Obstacles ahead for Amazon's 1-Click checkout?

Net retail giant faces off in court over patent that might be covered by a Virginia company.

Anne Broache
Anne Broache Staff Writer, CNET News.com
Anne Broache
covers Capitol Hill goings-on and technology policy from Washington, D.C.
2 min read
WASHINGTON--A federal appeals court has indicated that Amazon.com's famous 1-Click checkout system might be covered by another company's patent on electronic transactions.

Amazon and a one-person Virginia company called IPXL Holdings on Tuesday made their cases before the U.S. Appeals Court for the Federal Circuit. Last August, Amazon won before a trial judge in the U.S. District Court in Alexandria, Va., who decided that because the 1-Click feature was designed for processing orders and shipping, and not paying for goods, no infringement took place.

Patent 6,149,055, held by IPXL, covers an "electronic financial system" dealing with storing, predicting and presenting information about users engaging in electronic transactions.

In an ironic twist for the online retailer, the 1-Click feature is no stranger to court action. Amazon gained notoriety years ago for attempting to enforce its own patent on that system against Barnes & Noble's Web operations--resulting in a now-ended boycott by the Free Software Foundation and an unusual "open letter" from CEO Jeff Bezos acknowledging flaws in the patent system.

Jan Conlin, the attorney for IPXL, on Tuesday urged a three-judge panel at the U.S. Appeals Court for the Federal Circuit to overturn the lower court's decision. "It's not simply ordering a book and arranging its shipment," Conlin said of the Amazon system, "which is why the button says 'Buy now with 1-Click.'"

The courtroom discussion involved sharp questioning of both sides and centered on whether the 1-Click process is an electronic fund transfer system--such as the one described in IPXL's patent--or if it's just one component of a product ordering system that would not necessarily be covered by the patent. Amazon maintains that because Visa or another third party actually carries out the fund transfer, the patent should not apply.

IPXL's argument seemed to garner some sympathy from the bench. "If you went to Amazon's annual stockholders meeting and told them 1-Click had nothing to do with payments...you'd be laughed out of the meeting," said Judge Raymond Clevenger III. "Of course (Amazon's) system involves payment. Otherwise (the) system would be bankrupt."

And if the system doesn't "obligate" one's funds, could someone order a book, decide he disliked it, and then get away with not paying for it? Judge Randall Rader asked Amazon's attorney.

Arguing for Amazon, attorney David Callahan countered that the system, unlike IPXL's, does not actually move any money out of the customer's account. Instead, he said, third-party credit card processors take care of that job after the order placed via 1-Click is shipped.

"It's as if my wife sent me an e-mail and said, 'You have my ATM card and PIN. Withdraw $200 and bring it home to me," Callahan said.

But it doesn't matter whether the payment takes place through backend processing, IPXL's Conlin argued. The critical distinction, she said, is, "from the user's perspective...you think you've paid."

After the arguments, which lasted about 30 minutes, the court adjourned without indicating when it would rule on the case.

CNET News.com's Declan McCullagh contributed to this report.