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Monday, October 23, 2006

Implications of the IBM Patent Suits Against Amazon.Com

Before Amazon.com (AMZN) shareholders go running for the hills, they need to remember one thing about legal battles: Anyone with about $600.00 and a lot of free time can sue you.

IBM (IBM) has filed two suits against Amazon.com, with claims that the key aspects retailer's websites violate IBM patents. The claims cover 5 IBM-held patents. One patent covers how the site handles customer recommendations, another is on advertising, and another is data storage. This will NOT be the end of how Amazon.com operates.

Big Blue has claimed that hundreds of other companies licensed these patents, and that Amazon has refused to reach any licensing terms since 2002 on a repeated basis. Since Texas has been deemed a more patent-holder friendly state, both cases were filed in Texas.

Guess who holds the most patents in the world: IBM. Amazon owns the one-click checkout method and has gone after companies for the right to "click-to-buy," although that patent is seeminlgy under review because the complaints say the patent is far too broad.

So if the technology is already being licensed out, it will likely not be the death of Amazon.com even if the judgements go entirely against the company. Furthermore, some of these patents that have been somehow granted are increasingly nebulous and it makes one wonder how any technology has been able to progress without all the sales and royalties being taken away.

Patent law is often controversial and often nebulous, and that will never change. As far as $600.00 and free time, well IBM has a lot more than $600.00 and they have a rather large internal and external legal network.

Jon C.Ogg
October 23, 2006
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