New technological innovations typically take place in the adult industry first and are then copied by or introduced to the mainstream. Patent infringement lawsuits go back in time for more than a century, but in the last two years, patent issues have come to the online adult entertainment industry. It is really no surprise that technological innovators in the adult space would also file for their own patents.
XPays recently claimed ownership of an Internet-based affiliate pooling innovation awarded by the United States Patent & Trademark Office on Oct. 12.
Patent No. 6,804,660, which covers XPays' affiliate technology, enables "Virtual Affiliate" advertising on the Internet, a system the company claims is its own invention.
One interpretation of the XPays' patent is that the "Virtual Affiliate" invention comprises a group of affiliate webmasters on one side and a group of sponsors on the other. XPays, or whoever utilizes its patent, sits in the middle.
An affiliate webmaster signs up one time with XPays and is assigned a unique ID. They can promote any sponsor by putting in the appropriate link that has their unique ID and the ID of the program they wish to promote. The affiliate webmaster did not have to sign up with each and every sponsor and the sponsor does not have to know each affiliate.
For typical affiliate programs today, a webmaster has to sign up with each sponsor individually. Anyone who has had to sign up with sponsor after sponsor, providing the same info over and over, will see the benefit of doing this one time only.
The novelty of the patent would be that sponsors don't have to deal with affiliates directly. They have one relationship with XPays, and XPays handles the payouts.
Many webmasters might have thought, "I wish there was a way that I could sign up one time and be able to promote additional sponsors without having to type my information over and over again." It appears that XPays had the same thoughts.
For instances of prior art on the new patent, researchers would have to look before May 1998. Back then, most programs were operating their own affiliate programs, but it might be possible that XPays was the only one using the "Virtual Affiliate" structure.
Specific Language
There appears to be a handful of companies that could have issues with this patent, and, reassuringly, the patent does not make any broad claims over the traditional affiliate program process. The patent is very specific, so any company that functions in a similar way to the broad, general description of the patent should read the patent description in its entirety to see if they are infringing.
There are always chances of doing workarounds, like making each affiliate sign up with sponsors using a "one click" registration, where the sponsors pay the affiliates.
For those thinking of creative solutions to get around patents, be sure to check with a patent attorney.
What you might also find out is that XPays might indeed have a solid patent with no prior art, and at that point, you would need to take out a license or face a patent infringement lawsuit where the damages could be as much as three times the judgment.
For those who are incorporated, filing for bankruptcy is certainly an easy way to dodge the bullet, but you also lose your domain names and the traffic built up to those names, as well as your resources.
Patent infringement issues happen all the time in the mainstream industry. Acacia was one of the first companies to enter the online adult world, but they face an uphill battle based on the existence of prior art.
If a patent were approved that described what another business was already doing, that business owner could be exempt from the patent. If there is documentation, like a business plan, that detailed how the business would evolve into doing what the later patent described, the company could have a "prior inventor" or "prior use" defense. In order to be considered prior art, the documentation needs to have been published.
Documentation of "prior use" can come in the form of a written business plan. If this business plan was shown to potential investors, then it can help document the "prior use" defense. Unfortunately, most businesses don't fully document their plans.
If a company were running an affiliate program and had documentation in their business plan that detailed expansion into the "Virtual Affiliate" patent, and can prove that it was written and seen by others, then it could provide a defense against patent infringement.
The Options
If a company thinks they may be a target for patent infringement, there are a couple of ways to deal with it:
- Do nothing. Wait for them to contact you and then decide what to do.
- Hire a patent attorney and get an opinion paper. This will cost you anywhere from $10,000 to $25,000. An opinion paper helps to avoid a "willful infringement" charge. Given the outcome of the attorney's report, you may have a chance to argue in court to defend yourself, or the attorney's analyst confirms the patent claims that you are infringing on.
- Read the patents yourself, look at your business, if it looks pretty close and you don't have the money to get an opinion paper, then negotiate for a license based on volume, also known as a "sweetheart deal."
- Move everything offshore where there isn't a patent office.
Patents, copyrights and trademarks are all very serious issues that webmasters must face when sitting within the crosshairs of the intellectual property owner's sight. For patents that are broad and affect many companies, the answer in challenging and fighting the claims revolves around forming a group, much like the Joint Defense Group against Acacia and finding prior art. Having sound legal counsel in areas of patent and corporate matters is also a very important resource needed to face new business challenges within the adult industry.
Brandon is the founder of FightThePatent.com and also creator of a new service that analyzes web/linking traffic at www.t3report.com.
