Patents on e-commerce

A patent is an exclusive right to make, use or sell an invention in a certain country. An invention usually is a device or product or a method of making a product, although also methods for processing a signal can be patentable.

In any case, patents relate to technological matters. Purely mental exercises, like a teaching method or a way of selling things, are unable to receive patent protection, no matter how inventive they are. Patents on computer systems and software, on the other hand, is possible. Because e-commerce basically is doing business using computer systems and software, the rise of e-commerce has led to a large increase in the number of patents on computer-implemented methods of doing business.

What is a patent?

Briefly speaking at patent is a government-granted monopoly on an invention. This means that the holder of a patent can forbid (exclude) anyone from making, using, selling or importing that invention in the country in which the patent is valid, even if the other party has independently made the invention. A patent is valid for 20 years, and after that the invention may freely be used by anyone. The reasoning behind this is that this stimulates inventors to apply for a patent. Because of the monopoly they can commercially exploit the invention for 20 years (their reward for revealing their invention to the world), and after the 20 years society can freely profit from the invention.

Historically it was only possible to obtain patents on technological inventions, like light bulbs, shavers, medicines and so on. New financial techniques or ways of selling things were often explicitly excluded in patent laws. This used to hold true for software as well, but because of the large growth of the software industry and the increasing desire to protect software-related inventions, it became possible about 10 years ago in most Western countries to patent software (also see Octrooien op software (in Dutch)).

E-commerce system

After software became patentable, most such patents concerned "real" inventions that just happen to be realized in whole or in part in software. These could be, for example, ways to improve the quality of a television signal before presenting it on a display, to get faster hard disk access time or to ensure the integrity of data in a database. Although the debate about the level of inventiveness that should be required for patents on such inventions still continues, most patent offices appear to agree that in principle inventions embodied in software are patentable as long as there is a technical system or a technological improvement.

By the second half of the '90s the Internet became the centerpiece of attention, and e-commerce (doing business online) was the main focus point. Selling products or offering services over the Internet is not without its difficulties, and so many new techniques, protocols and systems were developed to make e-commerce possible. Systems like Secure Sockets Layer (SSL) where introduced to allow secure transmission of customer data over insecure network connections, and a protocol for so-called "cookies" was defined to facilitate electronic shopping carts.

A number of people then reasoned, if it is possible to obtain a patent on a new cash register or a bar-code reader, and why not on a computer system that makes distance selling possible? When the first patent applications in this field were accepted without objections by the U.S. Patent and Trademark Office, many people were inspired to also patent their new inventions in the field of e-commerce.

State Street Bank

Even after grant, the legal value of such patents seem doubtful, as U.S. patent law made it quite clear that methods of doing business were not patentable. In 1998 the Court of Appeals for the Federal Circuit declared that this exception could no longer be sustained. In this "State Street Bank" decision the patent at issue related to a computerized method to compute the value of a strongly fluctuating stock portfolio. The Court declared that anything under the sun that is made by man, and which produces a useful, concrete and tangible result is in principle patentable in the United States. Generating monetary income, or determining the monetary value of something was held to produce a useful, concrete and tangible result.

It is clear that this verdict led to a great increase in the number of patent applications for new e-commerce techniques, but it also spurred patents on pure business techniques without the use of computers. The number of applications in the United States in this field row from about 700 in 1996 to more than 7,500 in 2000 and to an estimated 12,000 in 2001!

One of the most famous patents on e-commerce technique is the one-click patent (US 5,960,411). This technique made clever use of cookies and the customer information database to allow customers to buy books online by pressing a single button. After the patent was granted, it turned out that's competitor Barnes and Noble had implemented a similar system. was able to get a preliminary injunction that forbade Barnes and Noble from using this technique. As the invention was issued just before December, this greatly affected both companies' Christmas sales.

Another famous e-commerce patent is the Priceline "name your own price" technique (US 5,797,127). This technique allows people want to buy a cheap plane ticket to indicate on Priceline's website what they are willing to pay most. Priceline then searches for a company willing to fly this person for a lesser amount, arranges a ticket and pockets the difference. A lawsuit with a competitor called Expedia (a Microsoft spinoff) was settled out of court for an unknown amount.

E-commerce in Europe

As many firms apply for patents on one invention in multiple countries, the increase in patent applications on e-commerce in the United States also affected other countries, most notably the European Patent Office (EPO). Although the EPO in first instance did not appear to object against patents on systems for supporting e-commerce, a recent Board of Appeals decision made clear that patents on e-commerce were only permitted if they made a technical contribution or innovation. A landmark new selling technique implemented using standard hard- and/or software is not patentable in Europe.

Because of this decision the number of European e-commerce patent applications has greatly decreased. This does not automatically mean that anyone is free to implement e-commerce techniques in Europe that are patented in the United States. If a customer residing in the United States connects to a Web server in Europe, and thereby make use of the patented technique, one could argue that the invention is at least partially used in the United States. The European firm then runs the risk of getting a U.S. lawsuit filed against him.

On a related note, the patent applications on's one-click system and Priceline's "name your own price" technique for selling airplane tickets were both rejected by the European Patent Office because they were deemed to be obvious to a person skilled in the arts. The corresponding U.S. patents are also taking a lot of criticism on the grounds that they are trivial applications of known technology.


Patents on e-commerce and methods of doing business are, even more so than patents on software, subject of intense debate. Traditionally speaking the patent system was intended for technical innovations, and for many people it is not acceptable that a non-technical invention becomes patentable solely because it is carried out by a computer. On the other hand one could argue that e-commerce creates many new business opportunities, which require large investments. Without the protection offered by the patent system it would be hard to recoup those investments.