Internet patents divide industry

BOSTON — Tim O’Reilly’s company had a new and potentially lucrative idea in the early 1990s: Use advertising revenue to run a Web portal. Essentially, he says, Global Network Navigator invented the Internet banner ad.

According to a landmark court decision handed down five years ago this month, Mr. O’Reilly may have been able to patent the idea as a “business method” — a move that could have changed the course of Internet history.

But even if he could have, he says he wouldn’t have.

“If I had been able to put a patent on that and collect from everybody else who did it, that would have held back the industry tremendously,” said Mr. O’Reilly, who after the sale of GNN to America Online, now heads O’Reilly Associates, a technology publishing company. He is a critic of broad patent protections.

That’s one view of patents. The other is held by the likes of Jay Walker.

Like Mr. O’Reilly, Mr. Walker is an cyber-commerce pioneer — he founded Priceline.com — and considers himself a champion of innovation.

But Mr. Walker’s company, Walker Digital LLC of Stamford, Conn., has made a business of patenting just about any business method it can. He owns more than 200, including ones on online dating and running slot machines.

Mr. Walker applauds Mr. O’Reilly’s selflessness but disputes the logic. Patent rights don’t slow technological innovation, he says; they spur it.

“If you want to give your house to the city for a public park, great,” he said. “On the other hand, we shouldn’t deny people the right to have houses.”

Experts say the 1998 “State Street vs. Signature Financial” decision from the U.S. Court of Appeals for the Federal Circuit was an acknowledgment that intellectual property was as much about ideas as about things. The U.S. Patent Office had been granting business-method patents for years and the court simply signaled its approval.

But the decision inspired thousands to file patents on ideas like new kinds of credit-card offers and methods for teaching a golf swing.

In 1997, the year before the ruling, the Patent Office received 927 applications under its main classification for business methods. In 2001, that number rose to 8,700, falling to 5,000 last year as many small companies went out of business.

“In the dot-com era, the first thing they did was go get a patent, because that’s what the investors were looking for,” said Tom Turano, a lawyer at Testa, Hurwitz & Thibeault, a Boston firm with a large technology practice.

It wasn’t just start-ups. Entire industries, like financial services and insurance, which had never considered their ideas patentable, began hiring lawyers to protect intellectual property.

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