Amazon Caves into IBM in Patent Fight

Opinion: Amazon fired off lovely rhetoric in December, but it surrendered in the conference room. As one lawyer put it, Amazon said in December, "This is extortion," and in May, "And we're paying it."

The issues and the symbolism couldnt have been more the quintessential old versus new battle.

In one corner, we have 96-year-old IBM, master of the patent for more decades than most companies have existed. In the other corner,, king of e-commerce and one of the top leaders of the Web. (One could argue that Amazon and Google are co-masters of the Web universe today.)

IBM is no stranger to nasty fighting and is a company that sees something beautiful about a well-executed stealth patent. Thats where a company files a patent and sits on it—quietly—to see if anyone uses the approach and if that company happens to have any money. Think of it as a patent speed trap.

But young scrappy Amazon is no shrinking HREF, either. In continuing to fight a lawsuit filed in October, Amazon let loose some powerful rhetoric in December, telling the world that IBM was up to no good, but to not worry: Amazon would stand up to this bully and make the Web world safe again.

"While IBM tries to cloak its rhetoric in the legitimacy of the patent laws, there is nothing legitimate about IBMs purported claims," Amazon said in a December response to IBMs October lawsuit. "IBM has accused of infringing three patents that were not even developed at IBM, but rather were bought from a now-defunct company for the apparent purpose of threatening other companies with litigation like this to extract licensing payments. IBMs broad allegations of infringement amount to a claim that IBM invented the Internet. If IBMs claims are believed, then not only must pay IBM, but everyone conducting electronic commerce over the World Wide Web—indeed, every website and potentially everyone who uses a Web browser to surf the Web—must pay IBM a toll for the right to do so."

Will Amazon allow this to happen? No way. Well, at least not in December. "This theory of infringement is nonsense and will not allow IBM to use its patents improperly to tax the Internet and the millions of companies and individuals who use it every day," it said in that same filing.

/zimages/3/28571.gifIn 2006, IBM was once again the patent leader. Click here to read more.

Fast forward to May 8. Amazon agrees to pay IBM "an undisclosed amount of money" and agrees to "a long-term patent cross-licensing agreement." Amazons Scott Hayden (VP of intellectual property) even had to say, "IBMs patent portfolio is the largest and strongest in the IT industry. Our license to its portfolio, and specifically to its Web technology patents, gives us greater freedom to innovate for our customers." Thats news release speak for "Uncle!"

An IBM exec—Dan Cerutti, IBMs general manager of software intellectual property—said in the statement, "At IBM, we place a high value on our IP assets and believe this agreement substantiates the value of our portfolio." Translation: Want another piece of me, bookseller boy? "Were pleased this matter has been resolved through negotiation and licensing." Putting this into historical context, the Nazis negotiated their way into Warsaw.

The last line of the IBM statement reads: "We look forward to a more productive relationship with Amazon in the future." Translation: Weve already measured them for dog collars."

OK, so Im being a little unsympathetic to Amazon, which probably doesnt need to get picked on anymore this week. But if youre going to go out and say that you wont let this injustice continue as long as youre sheriff, you should at least hold to your position for six months.

When I spoke with spokeswoman Patty Smith May 8, she wouldnt say what changed Amazons mind, but repeatedly referred to the short statement.

Mark Rasch, an attorney specializing in high-tech issues (and former U.S. Justice Department head of high-tech crime investigations), said theres really no way to reconcile those positions. "What they said in December was, This is extortion. What theyre saying now is, And were paying. Thats the only way to harmonize those two statements."

In all fairness, there are a lot of business issues behind this. Amazon countersued IBM, accusing Big Blue of violating some of Amazons patents. That was also dropped, but youll notice no statement about IBM paying Amazon.

There was a key change to the technology patent landscape, courtesy of a rare unanimous U.S. Supreme Court decision on April 30 (KSR International Co. vs. Teleflex Inc. Et Al). That decision raised the bar for patents that could be argued as "obvious," typically ones that mildly build on existing inventions.

/zimages/3/28571.gifClick here to read why the patent ruling makes "obvious" sense.

But far from helping the Amazon-IBM agreement, that decision actually would have been favorable to the Amazon side—which was arguing that many of the IBM patents in question were indeed obvious. Logically, that decision could have prolonged negotiations by giving Amazon a better defense.

One attorney involved in the case, however, said the Supreme Court decision didnt have any true impact on the case, especially given how far along negotiations were by April 30. "The timing is such that I dont know that the decision ended up having any impact," the attorney said.

So what did likely impact the decision? IBMs law firms are a mighty impressive army, and its hard to argue that they dont have the most experience in high-tech patent issues of almost all kinds.

Amazon ultimately faced up to the sad realization that there was no way this was going to end well. It would have dragged on for years, costing oodles of money. In the end, Amazon might have won, but the money would likely have not covered the pain of the litigation. During that time, theyd not only be distracted, but every project using the challenged patents would have this dark cloud hanging over its head.

A quick settlement puts the matter behind them and allows them to not only use the IBM technology unimpeded, but theres still the chance that IBM could use some of the Amazon creations and pay a few royalty dollars.

The troubling part of this, though, is that it was all so predictable. What exactly had Amazon executives expected? Did they think IBM would back off?

When they issued that language in December, had they intended to fight, or was this always the end target? Im not sure what the rationale was, but the scenario that Amazon woefully underestimated IBM certainly seems the most plausible.

Retail Center Editor Evan Schuman has tracked high-tech issues since 1987, has been opinionated long before that and doesnt plan to stop any time soon. He can be reached at

To read earlier retail technology opinion columns from Evan Schuman, please click here.

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