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IP, Patent

The $80,000 “Reasonable” Website Modification

Rollover menus, a popular convenience of e-commerce and informational websites alike, were invented, apparently, in 1990 by Daniel Abelow.  At least, so claims Webvention, LLC, according to a letter received by Mr. Thomas Werlen of Novartis.  The letter explains that a Novartis-owned website requires performance of a method claimed as US Patent 5,251,294, and specifically performs the method set forth in Claim 28, paraphrased as:

Helping users access information made up of segments of related information by:

1) Displaying labels organized to show relationships between information content of corresponding segments of information,

2) Allowing users to electronically “point” to individual labels, and

3) For each label, displaying a preview of information content of the corresponding segment.

In other words, this:

Example of licensed use of Webvention Technology.

The letter goes on to explain how Novartis can obtain the proper license to use Webvention’s patented technology for a mere $80,000.

You read that right, $80,000 to implement a web-feature that probably takes a few dozen lines of javascript to create (at most).  The seemingly universal response from the software development community is one of outrage.  In fact, Ars Technica’s specific response to this request: “Nuts, right?

Is it nuts? Let’s explore that after the break.

So, what I’m NOT going to do is discuss the relative value of combining electronic “pointing” methods, with information hierachies for rapid navigation of content ca. 1990.  Not only is this high speculative, not to mention well outside my expertise, but it is also overly complicated and (for the most part) entirely irrelevant.  As with any other price tag, a company like Webvention will likely try and get as much as its “customers” are willing to pay.  Truthfully, the $80,000 price tag is entirely reasonable for reasons having nothing whatsoever to do with the technical merit of the invention.The difference here is how patent licenses are “sold.”

When I go to buy a pair of jeans, I’m mainly thinking about what quality jeans I am getting, and whether I can get a comparable, or better, pair from someone else, for less money.  The inherent costs in making a purchase (e.g. my time and the amount gas I use driving to the store) are largely irrelevant, or at best dwarfed by the cost of the product itself.  In the case of patent licensing, what a given company is “willing to pay” is governed by as much (in some cases more by) the cost of making the purchase in the first place.  There is a default negotiation process, called litigation, that brings with it certain, unavoidable costs (primarily in the form of lawyers).

The reasonableness of the $80,000 pricetag is exemplified by the actions of Five Star Quality Care, Novartis, Tenneco, Instinet and TriMas.  Each of these companies have apparently received similar letters from Webventions, with similar demands for a license fee.  Given this demand, the company has two basic options: respond or ignore.  Those that ignore the demand will, in all likelihood, end up a party to a lawsuit at some indefinite point in the future, similar to Webvention v. Adidas, and Webvention v Abercrombie & Fitch, where about a dozen companies each stand accused of ignoring Webvention’s claims and continuing to infringe Webvention’s patent.

Each recipient of this letter knows that this future lawsuit can come at any time, and in any US court (generally speaking).  They also know that 1) the cost of defending such a lawsuit, even for a short period of time, could far exceed the $80,000 price that Webvention has offered them, 2) final resolution of the lawsuit could take several years, and 3) even if there are valid defenses, the outcome is far from certain. In other words, even if a company “wins” in a lawsuit against Webvention, the legal bill will likely be anywhere between $250,000 (and that’s being extremely generous) to $2 or $3 Million.  In addition, suppose the company wins because the jury believes that the patent is not infringed.  Despite the victory, the company may be left with an air of uncertainty, as Webvention may later argue that changes to the companies’ website fulfill the claim elements that the previous website licked.  From this perspective, spending $80,000 for a swift, certain outcome may sound entirely reasonable.

Meanwhile, Webvention needs its target companies to agree, compromise and pay for a license without taking its case to a jury in order to realize a return on its investment.  (See, this discussion estimating a 400% ROI for settlements, vs -30% ROI for cases that go to trial.)

Going back to the original question, is the $80,000 reasonable?  Well, Webvention is aware of the cost of going to trial, and not only for itself.  Webvention is likely keenly aware of its opponent’s costs.  Webvention also knows that some companies may simply ignore its demands, leaving litigation as its only resort.  Finally, Webvention also knows that any company it approaches may take matters into its own hands, as Novartis and Tenneco have, imposing costs onto both parties.  Balancing all of these risks, Webvention comes to the realization that litigation is a “default” negotiation platform and comes with specific expenses (primarily in the form of lawyers).  Thus, any opponents that ignore or fight are potentially exposed to these minimum costs, win, lose or draw.

Because Webvention knows these costs, it believes that its customers may be willing to pay some amount less than the overall cost of “negotiating” to avoid the fight altogether.  About this, Webvention has been right, by their count, 162 times. See update.

UPDATE

It has been pointed out elsewhere that the patent being asserted by Webvention was previously owned by Intellectual Ventures.  Several of the 162 listed licensees may actually be licensees or investors with Intellectual Ventures.

The Law.com article also suggests that Intellectual Ventures may be sharing in licensing revenue obtained by Webvention:

The measures that Webvention’s owners have taken to shield their identities—setting up shell companies in both Delaware and East Texas—suggest that IV may well have a piece of the action.

Regardless of whether IV has a direct interest, they will still benefit from the Webvention enforcement.

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