Update 2005-11-11: Novell is contributing its XML-related patents acquired from the dot-com (Commerce One) bankruptcy auction to the Open Invention Network patent commons. In November 1005, IBM, Novell, Philips, Red Hat, and Sony announced a new Open Invention Network (OIN) collaboration dedicated to the promotion of technology innovation around Linux. Patents acquired by OIN will be available royalty-free to any company, institution or individual that agrees not to assert its patents against Linux or certain Linux-related applications. OIN is described as a first of its kind IP management model using a patent commons to spur innovation. See details in the news story New Open Invention Network (OIN) Collects Patents to Promote Royalty-Free Linux."

Update 2004-12-06: CNET News.com and other news providers reported that the auction of Commerce One Web Services patents brought $15.5 million (USD). And see Whodunnit? - Identity of the Mystery Bidder.

[November 24, 2004] The CommerceNet Consortium held a meeting at its Mountain View, California office on November 22, 2004 to discuss the CommerceOne bankruptcy auction of patents that cover key facets of commerce related Internet transactions.

A proposal was discussed for collective acquisition of Commerce One patents on Web Services technology, announced by Commerce One on November 17, 2004 as patents up for auction. A number of technologists and legal experts have expressed concern that the winner of the auction "might use the patents mainly to impede other companies or to press competitors to pay licensing fees for practices already common in Internet commerce" in what Jack Russo, an intellectual property attorney in Palo Alto, calls "patent terrorism."

Commerce One, a "provider of solutions for automating and integrating business processes across networks of customers, suppliers, and partners," filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in October 2004. The company announced that it would "conduct an auction to sell its patents and patent applications relating to Web services."

CommerceNet asserted that the patents "cover basic technology for facilitating network transactions by identifying a transaction in terms of input and output documents. If obtained by an intellectual property licensing organization, it is expected that the patents would likely be broadly asserted against companies completing transactions using web service interface descriptions (WSDL), service registries (UDDI), and documents composed from XML building blocks." According to some. this would be contrary to the original purpose of CommerceOne which was to provide an open framework to facilitate transactions.

The proposal for CommerceNet to acquire the CommerceOne patent portfolio out of bankruptcy was discussed by a number of attorneys at the November 22, 2004 meeting. The core idea would be for companies potentially threatened by aggressive "patent terrorism" to pool resources thorough the leadership of CommerceNet or some other non-profit entity to enable successful bidding for the patents against competitors having no natural or historical interest in the patented technology.

Alorie Gilbert, a CNet journalist attending the CommerceNet meeting, reported that "alarm is growing within the high-tech industry over what some say is a trend toward speculative patent acquisitions. Critics say companies that acquire patent rights to technology that they played no role in creating in order to profit from infringement suits are violating the spirit of patent law, which is supposed to reward innovative companies. A number of companies specialize in this practice, including Intellectual Ventures, started by former Microsoft executive Nathan Myhrvold."

Success of CommerceNet's proposed collective venture to acquire the patents for the protection of license-free Web Services technologies is in no way guaranteed. Companies having large patent portfolios and potentially vested interest in the outcome (e.g., IBM, Microsoft, Sun, HP, BEA) have not yet commented publicly on their ability to participate in the strategy. Furthermore, according to CommerceNet's Craig Smith, the validity and enforceability of the patents are in question: "it may turn out that the patents are too broad to enforce or may be otherwise invalidated if challenged." The auction is currently scheduled for December 6, 2004.

CommerceNet is a global not-for-profit coalition founded to accelerate the adoption of secure, interoperable, on-demand, business services. In collaboration with leading corporations, open technology standards groups, government, and academia, CommerceNet "identifies and works to resolve key industry issues, provides a global, multi-industry forum for collaboration among organizations interested in specific programs, vertical industries, or areas of emerging technology, and conducts research, educational forums, and pilots related to each of its programs."

From the Commerce One Announcement

Commerce One, Inc., a provider of solutions for automating and integrating business processes across networks of customers, suppliers, and partners, has announced that it is conducting an auction to sell its patents and patent applications relating to Web services.

On October 6, 2004, Commerce One, Inc. and Commerce One Operations, Inc., its wholly owned subsidiary, each filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Northern District of California ("Bankruptcy Court"), Case No. 04-32821-DM-11.

Web services are programmatic interfaces that can seamlessly travel among diverse networks and diverse applications and languages. Web services provide a standard way to interoperate among diverse software applications that run on diverse platforms. According to Wintergreen Research, in 2003, the Web services market, excluding portals, accounted for $208 million in revenue and could have a compound average growth rate of as much as 52% from 2003 through 2008.

The Company believes it has developed an important patent portfolio for the emerging Web services market. This portfolio includes seven issued U.S. patents and 30 U.S. patent applications.

In connection with its Chapter 11 proceeding, Commerce One is conducting an auction to sell its existing business operations, and a separate auction to sell its Web services patents and applications. I|C|M|B Ocean Tomo, an intellectual capital merchant bank, has been retained by Commerce One, and approved by the US Bankruptcy Court for the Northern District of California, as its strategic advisor in connection with the auctions. The Company has previously announced that it has entered into an Asset Purchase Agreement to sell its SRM Division and certain of its other assets to an investment group composed of ComVest Investment Partners II LLC ("ComVest") and DCC Ventures, LLC ("DCC"), subject to competing bids at the bankruptcy auction. Under the bidding procedures, the Web services patents will be sold subject to license to the purchaser of the SRM division and other Commerce One business operations to enable that purchaser to continue operating those businesses.

Bids on the Web services patents and applications must be submitted in writing by December 2, 2004 and must provide for an all-cash purchase price of at least $1,000,000. Bids on the Company's business operations, including its SRM Division, also must be submitted by December 2, 2004 and provide for an all-cash purchase price of at least $4,300,000... [see the complete text]

From the CNET News.com Article

"The upcoming auction of dozens of key Web services patents in a California bankruptcy case has some big Silicon Valley companies on edge.

Among them are Google, Oracle and Sun Microsystems. Attorneys for those and more than a dozen other companies held a powwow this week to discuss the patent sale and the danger of becoming targets of infringement suits by whomever acquires them.

They also discussed pooling their funds and jointly bidding in the Dec. 6 auction. A nonprofit group called CommerceNet, which organized the meeting, offered to collect contributions and manage the bidding. If the joint bid won, CommerceNet would essentially retire the patents. If it lost, CommerceNet would refund each contributor.

"It's a little bit like paying the blackmailer before they have something to blackmail you about," said Craig Smith, CommerceNet's chief financial officer and chief operating officer.

On the auction block are 39 patents held by Commerce One, a bankrupt software company in Santa Clara, Calif., that's in the process of shutting down and liquidating its assets. The patents cover technical protocols that underlie popular methods for exchanging business documents over the Internet.

The protocols, also known as Web services, are in wide use today. Microsoft, IBM and, presumably, the companies at this week's meeting have incorporated them into their software products and their own business systems, Smith said. Although it may turn out that the patents are too broad to enforce or may be otherwise invalidated if challenged, people are nervous.

"There's a concern that these patents could be used aggressively by a buyer to shake down the whole Web services industry," said Jason Schultz, an attorney at technology activist organization the Electronic Frontier Foundation. Schulz is helping put together and promote the CommerceNet proposal..."

See the complete text: "Tech Giants Edgy Over Web Services Patent Sale." By Alorie Gilbert. From CNET News.com (November 24, 2004).

From the New York Times Article

More than three dozen patents said to cover key facets of Internet transactions will soon be auctioned off by Commerce One, a bankrupt software company. But even before the sale, some technology executives and lawyers are worried that potential buyers might wield the patents in infringement lawsuits against companies that are engaged in online commerce, like I.B.M. and Microsoft.

The 39 patents cover basic activities like using standardized electronic documents to automate the sale of goods and services over the Internet. Some intellectual property experts said that these patents, which have broad reach, could be used to challenge Web services like the .Net electronic business system from Microsoft or Websphere software from I.B.M. Those companies declined to comment, saying any discussion would be speculative at this point.

Bidding for the portfolio of patents will begin at $1 million in the auction, which is scheduled for Dec. 6 in federal bankruptcy court in San Francisco. Earlier this month, the patents were carved out from the rest of Commerce One's assets.

One of the inventors involved, Robert Glushko, who no longer holds the patent rights, fears the winner of the auction might use the patents mainly to impede other companies or to press competitors to pay licensing fees for practices already common in Internet commerce. He is not alone.

"The big issue is what people call 'patent terrorism,' " said Jack Russo, an intellectual property attorney in Palo Alto, Calif.

The patent sale and the controversy surrounding it is a striking example of a change in the use of patents in high-technology industries. The historic role of patents, as envisioned by the Constitution, is to encourage science and invention through the grant of exclusive rights to inventors for a limited period of time. But increasingly, patents are emerging as a competitive weapon used by corporations in their efforts to control markets.

Indeed, there are now intellectual property companies in the business of acquiring large patent portfolios to sell patents to the highest bidder.

"There is a potential risk to society in business models that says we're neither going to come up with an innovation nor create products ourselves," said Mark A. Lemley, a patent law expert at Stanford University. "As a business model it makes sense, but it's not clear that innovation is going to flourish'..."

The Commerce One patents cover a technology known as "Web services," software at the heart of computerized systems designed to automate the buying and selling of goods and services online.

If the patents are upheld by the courts and are used "offensively" in an effort to obtain licenses from Internet commerce companies, they could limit innovation, said a representative of the World Wide Web Consortium, an Internet standards body.

"The consequences are potentially substantial," said Daniel J. Weitzner, the head of the technology and society group at the Web consortium. "We've had a number of situations where technology development has been blocked because there has been confusion about whether particular patents apply."

Mr. Glushko, for one, said that Commerce One had originally intended to create a public standard with its work, not constrain the use of online commerce processes.

"We filed these patents to describe a standard method for using documents to connect services into business networks," said Mr. Glushko, who is now an adjunct professor at the University of California at Berkeley in the School of Information Management and Systems. "At Commerce One, our business model depended on an open infrastructure for doing that. It is completely antithetical to our intent to use the patents to prevent it."

Commerce One, founded in 1994 and based in Santa Clara, Calif., developed software applications for electronic commerce. In 1999, it acquired a small start-up firm, Veo Systems, which had developed electronic commerce technology based on set of protocols known as Extensible Markup Language, or XML. The idea was that a publicly available technology like XML would help electronic markets grow rapidly.

Mr. Glushko said that as a co-founder of Veo he had contributed the ideas in several of the key patents to industry standards groups, a move that may have placed those ideas in the public domain. Mr. Glushko contends that those contributions make the patents harder to enforce. However, a representative of Commerce One in the bankruptcy proceeding said that his firm had explored that issue and that the patents were enforceable..." [see the complete text]