Update: IBM sues Amazon.com over patents

IBM Corp. is taking Amazon.com Inc. to court, alleging patent infringement against the e-commerce giant.

IBM announced on Monday that it hit Amazon.com with two lawsuits that seek unspecified damages. For four years, IBM attempted to clear up the matter before it decided to sue.

IBM alleges that Amazon.com knowingly exploits its intellectual property by infringing on several patents that cover, among other things: the presentation of applications in an interactive service; the storage of data in an interactive network; the presentation of advertising in an interactive service; and the ordering of items from an electronic catalog.

IBM filed the lawsuits separately in two district courts for the Eastern District of Texas, one in the Tyler Division and the other in the Lufkin Division.

IBM first notified Amazon.com about the alleged infringement in September 2002, but Amazon.com hasn't wanted to engage in "meaningful discussions," IBM said. Other companies license the patents in question, according to IBM.

Amazon.com declined to comment, saying that it had not yet received official notice of the suit.

The contested patents are at the heart of how Amazon.com operates, an IBM spokesman said. IBM doesn't resort to lawsuits very often, so the decision to take this step reflects how seriously IBM takes this matter, he said.

"Rather than build its business on its own technologies, Amazon has relied on IBM's innovations, unlawfully taking and using them for its business," IBM wrote in one of the complaints.

IBM is entitled to royalties on the billions of dollars in revenue that Amazon.com has generated through its "unlawful infringement" of the patents, one of the complaints states. IBM also seeks injunctive relief to prevent Amazon.com from continuing the alleged infringement.

The cases could have wide repercussions if Amazon.com decides to fight the lawsuits and wins, said Randy Broberg, a partner at the Allen Matkins law firm in San Diego, who isn't involved with either company.

For one, the cases could bring to light what he calls a longstanding IBM practice of sending letters to companies informing them that IBM has a massive amount of patents. In those letters, IBM offers companies the opportunity to license its patent portfolio in full or in part in case they are unknowingly infringing, Broberg said.

In the past 10 years or so, Broberg has had "three or four" clients that have received such letters from IBM, and in all cases the companies have chosen to purchase a wholesale licensing package to avoid taking on IBM in court, he said.

However, Amazon.com has the resources to fight the allegations and, should it prevail, the case could open the door for closer scrutiny of IBM's patent licensing activities, Broberg said.

IBM's spokesman challenged Broberg's portrayal, saying that IBM doesn't have a business practice of proactively sending letters to companies encouraging them to purchase patent licenses. IBM approaches companies that it believes are using IBM technology without permission, he said.

Another reason why the case could send ripples through the industry is that IBM risks having the patents in question invalidated, which could prompt other companies to question the foundation of their IBM patent licenses, he said. "It's a high-stakes game when you sue for patent infringement," Broberg said.

Going into the litigation, IBM's case has some weak spots. First, IBM held off on suing Amazon.com for several years after detecting the alleged infringement, which could give Amazon.com additional arguments in its favor, he said. Second, the traditional plaintiff strategy in patent cases is to take to court a weaker, smaller company and secure a court decision in its favor, before approaching larger rivals with its patent compliance demands, Broberg said. Here, IBM is taking on Amazon.com, which can put up a strong legal fight.