August 11, 2005 2:11 PM PDT

Amazon pays $40 million to settle patent dispute

Amazon.com paid $40 million to Soverain Software to settle a patent-related lawsuit, just days before the trial was set to begin.

Under terms of the settlement, announced Thursday, the parties will dismiss all claims and counterclaims involved in the lawsuit. Amazon will also receive a nonexclusive license to Soverain's patent portfolio.

E-commerce software company Soverain originally filed a claim against both Amazon and clothing retailer Gap on Jan. 12, 2004, in the U.S. District Court for the Eastern District of Texas. The trial involving Amazon was scheduled to begin Monday.

"We are pleased to have reached an agreement with Amazon, and to have them as one or our patent licensees," said Katharine Wolanyk, president of Soverain.

Patty Smith, an Amazon spokeswoman, said Amazon reached a settlement in order to avoid the expense that would come with protracted litigation. It was also in the best interest of the company's shareholders, she added. She noted that the company continues to deny any and all wrongdoing cited in the case.

Soverain had alleged that Amazon and Gap infringed on five of its patents covering "core" aspects of e-commerce technology.

One patent allows e-commerce merchants to recognize a customer when he or she makes multiple inquiries on a Web site during a shopping session or when the person later returns to the site, according to court documents.

Another Soverain patent involves an Internet sales system with a virtual interactive "shopping cart," which includes technology to authenticate a buyer's identity and process payments automatically. A third patent in question is an extension of this technology and is targeted at network-based sales systems that use a public packet switched network such as the Internet.

The other two patents involve payment processing during a Web session.

In its lawsuits, Soverain alleged Amazon used its technology dating back as far as 1998 for the e-commerce giant's Web sites either directly, or indirectly, via Amazon customers.

"Soverain's intellectual property is essential to the ongoing development of our software product Transact and the future of our company," Wolanyk said.

Soverain and Gap reached a settlement in February. Terms of that settlement were not disclosed.

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