Prometheus 6

Quote of note:

They say Commerce One told industry groups that it wanted businesses to be able to use the technologies for free. And once a promise is made that a patent is royalty-free, any future owner of that patent has to honor that promise, they say.

But those selling off Commerce One's assets don't agree.

"The company has not given up any of their patent rights," said John Amster, an investment banker with Ocean Tomo, which is helping Commerce One in its bankruptcy. "Presumably, if they wanted to do so, they would have."

Auction of Web patents could be a royalty pain
By Deborah Lohse
Mercury News

An obscure auction scheduled for this morning in San Francisco's financial district threatens to make life mighty uncomfortable for many companies that conduct business with one another over the Internet.

The auction stems from the bankruptcy of Commerce One, a San Francisco maker of software for online business transactions.

Now, nearly 40 of the patents that Commerce One owns or applied for are going to be auctioned off at a bankruptcy court hearing at 235 Pine St. In theory, these patents could give a buyer the right to demand royalties -- possibly worth tens of millions of dollars -- from any company conducting a wide array of business transactions over the Internet.

That has a lot of companies highly nervous.

Many companies use standard Internet languages, which Commerce One helped develop, to order inventory, pay suppliers or do other common Internet transactions with other businesses. Now,"every single company that adopted that standard is potentially at risk"' said Jason Schultz, a lawyer with the Electronic Frontier Foundation.

Some say it's like a company acquiring the patent on e-mail, and demanding money from every user. "The economic machinery really gets mucked up by that," said Lee Van Pelt, a Cupertino intellectual-property attorney who opposes the auction.

Shultz and Deidre Mulligan of the University of California-Berkeley have written to the bankruptcy trustee in hopes of delaying the auction.

They say Commerce One told industry groups that it wanted businesses to be able to use the technologies for free. And once a promise is made that a patent is royalty-free, any future owner of that patent has to honor that promise, they say.

But those selling off Commerce One's assets don't agree.

"The company has not given up any of their patent rights," said John Amster, an investment banker with Ocean Tomo, which is helping Commerce One in its bankruptcy. "Presumably, if they wanted to do so, they would have."

Schultz said there has been a proliferation of companies seeking to buy up patents for the royalties, such as Acacia Research of Newport Beach. That company acquired some patents on streaming-media technology, and has been seeking royalties from colleges, porn sites and others. "The more potential a technology has, the more dangerous patents on that technology can be in the wrong hands," said Schultz.

A lawyer and media contact at Acacia did not return calls for comment.

Still, even if companies have a strong legal argument that they don't owe royalties, it could be too costly to prove it in court. A company that owns the patents "could still go around to small businesses who can't afford to hire a $500-an-hour lawyer, and shake them down," said Schultz.

Eight individuals or firms have registered to bid at least $1 million for the patents at auction, according to a securities filing Friday.

There had been talk of an industry consortium banding together to buy the patents, and in essence retiring them -- similar to the way that nature conservancies buy up land to prevent development. But Van Pelt, who had tried to arrange one such consortium, said he couldn't get a group together in time.

If the auction is delayed as some want, "I think we will be able to put together that sort of nature-conservancy approach," said Van Pelt.