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The Rush to Register Business Strategies Could Stifle Competition

July 19, 2000
A new trend in the e-commerce industry, and one which is steadily picking up in Japan, is for companies to try to register their Internet business systems as patents. Major convenience store chains have been moving in this direction for some time, but now trading companies, financial institutions, and leading manufacturers are doing the same. With the expected growth in the e-commerce industry, companies are rushing to apply for business model patents as a move to both expand and defend their operations. If nothing is done to curb the proliferation of such patents, though, the freedom of competition in commerce and other Net-related businesses may be jeopardized.

Spearheaded by Convenience Stores
FamilyMart, a leading convenience store chain, attracted considerable attention when it tried to patent a new business system utilizing the Internet. The plan calls for creating virtual stores for each of its roughly 5,500 outlets and is expected to go into effect in September 2000.

By accessing an outlet's Website, registered customers will be able to order products online, either for pickup at that store or for delivery. Settlements will be made electronically, with a portion of the profits going to the store whose site was used to place the order. The company claims this system deserves a patent for enabling outlets to ring up sales even when products never physically pass through them.

Naturally, when convenience stores doing e-commerce receive orders through in-store terminals or the Internet, outlets receive a commission only when the purchaser makes a payment or picks up the ordered items at that store. By providing outlets an incentive to handle items usually not sold in stores, such as nursing care products, FamilyMart hopes to gain an edge in e-commerce over its rivals.

The move to patent systems of Internet commerce is occurring throughout the convenience store industry. Other chains, including Seven-Eleven and Lawson, are also applying for patents on systems that allow people to pay for products purchased from other Net retailers.

There is a sense of urgency among major trading companies as well. Mitsui & Co. and Nissho Iwai Corp. are offering rewards for employees who come up with good ideas for business model patents. And Mitsubishi Corp. has set up a task force comprising members of its planning, legal affairs, and IT departments to launch a full-fledged campaign to earn more patents.

The kind of business system patents a company gains will have a big bearing on its competitiveness from now on; and so many more firms are expected to apply for patents on business strategies that they develop.

Covering Both Bases
Behind the push for business model patents are two motives that are central to corporate operations: to protect current interests and to expand into new domains.

In Internet-related sectors, new services and business strategies based on networking technologies tend to engender new rights in themselves. Thus a company that allows a newly developed system to be patented by another company puts itself at risk of no longer being able to use that system or being forced to change its operations. Patent applications, therefore, are made if for no other reason than to prevent this from happening.

If a company were able to patent its business model it could keep its competitors at bay and negotiate with other companies on potential business alliances from a position of strength. Of course, the same applies to individuals who obtain conventional patents for their inventions. The difference is that a patent for an Internet business strategy could have a greater impact on businesses across the board, since the patent holder could get upstream and downstream companies dynamically involved in an enterprise based on the patented strategy.

If patents are granted for every new business method, however, or if patent holders start to demand unreasonable fees, the growth of the Net-related market will be hampered. There is now talk, therefore, as to whether the patent right term should be somehow limited.

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Trends in JapanCopyright (c) 2000 Japan Information Network. Edited by Japan Echo Inc. based on domestic Japanese news sources. Articles presented here are offered for reference purposes and do not necessarily represent the policy or views of the Japanese Government.