Fruit merchant sues IBM over rotten patent protection

IDG News Service — Fri, 14 Mar 2008 14:09:13 -0400

IBM is facing a US$6 million patent-related lawsuit from Harry & David, an Internet retailer that was sued because it used an IBM e-commerce system that allegedly contained technology patented by two other companies.

The Oregon-based Harry & David, an IBM customer since 1991, purchased WebSphere and Net Commerce software to create an Internet-based catalog used to sell its products. IBM knew these products contained technology patented by Charles E. Hill & Associates as well as NCR, but failed to notify Harry & David or defend the company when it was ultimately sued by Hill, Harry & David alleged in a complaint filed on Feb. 26 in U.S. District Court in Oregon.

The retailer says IBM continued to sell upgrades of the e-commerce system to Harry & David as recently as 2005, despite knowing that Hill and NCR might demand payment from Harry & David for using unlicensed technology. Ultimately, NCR notified Harry & David that its use of the e-commerce software infringed on NCR patents in June 2005, and Harry & David was forced to purchase a license to use the technology, the company states in court documents. Then, in June 2007, Hill sued Harry & David in a Texas court and the company was forced to pay a settlement.

"Despite IBM's knowledge that its infringement could subject Harry and David to claims for patent infringement, and despite its knowledge that Hill in fact intended to sue IBM's customers for their use of E-commerce Programs, IBM took no action to protect Harry and David from Hill's lawsuit or to inform Harry and David of the potential of a Hill suit," the retailer claims.

IBM spokesman Fred McNeese on Wednesday said "we have no comment" and said he didn't know when IBM might file an official response in court. Harry & David asked for at least $6 million on seven claims for relief, and has demanded a jury trial.

The Harry & David suit isn't the only legal trouble faced by IBM this month.

Massachusetts Inspector General Gregory Sullivan found that the IBM-owned Cognos was improperly awarded a $13 million software contract that House Speaker Salvatore DiMasi had an interest in, The Boston Globe reported Monday. DiMasi reportedly helped the deal along while one of his longtime friends was earning $100,000 as a Cognos lobbyist.

IBM, which has secured more U.S. patents than any other company for 15 consecutive years, frequently uses its own patent muscle to file court actions against competitors. IBM won a cash settlement from Amazon last May after claiming Amazon used IBM technology to build many of its e-commerce systems. Earlier this year, IBM convinced the U.S. government to investigate Asustek, a Taiwanese computer vendor accused of using IBM technology without authorization.

According to the Harry & David lawsuit, IBM had ample reason to know its e-commerce customers might face legal action. Charles E. Hill & Associates sued IBM in 2002, saying IBM sold products that infringe on patents related to an electronic catalog system with a unique caching mechanism that transmits information between computers. Also in 2002, IBM entered a licensing agreement to use NCR's technology after becoming aware of that company's patents, but failed to tell Harry & David or other customers that the use of IBM e-commerce programs would require licenses from NCR, the complaint states.

IBM should have known its customers might be at risk, but continued marketing new upgrades in 2004 and 2005 to Harry & David, which ended up using Net Commerce 3.2, WebSphere Commerce Business Edition Versions 4.2 and 5.6, the complaint states. IBM failed to help Harry & David despite having signed a customer agreement requiring IBM to defend the customer against third-party claims such as the one filed by Hill, Harry & David alleges.

"At the time of these negotiations, IBM was fully aware that the E-Commerce Programs infringed on the Hill, the NCR, and other patents and that Harry and David would be liable for patent infringement by using the E-commerce Programs," Harry & David alleges. "In fact, IBM knew or should have known that Hill intended to embark on a campaign to sue IBM's customers for patent infringement for their use of the E-commerce Programs."