Firms Sued for Selling on Internet

Offering to sell stuff over the Internet is not a crime, but it can get you sued, as Philip Cable, owner of a Niles, Ill.-based catalog business, has learned.

BY JON VAN
THE CHICAGO TRIBUNE

Cable, whose Web site, http://www.sciplus.com, has been running for several years, was hit with a lawsuit last fall claiming that a San Diego company, Pangia Intellectual Properties, had patented electronic commerce. If Cable wants to continue selling things on the Web, the lawsuit says he should send Pangia several thousand dollars.

Pangia is part of what patent experts say is a growing trend in which small firms latch onto broad patents and then threaten to sue businesses using the Internet for commerce.
This trend exploits shortcomings in the U.S. patent system, some patent attorneys argue, and is attracting many entrepreneurs.

For small companies like Cable’s, getting hit with a lawsuit for hawking products on the Internet comes as a complete shock.
"We’re doing something that millions of businesses do," said Cable, whose business, American Science & Surplus, operates retail stores and a mail-order catalog business as well as a Web site. "I’d never heard of these Pangia people before."

At first Pangia wanted Cable to send $30,000 for a license to do e-commerce. Later the sums requested were lowered.
"They seem to be looking for a sweet spot — how much can they charge that a small business will pay so they’ll go away," Cable said. "They asked for $10,000, and I’ve heard they’ve accepted $5,000 from some people they sue."
Cable decided to fight the suit. He and more than a dozen others sued by Pangia hired a San Diego-based lawyer.
They have launched a Web site, youmaybenext.com, to explain their plight. An earlier Web site used the Pangia name, but Pangia sued over that as well.

If Pangia’s claims stand, it is a big deal because it would affect every company that does e-commerce, said Jon Hangartner, the attorney hired to fight Pangia. However, he said Pangia’s patents do not directly mention the Internet or e-commerce and appear to be overly broad and vague.

Pangia’s founder, Lawrence Lockwood, has a history of litigation in the electronic commerce field. Several years ago, Lockwood sued American Airlines for using its electronic reservation system, which he said violated earlier patents he held. Eventually, Lockwood lost that suit, Hangartner said. The current patents are derived from those earlier patents, Hangartner said.

Getting a court to void Pangia’s current claims related to newer patents will be a long and costly process, Hangartner said. That is why Pangia has targeted small to medium-size businesses scattered around the country, but none near San Diego where the suits are filed, he said.
By not filing against large firms like Amazon.com or eBay or anyone based in California, it appears that Pangia is trying to extract money from smaller firms while avoiding a court confrontation, he said.

Kathleen Walker, Pangia’s lawyer, said she would not characterize her client’s strategy in that way.
She said litigation is expensive and that Pangia has limited funds itself. Walker also said that Pangia is eager to negotiate settlements and has accepted terms as low as $5,000 to drop firms from its lawsuits.

"We have two patents and will continue to enforce them," she said. "We’ll take a look at any company that might violate them, but I cannot say who else would be sued."
Divine Inc. in Chicago has sent letters to some companies warning them against using electronic shopping carts on their Web sites, a common practice. Susan Burke, a Divine spokeswoman, said the firm has 66 patents and is seeking to protect its intellectual property.

"Divine’s recent lawsuits are a typical result of an ongoing negotiation with numerous companies, many of which have already licensed the rights to use our inventions," she said.
A decade ago, it would have been quite unusual for someone to claim patent rights over a widely used technology, but in recent years that has changed radically, said Sharon Barner, a Chicago-based intellectual property attorney with the firm of Foley & Lardner.

"It’s a bit like product liability litigation," Barner said. "It started off small but has gotten bigger and more outrageous — like suing McDonald’s for making you fat."
The problem, Barner said, is that in the United States it is difficult and expensive to overturn a patent in court. Unlike many other countries, this nation does not have a practical way to challenge patents inexpensively in the patent office, she said.

The reaction by Cable and some other small-business operators to band together and fight what appears to be an unreasonable lawsuit is typical, Barner said.
"But as the road gets long, many drop out," she said. "Patent litigation tends to be long and costly. In the beginning you fight on principle, but the costs add up quickly. The average cost of a piece of patent litigation is $1 million. That’s a significant amount of money when you can settle for $10,000 or $15,000."

Cable said he knows he is in for a long, difficult fight, but he said that he and his co-defendants intend to take Pangia "to the mat" to "put a stop to this ridiculousness."

http://www.sltrib.com/2003/Feb/02022003/business/25323.asp