requirements which regulate a Web site’s appearance and functionality.
The software industry has responded to these lawsuits by calling for an end to software patents and/or business method patents. Notably, Europe has taken a less permissive attitude toward awarding software patents (Daly, 2001). Some patent owners, in particular Jeff Bezos of Amazon.com, have suggested that the USPTO be permitted to grant a software patent with a reduced term, which would better reflect the short development cycle of innovation on the Web (Cave, 2000). Congress has responded with legislation to protect early software innovators, who did not patent their software, from lawsuits by patent holders (American Inventors Protection Act, 1999.) It is now time for Web site designers, themselves, to become familiar with the issues and how they can best deal with them. A first step is to understand the type and magnitude of litigation that is ongoing. To aid in this endeavor, the cases discussed below are organized by the Web site feature at issue, in order to offer guidance to the Web designer who is contemplating implementing these particular features. Because cyber law is still in its infancy and rapidly changing, legal generalizations are difficult to make. Next, the designer should understand the importance of the Web design agreement and which clauses require special attention. Finally, the designer needs to consider the steps the designer needs to take to avoid designs which invite a lawsuit.
Designing a commercial Web site generally includes providing a method for consumers to pay for their purchases and this interface has been the focus of much of the litigation. Over time, the shopping cart metaphor has come to permeate the Web, allowing a consumer to flag items the consumer wishes to buy and place them in a virtual shopping cart. However, placing items in a cart does not necessarily mean a purchase will result.
Some studies show that the average abandonment rate for a shopping cart is 30% or higher (Lewin, 2002). Although high shipping costs encourage abandonment, ease of use is also a factor. For example, requiring users to click a “Buy” button to add each item to the cart, or to view the shopping cart each time an item is placed there, discourages purchase. Other chief annoyances that lead to abandonment include requiring users to register before adding items to the cart or to enter personal information before providing a total.
As a means to reduce shopping cart abandonment, Amazon.com developed a system to allow users to order, pay, and specify delivery arrangements for items sold via a Web site, with a single mouse click (Petty, 2001). In 1999, Amazon.com filed US Patent No. 5,960,411, entitled “Method and system for placing a purchase order via a communications network.” The patent is not particularly long or complicated but the monopoly it claims is quite broad. The first claim from the patent, which is a formalized “word picture” of the invention, reads as follows:
A method of placing an order for an item comprising: under control of a client system, displaying information identifying the item; and in response to only a single action being performed, sending a request to order the item along with an identifier of a purchaser of the item to a server system; under control of a single-action ordering component of the server system, receiving the request; retrieving additional information previously stored for the purchaser identified by the identifier in the received request; and generating an order to purchase the requested item for the purchaser identified by the identifier in the received request using the retrieved additional information; and fulfilling the generated order to complete purchase of the item whereby the item is ordered without using a shopping cart ordering model.
Although the claim would be read in light of other information provided in the patent, it seems like just about any method, which requires the user to click only once to place an order, would infringe (violate) this patent.
Infringement of this patent became an issue during the 1999 holiday shopping season. Amazon.com persuaded the US District Court for the Western District of Washington to enjoin Barnesandnoble.com (B&N) from using its Express Lane ordering system (Amazon.com, Inc. v. Barnesandnoble.com, Inc. (1999)) The Express Lane feature allowed registered customers to purchase items by clicking on the Express Lane button displayed beneath the product. The button displayed the message, “Buy it now with just 1 click!” B&N described this feature as a “major enhancement” to its e-business (Jarvenpaa & Tiller, 2001).
In response to Amazon’s suit, B&N appealed the preliminary injunction to the Court of Appeals for the Federal Circuit, which handles patent matters (2001) and the Court vacated the injunction. The basis for the Appeals Court decision was that the District Court had misread the references (prior art) provided by B&N, which indicated that the Amazon patent might, in fact, be invalid. If the patent were invalid, infringement would be a non-issue and an injunction unnecessary.
In order for an applicant to obtain a patent, the USPTO must determine that the invention in question is new or novel. Sometimes mistakes are made. By supplying evidence that One-Click was not a new idea, B&N could cause the USPTO to invalidate the Amazon patent. However, the Court also noted that Amazon would probably succeed with its infringement suit, unless its patent was invalidated. On March 6, 2002, a press release stated that Amazon and B&N had settled the case out of court (Dunnam & Washburn, 2002).
Organizations such as the Free Software Foundation (Stallman, 1999) and the League for Programming Freedom (2003) spoke out against Amazon’s lawsuit because of its perceived negative impact upon programming innovation. Given that many prevalent programming techniques have not been formally published, the lawsuit created the possibility that anyone could apply to patent a given technique and thus obtain a monopoly on its use, despite the fact that the technique was not new at all. The PTO would have no way of knowing what was new because there was no database of existing software techniques to search. Most patents would not be contested because the cost and effort involved in contesting a patent’s validity is considerable and most independent programmers would not be able to mount the effort. In the long run, consumers would be the losers as they would not have access to convenient methods of shopping, except on Web sites owned by organizations, which could afford to license patents.
Because this case was settled and did not result in a court decision, its impact is somewhat limited. Nevertheless, it probably is reasonable for a Web designer to pay attention to the various payment options in use on the Web, and to avoid copying a particular method, unless the designer is certain it is not subject to copyright or patent protection. Managers, marketers, and others involved in e-commerce should also be prudent in implementing business methods on the Web, given the cost of litigation and the effect that an injunction could have on a business’s bottom line.
Another approach to purchasing goods on the Web, designed to appeal to consumers, is the digital wallet. The wallet is a storage vehicle for usernames, passwords, addresses, credit card numbers and other personal information. In return for the convenience of using the wallet and not having to type in identifying information to place an order, consumers agree to view ads, which are downloaded to their screens. Although this business model appears to be relatively benign, Gator, a company which offered consumers a free digital wallet called the e-wallet, soon began to superimpose pop-up advertisement windows on Web sites, without permission and in a way that infuriated both consumers and Web site owners. For example, a digital wallet subscriber might be viewing a travel Web site, such as Concierge.com, and without warning, an ad for Gator client Travelocity.com, a discount travel site, would suddenly pop up (Schuchman, 2003). As a result, Dow Jones & Co., The New York Times Co., and Washington Post Co. sued Gator for trademark and copyright infringement, unfair competition, and unjust enrichment, asking for $46 million in damages.
This case was settled out of court in February, 2003 (Weiss, 2003) but the decision in a newer case, U-Haul Intern., Inc. v. WhenU.com, Inc. (2003), indicates that pop-ups of the Gator type appear to be legal (U-Haul Intern., Inc. v. WhenU.com, Inc.(2003)).
In this case, the Plaintiff, U-Haul, argued that WhenU’s pop-up window, which obscured the U-Haul trademark, was an unlawful use of the U-Haul trademark The Court found for the defendant, WhenU, stating that the pop-ad was not a use of U-Haul’s trademark, did not interfere with U-Haul’s right to display its trademark and did not create a derivative work based on U-Haul’s trademark. This decision indicates that for now, a designer may have some freedom in placing pop-up windows, wherever the designer wishes. However, the wide availability of pop-up blocking software and the consumer’s unwillingness to view pop-ups have lessened the impact of this decision on short-term Web site design.
Another advertising device, which Web site designers may not need to eschew, is the banner ad, although this was not clear until recently. In December, 2000, NetZero, an Internet service provider (ISP) sued Juno Online Services, a rival ISP, alleging that Juno infringed a patent NetZero had licensed. The patent, U.S. Patent No. 6,157,946 (2000) claims the following:
The business method claimed above resulted in a monopoly for Net Zero on displaying advertisements or messages to the consumer, including banner ads, in a separate window from the browser window. In January, in response to Net Zero’s infringement suit, the U.S. District Court in Los Angeles granted a motion for a temporary restraining order which prevented Juno from running banner ads, in violation of the patent. However, in April, the same court lifted the restraining order entirely when it determined that NetZero’s patent might be invalid (Olavsrud, 2001). For the moment, it seems that banner ad technology is the property of no one and any Web site can use it. On June 7, 2001, Net Zero and Juno Online Services merged, forming a new company called United Online and eliminating the need for continuing the law suit (Alliance, 2003).
Coupons are certainly not a new idea. Reportedly, Asa Candler issued the first coupon in 1894. Candler, a druggist, had purchased the secret formula for Coca Cola® and wanted to test the market. He hand-wrote the coupons, which entitled the customer to a free glass. In 1998, companies distributed about 280 billion coupons (History of coupons, 2001).
Not surprisingly, coupons made their way to the Web. Coolsavings.com, Inc. (Coolsavings) distributed coupons, both printed and electronic, and other incentives from its Web site, after collecting personal information from each user including demographic information, shopping preferences, and category interests. The user’s site activity was also tracked, enabling the company to compile a database, which advertisers could use to identify their most likely prospects. In 2001, Catalina Marketing International, Inc. sued Coolsavings claiming that it had violated Catalina’s patented system of coupon dispensing terminals disclosed in U.S. Patent No. 4,674,041 (1987). This patent discloses a system by which a consumer could select and print the coupons the consumer wanted, from video terminals located at retail stores, which were connected to a remote host. At the host end, the manufacturer would control the number of coupons printed and their expiration dates and retrieve consumer credit card information.
The Court decided in favor of defendant Coolsavings holding that the monopoly of the Catalina patent was limited to terminals “located at predesignated sites such as consumer stores” and that this did not include computers located at consumers’ homes. This decision was based upon the wording of the patent and had the terms used been broader, the decision might have gone the other way. This lawsuit demonstrates that the courts may not be likely to interpret a patented business method that preceded the Web, as foreclosing a Web-based innovation of the same type. Web designers may have some lee-way in adapting older methods to the Web environment.
The reverse online auction was patented by Jay Walker, the founder of Priceline.com (U.S. Patent No.5,794,207, 1998). This business model enables the consumer to identify the service or product the consumer wants, as well as the price the consumer is willing to pay for it, rather than having the vendor offer a price, to which the consumer then responds. While some have characterized Walker as a modern day Edison, others feel he is more appropriately described as an “intellectual property parasite” (Gimein, 1999). His firm, Walker Digital, has hundreds of Internet-based patents, which the company offers for licensing and Priceline is a publicly traded company with a bullish outlook for the fourth quarter of 2003 (Smolinski, 2003).
In October, 1999, Priceline sued Microsoft, the major shareholder of Expedia Hotel PriceMatcher service. The parties settled in 2001 and Microsoft and Expedia joined other reported licensees, such as Budget Rent-A-Car, in paying royalties to Priceline.com (Petty, 2001). What this means is that any site wishing to offer consumers the reverse auction feature will have to license this technology from Priceline or find a way to design around the Priceline patent. Neither of these alternatives will be cheap and therefore, the consumer will find fewer sites offering the reverse auction than desirable.
Although the inability to include a reverse auction or one-click shopping might cramp a Web site designer’s style or limit the consumer’s options on a given Web site, the case of British Telecom (BT) v. Prodigy (2002) posed the most severe threat to both. In 2001, BT sued Prodigy claiming that its 1989 US Patent No. 4,873,662 covered hyperlink technology. Part of claim 1 reads as follows:
A digital information storage, retrieval and display system comprising: a central computer means in which plural blocks of information are stored at respectively corresponding locations, each of which locations is designated by a predetermined address therein by means of which a block can be selected, each of said blocks comprising a first portion containing information for display and a second portion containing information not for display but including the complete address for each of the other plural blocks of information.
Responding to the threat from BT, critics of the BT patent identified much prior art that showed hyperlink technology existed as far back as 1968, long before the BT patent was filed. For example, conference papers in the 60s and 70s discuss the technology (Petty, 2001). Although a link of sorts is described in this claim, the court held that the Internet was not the sort of system described in the Sargent patent because the Internet contains no central computer (Sandburg, 2002).
The BT case demonstrates the important role the Internet community can and perhaps, should play in discouraging aggressive, unjustified patent assertion, which would prove harmful to e-commerce. Whether this should be done informally, or through a structure of sorts, remains to be seen.
Another type of linking that has been litigated is linking to a page deep within another web site. Deep linking benefits the consumer in that the consumer is efficiently directed to a site the consumer might not have known about and can access information that is unavailable on the referring Web site. In 2000, Ticketmaster sued Tickets.com because Tickets.com linked to a page within the Ticketmaster site, bypassing Ticketmaster’s home page and its advertising (Ticketmaster v. Tickets.com, 2000).
The reason for the link was that Ticketmaster is the exclusive ticket vendor for certain events and the Tickets.com Web site informed the consumer that the consumer was being directed to another Web site for this reason. In order to obtain the information on Ticketmaster’s exclusive sales arrangements, Tickets.com copied a lower-level Ticketmaster page to its system, extracted the relevant information, and posted it on the Tickets.com system (Lunseth, 2001). The court held that Tickets.com was not liable for copyright infringement because the copy was destroyed and only used for factual information, not for competitive purposes. Accordingly, it is unlikely that deep linking will cause legal problems for Web designers and this is one instance in which the consumer will clearly benefit.
Due to changes in digital signature technology, Web site designers should be particularly cautious about using pictures without permission, no matter how convenient or how effective in attracting consumer interest. Corbis, a Bill-Gates owned company with three million digitized photos for sale and use online, is in the process of filing numerous lawsuits against infringers, having received a one million dollar settlement from The Movie Market, an online movie memorabilia store (Cohen, 2003.) Corbis has also sued Amazon.com alleging that the movie site IMDB.com, an Amazon.com subsidiary, displayed infringing celebrity photos, which linked visitors to Amazon.com, so that they could purchase the photos from a list of suppliers (Naraine, 2003).
Notably, Corbis alleged that Amazon was in violation of the Digital Millennium Copyright Act (DMCA) (1998) which makes it illegal to distribute, import for distribution, broadcast or communicate to the public, without authority, works or copies of works, knowing that electronic rights management information has been removed or altered. Corbis is seeking damages of up to $150,000 for each infringing image. Amazon countered that it was protected under the Act because it was covered by a safe harbor provision. This provision has been used to shield sites that link to other sites that infringe, when the sites share an e-commerce partnership (Naraine, 2003). This case has yet to be decided.
Corbis successfully identifies 30 to 60 commercial copyright infringements each month using a patented technology for embedding digital signatures or watermarks within visual images. The watermark contains transactional information such as whether the image was downloaded for a trial evaluation or for educational use. Corbis’ partner, Digimarc, trawls the Web and generates a report of where the Corbis images were found and Corbis staff determines if the image is being used past the evaluation period, or by an organization, which is not authorized for educational use. So far, the watermarking cannot be inserted into analog images such as posters, postcards, and newspaper photos, which feature the Corbis images (Naraine, 2003). Corbis’ interest is to encourage Web sites to self-manage potential infringement. Digimarc is developing software which will enable users to crawl their own sites for illegal images. In a recent out-of-court settlement, with online consumer photo printing service Ofoto, Ofoto agreed to adopt the watermarking technology to pick out commercial images from those it is asked to print for consumers (Sayer, 2003). Web designers should keep in mind that in the long run, obtaining a license is far cheaper than defending a lawsuit.
The case of Specht v. Netscape Communications Corp. (2001) is important because it demonstrates that the manner in which a Web site is designed may result in an unenforceable license agreement (Petty, 2003). In this case, the court had to decide whether Specht was bound by the license terms for using Netscape’s free SmartDownload program. The court’s decision that Specht was not bound was based upon the fact that the consumer could download the program, without first agreeing to the license terms. The text that described these terms became visible only after the consumer scrolled past the download button to the next display screen.
Consequently, Web designers would be well advised to display the terms of any license agreement in a highly visible location, with a button displaying language such as “I Agree,” which the consumer must click before downloading occurs. Notifying the consumer that clicking “I Agree” results in forming a legal contract is also advisable. Finally, the license should be understandable by the typical consumer (Petty, 2003). Although some companies may rely on legal review of their Web sites, it is important for designers to understand why they are bound by certain design constraints and to appreciate the consequences of a design, which can cause unexpected legal entanglements.
The USPTO has taken steps to curb abuse of the patent system by patent applicants seeking to patent well-known but poorly documented software technologies. Partially in response to public criticism of business method patents, Congress passed the American Inventors Protection Act (1999). This statute provides that if a business has been using a business method a year or more before another party files a patent application for that same business method, the business has an automatic defense to an infringement lawsuit. This legislation protects businesses which were using a software technique, before business patents became widely accepted, and did not take steps to patent their invention (Bernstein & Silver, 2000). This legislation goes a long way toward protecting the consumer’s interest in having access to a wide variety of Web interfaces.
Also, as part of its Business Initiative, the USPTO published a list of databases that patent examiners must search before they award or deny a patent. The list includes ABI/ INFORM, the Conference Papers Index, Wall Street Journal Abstracts, NTIS, Dialog, and others (Nigon & Etkowicz, 2002). In the event that a business method patent is initially allowed, the USPTO then initiates a second-level review, which evaluates the broadness of the patent claims and whether an adequate search of the prior art has been conducted (Petty, 2000).
Industry associations such as the New York Software Industry Association and the Software and Information Industry Association can play a vital role in alerting the USPTO and the public to software and business patents, which might prove harmful to e-commerce, and should not be awarded. Individuals such as the gadfly Greg Aharonian, whose Web site www.bustpatents.com lists invalidated patents, also play an important role in this process.
The Software Patent Institute (SPI) is a nonprofit corporation dedicated to providing information on the software prior art, i.e., software that exists whether patented or not. In addition to holding courses for patent examiners, the Institute concentrates on compiling a Database of Software Technologies, which contains information that is not readily available elsewhere. SPI has a Defensive Disclosure Service which allows an organization to enter a software technology into the database by the next business day, possibly heading off a lawsuit or laying the groundwork for invalidating a patent. Abstracts are searchable online at http://www.spi.org/NewQry/main at no cost.
Web site designers, like other IT professionals, should make a commitment to joining a professional association and reading trade journals regularly. This is a good way of keeping abreast of which technologies are protected by patent, copyright, or trademark. Also, corporations should involve the legal department in reviewing Web sites. Legal staff should take steps to understand which business methods or software are being used and to review the site from the standpoint of avoiding patent and copyright infringement. In some cases, patenting a technique may be advisable. Independent Web site designers and their customers should review their Web site development agreements, with regard to any work product warranties related to infringement, as well as the provision of liability insurance.
In the future, there may be services that certify the legality of a Web site, by using software or other techniques, to identify whether any patented methods are being infringed by the Web site. It is also possible that the government will institute some form of compulsory licensing, which requires the owners of key software or business methods to license them.
A more likely scenario is a trend toward uniformity in Web site design, similar to the trend towards software uniformity that began with Microsoft Windows®. This would have both positive and negative consequences for consumers in that Web sites would be easier to navigate but might lack the innovative character they currently exhibit.
Section I - Consumer Behavior in Web-Based Commerce
Section II - Web Site Usability and Interface Design
Section III - Systems Design for Electronic Commerce
Section IV - Customer Trust and Loyalty Online
Section V - Social and Legal Influences on Web Marketing and Online Consumers