Amazon Disputes Patent Infringement Claims Over Kindle

Amazon disputed Kindle-related claims in patent-infringement suits against the company by Olympic Developments and Positive Technologies. Amazon said in a 10-Q filing at the SEC that it plans to “vigorously defend” itself in the cases. Olympic sued Amazon on Sept. 28 in U.S. District Court in Los Angeles, claiming that aspects of the e-tailer’s technology, including the Kindle e-reader, infringe two patents it owns: U.S. Patent No. 5,475,585 for a “Transactional Processing System” and 6,246,400B1 for a “Device for Controlling Remote Interactive Receiver.” Apple, Barnes & Noble.com, DirecTV, Microsoft, Nintendo of America, Sony Computer Entertainment America, Sony Electronics and game developer/online distribution company Valve were also named in the suit.

Positive Technologies sued Amazon on July 22 in U.S. District Court in Marshall, Texas, alleging that Amazon products including the Kindle infringes three patents it owns: U.S. Patents 5,444,457; 5,627,558 and 5,831,588 covering a “DC Integrating Display Driver Employing Pixel Status Memories.” Also named in that suit were Sony Electronics, Apple, Hewlett-Packard, Acer America, Dell, Gateway, Asus, Lenovo, MSI Computer, Barnes & Noble, Viewsonic and Kobo.

Amazon reported “accelerated growth in both physical and Kindle books” in Q3 ended Sept. 30 versus Q2 this year, Chief Financial Officer Tom Szkutak said in an earnings call. He didn’t specify how much those sales rose. The company didn’t say how many Kindle e-readers it sold in the quarter, or has to date. But it said that “the new generation Kindle devices are the fastest-selling Kindles of all time and the bestselling products on Amazon.com and Amazon.co.uk,” and more of the devices “were ordered in the first 12 weeks of availability than in the same time frame following any other Kindle launch.” It also said that in the first 12 weeks after the Kindles were introduced, customers ordered more of the e-book readers on the two Amazon sites than any other product. The U.S. Kindle Store has more than 720,000 e-books, more than 590,000 of them priced $9.99 or less, it said.

Barnes & Noble, meanwhile, said its Nook e-reader will be sold at 2,500 Wal-Mart stores and online at Walmart.com. The products were to have arrived on store shelves as early as Sunday, in time for the holiday shopping season. The Nook “will be prominently featured as the premier” e-book reader in Wal-Mart CE areas, Barnes & Noble said. Many Wal-Mart stores will also feature a Nook-branded e-reading area where shoppers will be able to “see and touch a demonstration device,” Barnes & Noble said. Wal-Mart will carry the $199 3G + Wi-Fi model and the $149 Wi-Fi-only version. Best Buy has already started carrying Nooks. Best Buy, Staples and Target sell Kindles. Nook device sales “continue to exceed our expectations,” said Chris Peifer, vice president of Barnes & Noble’s Digital Business Development.

Despite strong e-book sales, Amazon saw “some softness” in its core media business “in a couple of categories … particularly music and video,” Szkutak said. The retailer faced a difficult comparison with last year’s Q3, when it “had very strong growth” from several Michael Jackson titles, the Beatles CD boxed set and videogames, “specifically videogame consoles,” he said. There were “very strong price reductions from” the console manufacturers last year, “which caused great growth last year,” he said. But the company was “very pleased with overall categories in media” in Q3, he said. Global media sales grew 14 percent from Q3 last year to $3.35 billion, while North America media sales grew 13 percent to $1.59 billion and media sales in other regions jumped 16 percent to $1.76 billion, he said.

Amazon’s Q3 global electronics and other general merchandise (EGM) sales grew 68 percent to $3.97 billion (CED Oct 22 p6). Worldwide EGM increased to 53 percent of Amazon’s total global sales, up from 43 percent in Q3 last year, Szkutak said. North American EGM revenue soared 80 percent to $2.33 billion, accounting for 56 percent of total North American revenue, up from 45 percent in Q3 last year. EGM revenue outside North America grew 54 percent to $1.64 billion, representing 48 percent of total revenue in those regions, up from 41 percent. Revenue from the Zappos online clothing store, which Amazon bought, contributed to Amazon’s North American results, Szkutak said.

Amazon’s Q3 profit grew 16 percent to $231 million, 51 cents per share, from $199 million, 45 cents, in Q3 last year. Overall revenue increased 39 percent to $7.56 billion. The company expects to report Q4 sales of $12 billion to $13.3 billion, representing growth of 26-40 percent from Q4 2009.