Of course, the Internet's first form of doing things was the give-it-away-and-lo!-more-will-come-back-to-you philosophy, which is clearly antithetical to the lock-it-up-and-wring-out-every-last-penny approach implied by patenting. That prelapsarian (i.e., before-commerce) mentality lives on, even among those using the Web for business, and is probably partly responsible for the loud hissing sound that went up following the patent announcements. Joseph Iandiorio, a partner in the Waltham, Mass., law firm Iandiorio & Teska, compares such arguments with the criticism that still swirls around Internet censorship. "There are people who say that everything on the Net ought to be open and free," says Iandiorio. "What they don't understand is that these guys have spent a lot of money devising these business models. They want to recoup something from it, and they think a patent is a very honest and forthright way to go."
But there are economic as well as social reasons for the Internet to remain the home of the free. As companies like Netscape Communications have proved, "if you have a great idea, the thing to do is get it out as fast as possible to as many people as possible, and by that have a chance to have your revenue coming in," says Kevin Kelly, the executive editor of Wired and the author of New Rules for the New Economy. "Wealth comes through ubiquity, and the fastest way to ubiquity is to give something away. The old model of the patent is scarcity."
Scarcity, in other words, also works against rapid adoption: if you want to familiarize people with something entirely new, make it part of the landscape. And while both priceline.com and CyberGold say they're not erecting barriers to entry ("We don't want to discourage people from offering incentives....But we want them to pay us royalties," CyberGold CEO Nat Goldhaber was quoted on Wired News's Web site at the time of the announcement), preexisting patents may dampen the enthusiasm of some entrepreneurs, to the detriment of commerce in general. "I think we've seen some of the best growth in the Internet industry come as a result of competition," says Ken Smith, director of on-line retailing for electronic-commerce consultancy Mainspring. "I think of AOL in the early days going up against Prodigy and Compuserve. I don't think AOL would have moved as fast or as smartly if they did not have competition nipping at their heels."
Smith says that while the immediate fallout from the patents will include court challenges and thousands of new applicants swarming around the Patent Office door, the longer-term result may be--sadly--the growing lawyerization of start-ups. "If you're a smart entrepreneur, you'll need a patent attorney to make sure you're not entering a space that someone else has patented and, if you are, whether you'll need to defend."
Conversely, entrepreneurs with patents in their pockets could be in gravy, a fact likely to set innovation synapses tingling. "When a person gets a patent they have to fully disclose the way their processes work," says Andrew Whinston, a professor of economics and computer science at the University of Texas at Austin. "Entrepreneurs can look at that patent, and if they don't want to pay the toll, they can work to find a better way of doing it."
Larry Schwartz, president and CEO of Auction Universe, based in Yalesville, Conn., isn't worried, even though his company is in the process of launching a "buyers auction" that has some elements in common with priceline.com's model. "We've got lots of lawyers," says Schwartz. "But when we ask for an opinion, they say, 'On the Internet, it's the Wild West. Go ahead and do it. If it sticks, great. If it doesn't, then we'll deal with it.' I think a lot of people have that attitude."
Schwartz says the patents may even have their bright side, signifying that the Web, as a vehicle for commerce, is starting to seem a little less dewey. "Rules make it better in the long run because they legitimize our businesses," he says. "Look at what I call the Web-enues that people are making right now; look at the valuations. Entrepreneurs aren't too unhappy."
Leigh Buchanan is a senior editor at Inc.
What The Patent Covers
Priceline.com's patent covers "bilateral buyer-driven commerce," in which a consumer names the price at which he or she is willing to buy a product, lists acceptable substitutes for that product, guarantees the intention to buy with a credit card, and then transfers to a "controller" the authority to conclude the transaction. The controller then alerts sellers, who may accept the offer and charge the buyer's credit card.
The model has fairly limited applications, most experts agree, and is unlikely to affect even companies that already operate Web-based auctions. But Walker Digital has 200 more patents in the works and could, potentially, trample on a lot more toes.
CyberGold's protection of what it pithily calls "attention brokerage" and "orthogonal sponsorship" is more likely to draw immediate challenges than priceline.com's. The company rewards consumers (with frequent-flyer miles, money, or various forms of cyberloot) for spending quality time with its advertisers' messages. Netcentives, BonusMail, and several other small companies have similar business models. Let the games begin.
