The Dangers of Business Method Patents

Imagine if your next online fundraising campaign had to include an additional $5 fee per donation because someone had patented the very technique you use to ask your supporters to reach out to friends and family members.

What’s more, imagine that out of every $50 donation you collect, 10 percent of it would go to a company that hired a patent lawyer and got its application through the overloaded and understaffed U.S. Patent and Trademark Office. That’s $5 that never would be used for your mission.

For starters, unlike patents for inventions, the business method patents that endanger the nonprofit community typically do not cover innovations that solve a particular technology problem. Instead, holders of business method patents are claiming to be the first to engage in a transaction over the Internet in a particular way. (One example of a business method patent is Amazon.com’s “1-Click,” which allows a repeat customer to bypass address and credit card data-entry forms, because Amazon can access that information directly from the customer’s account.)

Secondly, business method patents are a new and novel type of patent, legally recognized fewer than 10 years ago. Business method patents, first validated by the courts in the State Street Bank decision in 1998, have produced a lot of criticism about the ability of the U.S. Patent and Trademark Office to adequately review the applications for such patents.

In 2003, the Federal Trade Commission studied the problem of patents in the area of innovative technology and found that “the PTO’s procedures to evaluate patent applications seem inadequate to handle this burden.”

(For a summary, see Page 9 of http://www.ftc.gov/os/2003/10/innovationrptsummary.pdf.)

In this issue of FundRaising Success magazine, you’ll find a wealth of case studies about people who have been very successful using the Internet to raise money for their nonprofits.

And as your options for technology innovation are now wide and varied, they might not be for long. Several vendors in the nonprofit technology marketplace are attempting to patent longstanding, widely used online fundraising techniques.

If use of predatory patents in the commercial market provide a model, we might expect that the next actions of these vendors will be to consolidate the technology marketplace for nonprofits, reducing the number of companies through lawsuits and acquisitions. Then when there are only a few vendors left, they will raise prices.

If you think this is a fantasy, look at the commercial technology market and the patent battles that have been raging there in recent years. Everything from 1-Click to online auctions have been the subject of patents and legal actions — despite the fact that such practices were in widespread use and considered obvious to the general public.

The nonprofit-technology vendors that already have begun filing and receiving such patents have retained expensive patent counsel, even hiring chief patent officers — all for the purpose of finding a way to reduce the number of technology vendors in the marketplace.

While this may be good for them, it’s definitely not good for your nonprofit.

Shabbir J. Safdar is chief technology officer of Mindshare Interactive Campaigns, a firm that helps organizations leverage communication opportunities created by technology. He also serves as acting secretary of the Nonprofit Innovation Alliance, a group of charities and technology vendors that advocates for nonprofits’ free access to Internet technology. E-mail him at ssafdar@mindshare.net.