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Small company makes big claims on XML patents

Scientigo is close to signing a deal with an IP-licensing firm to try to "monetize" patents it says are infringed by XML.

A small software developer plans to seek royalties from companies that use XML, the latest example of patent claims embroiling the tech industry.

Charlotte, N.C.-based Scientigo owns two patents (No. 5,842,213 and No. 6,393,426) covering the transfer of "data in neutral forms." These patents, one of which was applied for in 1997, are infringed upon by the data-formatting standard XML, Scientigo executives assert.

Scientigo intends to "monetize" this intellectual property, Scientigo CEO Doyal Bryant said this week.

Rather than seek royalties itself, Scientigo has forged a tentative agreement with an intellectual-property licensing firm that will handle contracts with third parties, Bryant said. A final agreement could be announced early next week, he said.

"We're not interested in having us against the world. We're just looking for ways to leverage an asset; we have pretty concrete proof that makes us feel comfortable saying it is an asset," Bryant said.

Scientigo's claims are the latest to crop up in an industry that is sharply divided over the role of patents.

Advocates argue that the patent system protects intellectual property as intended. Detractors, including those who call for the elimination of software patents, say that patents make it simpler for businesses--sometimes pejoratively dubbed "patent trolls"--to legally prey on unsuspecting software users.

Bryant said that Scientigo over the past several months has had discussions with 47 companies regarding the patents, including large software providers Microsoft and Oracle.

Based on these talks, Bryant said he is confident that the company's patents will command royalties from software companies and other large organizations, such as Amazon.com, which use XML.

Vast ramifications The ramifications of such a licensing request could be vast. XML has become a widely used method for storing and sharing information in many forms, from purchase orders to information in Web pages.

Most software companies use XML in some way, as do individual developers and corporate customers. The standard itself is developed at the World Wide Web Consortium, which published an initial draft of XML in late 1996 and proposed XML version 1.0 in December 1997.

Patent lawyer Bruce Sunstein, a co-founder of Boston-based Bromberg & Sunstein, viewed Scientigo's patents and concluded that the company will have difficulty in enforcing claims over XML.

Sunstein noted that XML is derived from SGML, which dates back to the 1980s. SGML, in turn, is based on computing concepts from the 1960s. If Scientigo's claims were ever litigated, the company would have to address all the prior work on data formats.

"You can wish them good luck if you want, but there is a lot of history this patent will have to deal with, and the fat lady has not finished singing on this one yet," Sunstein said.

Companies respond
A representative from IBM said that its intellectual property lawyers had not yet heard of Scientigo's claim.

Microsoft declined to say whether it has spoken to anyone from Scientigo. In general, though, the company minimized the effect of patent claims on something as legally well-protected as XML.

"XML has been around a long time, and people shouldn?t assume any one patent has broad implications. Often, patents are quite narrow and mostly irrelevant to the industry at large," David Kaefer, a Microsoft director of business development in charge of IP licensing.

Meanwhile, the World Wide Web Consortium has not been contacted by Scientigo, according to spokeswoman Janet Daly.

Daly noted that companies or even individuals often make patent claims on XML. For example, Microsoft, which uses XML as the foundation of many of its products, was awarded a patent for programming techniques related to XML.

"Regularly there are small companies or even individuals who have one or two or 10 patents. And when the company doesn't do very well, the patents become a means of revenue," Daly said.

Scientigo does fit the profile of companies looking to buttress their finances by better commercializing their intellectual property.

The company, once known as Market Central, went through a complete overhaul this year after the arrival of Bryant as CEO. It sold off its call center business, eliminated debt, and focused its product development on content management software.

Hue and cry
As part of the restructuring, company executives decided to try to draw revenue from its patents--including the two in question that came through Scientigo's acquisition of the assets of a Texas company called Pliant Technologies.

Bryant does not dispute the company's interest in potentially huge revenue from these patents. A multimillion-dollar annual royalty from Amazon.com, for example, would not be onerous to Amazon and yet would help revitalize Scientigo, Bryant said.

"This could be a pretty significant income stream for us," Bryant said.

He declined to indicate which company he is negotiating with to handle licensing.

Bryant did, however, detail the outside firms he enlisted to examine Scientigo's patents and formulate its IP strategy. Those companies include law firms Sterne Kessler Goldstein & Fox and Wilson Sonsini Goodrich and Rosati. Another is Inflexion Point Strategy, which describes itself as an intellectual property investment bank set up to buy and sell IP.

Even with the aid of an outside licensing firm, Scientigo will face a great deal of difficulty extracting royalties from XML users, said Andrew Updegrove, a partner at Gesmer Updegrove and attorney for the standards body Organization for the Advancement of Structured Information Standards (OASIS).

OASIS is one of several standards bodies and organizations that uses XML as the basis for its work, noted Updegrove, who runs the ConsortiumInfo.org site that tracks industry standards. With so many people heavily invested in XML, any patent claims over portions of XML would be challenged, much the way the Eolas patent claim against Microsoft was reviewed by the U.S. Patent and Trademark Office.

"The world has learned that you don't mess with the Internet, the Web, or anything crucial to its operation. Mighty will be the hue and cry against any assertion of patents against XML in any kind of broad sense or even in any sense at all. There will be a call for re-examination of the patents, and there will also be refusals to license that will lead to litigation if the patent owner chooses to sue," Updegrove predicted.

Bryant defends the company's plan, saying it's the "right move to make" for his company and shareholders.

On Friday, he intends to fly to the West Coast and finalize an agreement with an IP licensing firm, a move he hopes will validate Scientigo's claims.