Tech giants edgy over Web services patent sale

Oracle, Google and Sun may try to buy patents at bankruptcy auction to avoid threat of infringement suits.

Alorie Gilbert Staff Writer, CNET News.com
Alorie Gilbert
writes about software, spy chips and the high-tech workplace.
Alorie Gilbert
3 min read
The upcoming auction of dozens of key Web services patents in a California bankruptcy case has some big Silicon Valley companies on edge.

Among them are Google, Oracle and Sun Microsystems. Attorneys for those and more than a dozen other companies held a powwow this week to discuss the patent sale and the danger of becoming targets of infringement suits by whomever acquires them.

They also discussed pooling their funds and jointly bidding in the Dec. 6 auction. A nonprofit group called CommerceNet, which organized the meeting, offered to collect contributions and manage the bidding. If the joint bid won, CommerceNet would essentially retire the patents. If it lost, CommerceNet would refund each contributor.

"It's a little bit like paying the blackmailer before they have something to blackmail you about," said Craig Smith, CommerceNet's chief financial officer and chief operating officer.

On the auction block are 39 patents held by Commerce One, a bankrupt software company in Santa Clara, Calif., that's in the process of shutting down and liquidating its assets. The patents cover technical protocols that underlie popular methods for exchanging business documents over the Internet.

The protocols, also known as Web services, are in wide use today. Microsoft, IBM and, presumably, the companies at this week's meeting have incorporated them into their software products and their own business systems, Smith said. Although it may turn out that the patents are too broad to enforce or may be otherwise invalidated if challenged, people are nervous.

"There's a concern that these patents could be used aggressively by a buyer to shake down the whole Web services industry," said Jason Schultz, an attorney at technology activist organization the Electronic Frontier Foundation. Schulz is helping put together and promote the CommerceNet proposal.

Alarm is growing within the high-tech industry over what some say is a trend toward speculative patent acquisitions. Critics say companies that acquire patent rights to technology that they played no role in creating in order to profit from infringement suits are violating the spirit of patent law, which is supposed to reward innovative companies. A number of companies specialize in this practice, including Intellectual Ventures, started by former Microsoft executive Nathan Myhrvold.

The CommerceNet proposal is a novel idea for dealing with the problem, EFF's Schultz said.

"It's like buying up nuclear material so it doesn't fall into the wrong hands," Shultz said. "It may be a new way to think about dangerous patents," he continued. "We may see it replicated, especially in bankruptcy cases."

CommerceNet, which is based in Mountain View, Calif., is seeking initial contributions of up to $2 million each from five to 10 companies. But it doesn't have much time. The auction is scheduled for Dec. 6 in federal bankruptcy court in San Francisco, and bidders must submit initial offers by Dec. 2 to participate. CommerceNet may request that the court postpone the auction.

So far, no one has stepped forward to pledge a contribution to the CommerceNet effort, Smith said. Representatives for Google, Oracle and Sun refused to comment on the CommerceNet meeting and their plans regarding the auction. Microsoft and IBM representatives did not immediately respond to questions about the auction.

The patents could fetch more than $10 million, said patent attorney Lee Van Pelt of Van Pelt & Yi. Bidding is set to start at $1 million.

A buyer looking for a lucrative profit on the deal may seek anywhere from $100 million to $1 billion in royalties or settlements and is likely to target companies with deep pockets, such as Microsoft and IBM, said Van Pelt, who is also involved in organizing the CommerceNet proposal.