September 20, 2001 Teleconference Minutes

Participants

Task Force: Bob Bilbrough, Chairman – Qualcon
                        David Chisum – A Novo Broadband
                        Dick Dadamo – Dense-Pac Microsystems
                        Michael Hamill – Digital Planet
                        Wilson Zehr – Zairmail, Inc.
                        Cody Graves – Automated Energy
                        Heather Beshears - Duraswitch

AeA Staff:        Matt Page – D.C. Office
                        Alberta Hultman – LA Council
                        Andy Kolaitis – Potomac Council
                        Rhonda Starr – DC Office
                        Ron Sivertson – Santa Clara Office

Partnerpoint: Cathleen Smith – Director
                        John Hamilton – Executive Director

Alston & Bird:    Mary Ann Capria, Attorney

New Business

Partnerpoint.org

Background

During the July Small Business Advisory Task Force meeting, we had a discussion on the importance of partnering. Task Force Member have expressed an interest in AeA being able to provide its members with a type of service that makes it easier for them to generate partnerships with other companies. Is there a service or program that takes the difficulty out of finding companies that share a common business objective or interest?

In addition to looking at potential internal partnership programs, AeA is reviewing external options as well. A new online service that appears to tackle the question posed above is Partnerpoint.org. An initial meeting with Partnerpoint.org resulted in a decision to present their networking resource to the members of the Small Business Advisory Task Force.

Demonstration

Conducting the online demonstration of Partnerpoint.org was John Hamilton, Executive Director and Cathleen Smith, Director. Partnerpoint is an Internet-based networking resource created, owned, and managed by the U.S. Chamber of Commerce in Washington, D.C. Partnerpoint’s stated goal is to help executives in the telecommunications, Internet, information-technology, e-business, media, and related industries find business partners, next door or around the world.

At this point, Partnerpoint.org is still in the pre-launch stage of development. A beta-test site is up and running, which was used during the demonstration. Partnerpoint.org hopes to launch in October 2001.

The Partnerpoint premise is structured around people, not products or even services, but it proposes to contain a vast amount of information about companies. Partnerpoint hopes the power and flexibility of the tool will greatly speed and simplify the finding of new business partners in the "digital sector" of the world economy.

After getting logged into Partnerpoint.org, John Hamilton showed Task Force members how the system works. Specifically, Mr. Hamilton demonstrated the search capabilities of the service. Partnerpoint.org allows the user to search its database of users based on large number of criteria, including: type of business, location of the business (U.S.-based or worldwide), partnership interests, and company line of business.

Using the search features allows the user to comb the database to find other companies with the intent of generating new business opportunities. The bottom line is Partnerpoint hopes to be able to deliver quality contact information. Once a subscriber uses the Partnerpoint tools to find the type of company they desire to explore a relationship with, the user will have accurate information on how to contact the appropriate executive. Contact of potential partners is conducted offline, outside of the Partnerpoint service.

When a subscriber signs up for the service, they can provide as much or as little information about themselves and their company. Presumably, the more information provided, the greater one’s chances of finding a potential business partner. Information provided to the Partnerpoint site is protected by SSL encryption. The U.S. Chamber will not sell or make any other use of individual-company information outside the Partnerpoint system.

Currently, Partnerpoint is looking for generate a critical mass of users prior to their launch date. Without a significant number of registered users, the database will not provide as robust an experience in searching for new partners. As such, Partnerpoint has approached AeA regarding a marketing partnership. In return for promoting Partnerpoint, a number of AeA members would receive free memberships to the Partnerpoint service. To date, no serious negotiations (i.e. number free memberships and/or discounted future memberships) have taken place, although Partnerpoint appears open to discussion. Normally, the annual fee for full membership will be $600 annually, while associate members would pay $300.

Task Force members asked a couple of questions. First, John and Cathleen were ask how much money Partnerpoint plans to invest in marketing the service. Their response was Partnerpoint plans to spend in the tens of thousands of dollars marketing Partnerpoint. In addition, Partnerpoint is working with other trade associations, such as AeA, to generate interest in the site.

Second, it was asked why should I use Partnerpoint when I already have a personal business network? The Partnerpoint representatives responded by stating that nobody’s business network is ever big enough. Partnerpoint believes the shear scale of their service will make it a valuable proposition. Moreover, Partnerpoint believes it will be able to deliver quality contact information in the quickest possible format.

Summary

No immediate decisions were made as a result of the Partnerpoint demonstration. AeA will continue to evaluate whether partnering with Partnerpoint.org would provide value to its small and emerging growth businesses. In light of Partnerpoint’s offer of free memberships, it might be worthwhile for some AeA members to evaluate first-hand.

Intellectual Property Issue Briefing

Background

In the high-tech industry, business issues relating to intellectual property have increasingly moved to the forefront. Nowadays, a technology company’s most valuable assets are less likely to be hard assets such as capital equipment. Rather they are more likely to be made up of intangible assets such as patents, copyrights, and trademarks. In today’s business environment, the need to protect such intangible assets is now greater then ever.

Mary Ann Capria, Attorney at Law for Alston & Bird, agreed to provide the Small Business Advisory Task Force with a general overview of some of the most important issues involving intellectual property. Alston & Bird is an associate member of AeA, which has a large intellectual property practice.

For the issue briefing, Ms Capria chose to focus on matters relating to business method patents and current legislation (H.R. 1332 and H.R. 1333) in Congress that would significantly change the business method patents are handled by the U.S. Patent and Trademark Office.

Issue Briefing

In early April, the 107^th Congress initiated serious action on intellectual property matters that could broadly impact the new economy. Following a House subcommittee hearing on business method patents, Representatives Rick Boucher (D-VA) and Howard Berman (D-CA) introduced a pair of important bills that would revise existing patent processes. Both bills were approved by the House Judiciary subcommittee on May 22, 2001.

The "Business Method Patent Improvement Act" (H.R. 1332), would significantly change the way business method patents, which have become a strategic mainstay of the e-commerce revolution and used in other businesses as well, are handled by the U.S. Patent and Trademark Office (PTO). The bill, if enacted, would establish a multi-tiered patent system. While it could be argued that such a system has the potential to decrease the value of business method patents, we believe that this system has the potential to create "super" patents, provided applicants invest sufficient resources in patent preparation and prosecution. Business method patents are already provided with a second examination, which greatly enhances their strength and value.

The other bill, the Patent Improvement Act (H.R. 1333), would affect dramatically how patents are issued by creating a new post-issue opposition procedure applicable to all inventive subject matter. It would also significantly revise the definition of "obviousness" for inventions that are appropriate for use with a computer (much broader than any business method invention). Each bill is summarized below. Additional information can be found at: http://www.alston.com/docs/Advisories/199709/new_legislation_would_2.pdf.

The Business Method Patent Improvement Act (H.R. 1332)

The effects of H.R. 1332 would likely be the greatest on corporations whose business strategy includes building large business method patent portfolios, as well as companies who seek few, but strategically well-positioned business method patents.

In particular, H.R. 1332 would:

• Enhance pre-issue "protest" rights;

• Provide a new post-issue opposition procedure, with stronger rights for the party seeking to invalidate the business method patent;

As written, H.R. 1332 would enhance the public’s pre-issuance protest right. Traditionally, the public had the right to protest a patent before it was issued. However, a statutory framework that did not permit the public easy access to the examination or issuance processes discouraged interested parties from using the protest rights. In November 2000, the American Inventors Protection Act went into effect, revising the patent process in a number of ways. Among these was the requirement to publish patent applications 18 months after their filing date, thus providing the public with access to information about patents that are pending before the PTO. However, at the same time, Congress generally eliminated the right of protest after that publication, effectively eviscerating the little used right to protest.

The Business Method Patent Improvement Act would marginally expand this right with regard to business method inventions only. However, the bill would not allow the protester to remain involved in the examination process and does not grant the protester any appeal rights if a patent was issued despite the information provided by the protester. Thus, the right of pre-issue protest of business method inventions remains weak and likely will rarely be used.

The bill would also create a post-issue opposition procedure. Specifically, under H.R. 1332:

Substantive Changes Would Create a Two-Tiered Patent System

H.R. 1332 would introduce substantial and substantive changes to the current patent law that directly affect business method patent valuations. It would do this by creating a new definition of obviousness and lowering the burden of proof to invalidate business method inventions. With these changes to important patent standards, the bill would effectively create a two-tiered patent system, whereby business method inventions would be held to higher standards than all other types of inventions.

"Obviousness" Redefined: The bill would create a new, more challenging definition of "obviousness" that would apply only to business method inventions. This new definition would represent a substantial change over existing law.

Current patent law permits a patent to issue for an invention that is both novel and "non-obvious." However, H.R. 1332 would change those qualifications for business method inventions:

[a] business method invention shall be presumed obvious . . . if the only significant difference between the combined teachings of the prior art and the claimed invention is that the claimed invention is appropriate for use with a computer technology . . . . (Emphasis added.)

In contrast, the current long-established definition of an obvious invention does not require a determination of "significance" or whether the invention "is appropriate for use with a computer technology." Rather, under the current patent law an invention is non-obvious (and if novel) and patentable, if the invention:

[I]s not identically disclosed or described as set forth in section 102 of this title, if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to person having ordinary skill in the art to which said subject matter pertains. Patentability shall not be negated by the manner in which the invention was made.

A Preponderance of the Evidence to Invalidate. The bill would also lower the burden of proof for invalidating a business method patent. That is, the challenger of the validity/eligibility of a patent/patent application needs only to show a simple preponderance of the evidence, rather than the current, more demanding standard of clear and convincing evidence.

Although the ultimate impact of such changes may not be clear for many years, the patentee could feel an immediate impact when requesting preliminary injunctions or raising capital based on its intangible assets. If H.R. 1332 were enacted, it may become difficult in the near term for a judge to grant a preliminary injunction or for an investor to determine the worth of patent property, due to the ambiguities created by the definition provisions and the lower standard of proof for invalidating business method patents. However, as business method patents issue under the new opposition procedure, the strength and value of such patents should increase.

With this bill, Representatives Boucher and Berman appear to be responding to a segment of Internet retailers and others who assert that the PTO has issued too many low-quality patents with broad scope directed to business methods. Nonetheless, business method patents have been enforced and should be an essential part of every business’ patent portfolio, and we are recommending that clients continue to protect their business method inventions. Because of the importance that business method patents have assumed in the new economy, any change to how they are issued is likely to have wide repercussions throughout the business world. Regardless of your business’ goals, technology strategies and view of business method patents, this Congress and this legislation deserve close and careful scrutiny.

The Patent Improvement Act (H.R. 1333)

The Patent Improvement Act is designed to address concerns arising from certain patent law changes included in the American Inventors Protection Act, which became effective in November 2000. The proposed post-issue opposition changes are intended to create an administrative opposition procedure without the expense of litigation or the disadvantages of the reexamination procedures. The bill also proposes to redefine "obviousness" for all inventions that may be used with a computer (in contrast, H.R. 1332 would address only defined business method inventions). The goal of this proposed change, which would affect decades of case law, is unclear. By creating a new statutory definition of this critical patentability requirement, H.R. 1333 could create ambiguities that result in a torrent of litigation.

H.R. 1333 would create new opportunities for the public to challenge a patent. Its proposed post-issue opposition procedure promises several improvements over the current discretionary reexamination procedures

If the bill is adopted:

(1) The Director of Patents must initiate the requested opposition—it is not a discretionary administrative decision as is the decision to initiate a reexamination proceeding;

(2) The basis for an opposition would include challenges of validity based on issues of utility, novelty, and obviousness as well as written description and best mode;

(3) A due process hearing would be required to be held before a decision is made by an administrative opposition judge. The decision on the patentability of the subject matter would have to be made no later than 18 months from the filing date of the request;

(4) The patent applicant could propose claim amendments, or new claims, at any time during the opposition, except that the scope of the claims could not be enlarged;

(5) The challenger could actively participate in the opposition by responding directly to the patentee remarks and cross-examining the patentee’s witnesses;

(6) The challenger, in addition to the patentee, would have the right to appeal to federal court and be a party to an appeal taken by a patent owner; and

(7) The challenger would lose its right to bring a civil action raising the same issues and could not raise the same issues in an inter partes reexamination proceeding.

New Definition of Obviousness

In addition to proposing the substantive new right of post-issue opposition, H.R. 1333 would revise the definition of "obviousness" for all inventions that may be used with a computer. The proposed definition states:

[an] invention shall be presumed obvious . . . if the only significant difference between the combined teachings of the prior art and the claimed invention is that the claimed invention is appropriate for use with a computer technology . . . .

The proposed language begs several questions. Must prior art references still teach or suggest the combination of their respective teaching, as currently required? Should Graham factors be considered? If so, before or after a determination of "significance" is made?

H.R. 1333 also states that the presumption of obviousness could be overcome by the preponderance of the evidence. The bill also contains two somewhat ambiguous exceptions to the application of the new "presumption of obviousness": (1) if the application of the computer technology is novel; or (2) if the computer technology is novel and not the subject of another patent or patent application.

If the proposed definition of obviousness were enacted, patent owners and their foes could expend significant resources to litigate the meaning of: (1) an invention that is "appropriate" for use with a computer technology; and/or (2) the definition of a "significant difference."

One thing is certain, regardless of individual corporate goals, technology strategies and patent policy, this legislation deserves close and careful scrutiny as it moves through the congressional process.

Summary

AeA is exploring options of Alston & Bird providing the association with content on various intellectual property issues, with a particular focus on how these issues impact small business. Other options, which are currently being implemented in the Southeast Council, are intellectual property workshops.

Next Meeting

Date: Wednesday, November 14, 2001
Time: 4:30 p.m. Eastern/1:30 p.m. Pacific