Amazon resolves patent lawsuit to tune of $40 million

Amazon.com Inc. will pay out US$40 million to Soverain Software LLC to settle two lawsuits alleging patent infringement, the online giant revealed in a filing on Thursday with the U.S. Securities and Exchange Commission (SEC).

In its 8-K filing with the SEC, Amazon said it will make a one-time payment of $40 million to Soverain, a Chicago-based electronic commerce company, in the third quarter of 2005 to resolve the litigation. Additionally, the settlement will include "dismissal of all claims and counterclaims, mutual releases, and a non-exclusive license to Soverain's patent portfolio," according to Amazon's filing.

Amazon expects to account for the $40 million charge on its third quarter fiscal balance sheet under the category "other operating expense," the filing stated.

"We are pleased to have reached an agreement with Amazon, and to have them as one of our patent licensees," said Katharine Wolanyk, Soverain president, in a statement. "Soverain's intellectual property is essential to the ongoing development of our software product Transact and the future of our company."

Soverain first filed against Amazon alleging patent infringement on Jan. 12, 2004, in the U.S. District Court for the Eastern District of Texas. The complaint alleged that Amazon's Web site technology infringed three patents obtained by Soverain covering Internet server access control and monitoring systems as well as network sales systems, according to an Amazon 10-Q filing with the SEC dated July 28, 2005. Soverain sought "injunctive relief, monetary damages in an amount no less than a reasonable royalty, treble damages for alleged willful infringement, prejudgment interest, and attorneys' fees," the Amazon filing noted.

The e-commerce company amended its complaint on Oct. 6, 2004 alleging that Amazon had infringed two additional patents in the areas of digital active advertising and open network payment system for providing real-time authorization of payment and purchase transactions, Amazon's 10-Q filing stated. Soverain later filed a separate complaint relating to these latter two patents, so Amazon faced a pair of patent infringement filings from the company.

"The patents-in-suit cover core aspects of e-commerce, including a Web-based sales system, an interactive virtual shopping cart, Web-based payment technology, a URL-based system for session identification and management, and hypertext statements," Soverain said in the statement.

"We dispute the allegations of wrongdoing in these complaints and intend to vigorously defend ourselves in this matter," Amazon said in its July 28, 2005 10-Q filing.

According to the Soverain statement, the trial phase of the first lawsuit relating to the alleged infringement of three of its patents was due to begin trial this coming Monday, Aug. 15. In both of its suits, Soverain had been seeking an injunction against further infringement and damages for past infringement, Soverain said in the statement.

Gap Inc. had previously been a defendant in both the cases alongside Amazon, but the retailer entered into a patent license agreement with Soverain in February of this year, according to Soverain.

Amazon didn't immediately return calls seeking comment.

IDG News Service

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