As patent suits proliferate, so do worries

You're wondering whether to tell the boss that his BlackBerry e-mail handheld could become an expensive paperweight because of a patent suit against Research in Motion by NTP.

Your legal team is poring through software license contracts with your Linux vendor trying to find out if you should stick with that arrangement - and face a patent lawsuit from The SCO Group - or take the new licensing deal that SCO is offering.

You see that Microsoft has been ordered to pay a $521 million infringement award for adding code that lets Internet Explorer run applets and plug-ins, and that eBay must pony up $30 million because the "Buy it Now" feature on its Web site infringed on patents. Your mind turns to the software-based business methods you're exposing on your own Web site through those nifty new Web services, and about how these services are interacting with services on someone else's Web site.

Suddenly the terms "patent protection" and "patent infringement" take on a whole new meaning.

Data compiled by Aon Corp., which sells intellectual property and infringement insurance, shows a surge in patent litigation cases, costs and judgments. Part of the reason is vendors are more serious than ever about protecting intellectual property of all kinds, including patents. They're more serious because there's more money at stake.

"There's a realization by a lot of companies ... that they had this patent portfolio and they could go off and turn it into a profit center," says Jason Mirabito, a partner at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo in Boston. He started the intellectual property practice at his firm six years ago with four lawyers. Today, there are 70 lawyers. Companies with lots of patents, such as IBM and Lucent, he says, began systematically identifying companies that might be infringing. The next step was negotiating license arrangements or hauling them into court.

Patents cover more areas than ever before, especially in high tech, and their potential effect on a company is correspondingly greater.

"Patents used to be intended to cover [mainly] gadgets," says Jeffrey Neuburger, a partner in Brown Raysman Millstein Felder & Steiner, a New York law firm with a large intellectual property practice. "But patents have broadened on the basis of some relatively new case law to cover business processes. Most software patents today are business-method patents."

Lawsuits over such patents often boil down to one party paying the other. Losers such as Microsoft and eBay - once appeals are exhausted - simply pay the judgment, along with any damages, or agree to a license fee. The direct effect on their customers is minimal.

But it's not just traditional software applications that are affected by the evolution of patent litigation. In January, Microsoft alerted the Organization for the Advancement of Structured Information Standards, a nonprofit group that designs e-business standards, that several Microsoft patent applications included elements that might be needed to implement the group's Web Services Security specification. In a statement, Microsoft pledged to provide a royalty-free license to implementers.