March 3, 1998 5:25 PM PST

Open Market wins patents

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In a bombshell move, e-commerce software vendor Open Market (OMKT) said today that it has won three wide-ranging patents for its technology for conducting commerce over the Internet.

The three patents, all included in its flagship Transact software, cover Internet marketing, order management, and payments. Open Market claims the patents are extremely broad, covering much of the software in common use today for Internet shopping and credit card payments.

That includes software to implement the emerging Secure Electronic Transactions (SET) protocol for Internet credit card purchases, other forms of instant Internet payments, including sending a credit card number over the Internet using Secure Sockets Layer (SSL) encryption, any application that uses a "shopping card" to collect multiple purchases from a Web storefront, and perhaps the use of digital certificates.

The patents allow such broad coverage because the U.S. Patent and Trademark Office issues patents based not on specific technical implementations, but on broad categories, including "secure, real-time payment using credit and debit cards over the Internet," Open Market spokeswoman Beth Winkowski said. The patents embody 140 claims.

Open Market CEO Gary Eichhorn said the company intends to make its patents widely available, but he did not specify licensing terms or indicate its licensing philosophy.

E-commerce analysts pulled out the superlatives to describe the announcement, and stock traders liked it, too. The stock closed today at 18-1/8, its highest in a year, up 2-3/8 or 15 percent from Monday's closing price.

"This is not your typical patent announcement. They can control the definition of the direction of the industry," said Erica Rugullies of Giga Information Group, noting that the patents could affect hundreds of Internet commerce or payments software vendors as well as individual corporations that have created their own software using real-time card payments or shopping carts.

"Many companies have crossed over into what Open Market has patented," she added.

Among them is IBM, with a full line of Internet commerce and payment software.

"I don't see that this is going to slow us down at all," said Karl Salnoske, general manager of IBM's e-commerce group. He noted that with Big Blue's huge patent portfolio and legions of lawyers, the company is accustomed to dealing with patent claims.

"The Patent Office, being not a technical organization, has in some instances in the past issued patents that didn't stand up in court because they were too broad or there were prior examples in the public domain [of similar technology]," Salnoske said. "If there is a legitimate claim here, we will enter into licensing or cross-licensing agreements."

Chris Stevens, of Aberdeen Group, agreed that Open Market's claims could have great impact: "It appears to knock the life out of virtually every payment system on the Internet, as well as every single company that uses any kind of deferred transaction or shopping cart."

But Zona Research's Vernon Keenan said Open Market's licensing strategy will determine how the patents affect Internet commerce.

"They haven't articulated what their licensing stance is going to be, but I got the sense that they do not intend to make this a punitive kind of licensing agreement but more of a revenue source for Open Market," Keenan said. "I don't see this as necessarily stifling the industry, but I see it as overall very positive for Open Market."

Stevens predicted resistance to Open Market's efforts to enforce its patents.

"It will be fought tooth and nail. They basically announced that they now own the Internet market, and other companies are not likely to concede that without a fight," Stevens said.

However, if Open Market pursues licensing terms that don't cost too much and gets many firms to sign up, the patents could become a continuing revenue stream for the company, Stevens added.

Open Market chairman Shikhar Ghosh noted that the patents cover four fundamental areas--secure and real-time payments, electronic shopping carts, digital offers and receipts, and "session identifiers," which allow Web merchants to track how visitors move through their sites.

Open Market said its payment patent, number 5,724,424, covers secure, real-time payments using credit and debit cards over the Internet. It was filed December 16, 1993--long before the Internet was recognized as a potentially lucrative commercial medium.

The "session identifier patent," number 5,708,780, not only lets online retailers analyze how users browse through content on a Web site, but also can be used to limit access to specific content, including subscriptions or account information. The patent does not cover the commonly used "cookies" but could affect other methods of tracking customers, including digital certificates.

The shopping patent, number 5,715,314, covers shopping carts that allow buyers to accumulate items before checking out of a Web storefront, how payment and purchase data is passed through a URL, and the use of "digital offers" for purchasing on the Web, via email, CD-ROM, or even broadcast media. Open Market calls that patent its "network sales patent."

 

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