A group of technology vendors and service providers that serve nonprofit organizations banded together to promote improved access to new innovations and technologies. The launch of the Nonprofit Innovation Alliance (NIA) marks the beginning of a battle regarding royalties paid for business method patents, patents which have become increasingly controversial in the for-profit world.

“It’s a problem that we see in the commercial marketplace that does not exist yet in the nonprofit marketplace,” explained Shabbir Safdar, chief technology officer for Mindshare Interactive Campaigns, LLC, a member of the NIA. “We don’t want to see that in the nonprofit marketplace because nonprofits are uniquely vulnerable to patent abuse, especially business method patent abuse. So we agreed, as a group, that all nonprofits would get access to all business method patents that the group will have in the future.”

The NIA’s goal is to make it impossible to make money from business method patents, Safdar said. NIA members have agreed to cross-license current and future business model patents to nonprofits, and each other, on a royalty-free basis.

Safdar posed the example of a vendor approaching a nonprofit with the offer such as the vendor receiving $5 for every $50 raised. Or, if an organization is communicating with people in a certain manner, even if it does not raise money, in many instances it still must pay a royalty fee. This will become more of a problem, especially in an era where the sector is starting to see a lot of microfundraising due of the efficiency of the Internet, Safdar said. If the royalty is significant enough and the fundraising is small, a nonprofit could actually come out in the hole, he added.

To educate nonprofits about business model patents, the NIA has assembled a number of vendors, including Beaconfire Consulting, CharityWeb, Convio and GetActive among them. Heavyweight vendors such as Blackbaud and Kintera have been approached by the NIA but neither had joined at press time.

“Kintera is the innovative leader in this new phase of philanthropy called online philanthropy and we’ve created a lot of innovative, creative technology and obviously filed patents on much of it,” said Harry Gruber, president and chief executive officer of the San Diego-based organization. “The whole patent system is about protecting what you do and encouraging other people to create. We feel that we’ve added much value to the industry by spurring all of this creative work [and] look forward to lots of other companies doing new and innovative things and creating technology.”

Gruber pointed out that a search of the U.S. Patent and Trademark Office Web site (www.uspto.gov) reveals that NIA member organizations have a total of zero patents filed. He added that he encourages the NIA’s cross-licensing option and that it could be a good business model “but I think I would start with having some patents.”

Kintera has 16 applications pending with the U.S. Patent and Trademark Office. Kintera has two issued patents, and 1 “allowed” patent. It received a “notice of allowance” from the U.S. Patent Office, but the patent has not yet been issued.

Safdar confirmed that the NIA is currently without a single business model patent. However, that is not the Alliance’s immediate goal, he added. The NIA hopes to educate nonprofits that business method patents and their abuse, is not good for the marketplace. By “mutually disarming,” as Safdar phrased it, the NIA is going to show that it does not support that business strategy.

“The goal is to make it impossible to make money from business method patents,” Safdar said. “Just because you get a business method patent doesn’t mean it’s innovative. It means that someone at the patent office thought it was innovative and there’s a wide array of people who think that the patent office frequently issues flawed patents.”

An alliance like this can only benefit nonprofits down the road, according to Katrin Verclas, executive director of Aspiration, an Amherst, Mass.-based, non-governmental organization that supports software development for nonprofits. “The patenting process in the United States is increasingly being called into question and it seems to me like the NIA is taking a pro-active approach to the issue by agreeing to cross-license patents,” Verclas said.

The challenge is coming up with proprietary processes since the nonprofit sector is a relatively disaggregate, small environment with a lot of built-in structural inefficiencies, said Michael Schreiber, executive vice president for enterprise services at the United Way of America in Alexandria, Va.

Schreiber cited the opportunity to create an innovation from which all nonprofits could benefit, but only if there’s an easy mechanism for sharing.

Business model patents will repeatedly challenge the sector due to a significant segment of smaller nonprofits that are easily dissuaded on doing something based on the threat of legal activity.

“In our space, because the processes are vague and potentially ill-understood by the patent offices in terms of what processes are unique, there is a credible threat that is strong enough to dissuade some nonprofits that are really trying to help people,” Schreiber said. “Nonprofits may be trying to do the right thing in their processes but you may have vendors saying, ‘Hey, I filed a claim on that and if you use it, I may have to come after you.’ If you’re a small organization I don’t really think you have the ability to vet the claim much less pursue a defense against it.”

On the vendor side, targeting a cut of the 1.6 million nonprofit organizations often relies upon the perceived alignment between non-commercial interests and the interest of the sector. Nonprofits know that vendors need to create profit but there is also something about the way in which a vendor does business that aligns better with the sector, Schreiber noted. Vendors that are members in the Alliance will be received well by nonprofit organizations, he concluded.

In the end, it’s going to come down to what the nonprofit marketplace dictates as a client. Are business model patents and the royalties that often go along with them a defense for the patent holder that spurs creativity or a chokehold that puts the squeeze on nonprofits’ effectiveness?

“Kintera believes that the launch of the Nonprofit Innovation Alliance confirms the importance of patents in the eyes of the overall marketplace, including our customers, our competitors and our partners,” Gruber stated via email to The NonProfit Times.

“Our goal, and this isn’t about Kintera or any specific vendor, is to make available as much innovation as possible to nonprofits,” Safdar countered. “In our view, that involves removing the threat of business method patent abuse. If, at some point in the future, the companies that have those patents decide that it is going to be bad for their reputation to be patent abusers, then they will be welcome at the Alliance. We’re trying to make it as unpalatable as possible to pursue that strategy.”