E-tailers consider joint action on patent

An American company's demand for royalties from New Zealand online traders has been greeted with incredulity and calls to jointly resist paying.

New Zealand online retailers and developers are circling the wagons in response to an American company’s accusation of patent infringements.

A website has been created specifically for discussion and action to resist the patent claims of US company DE Technologies.

In letters sent to a number of local e-tailers by Hamilton law firm James & Wells, DE Technologies claimed it holds patent over some common e-commerce website features.

“Our client believes that by accepting international orders you are infringing at least claim 1” of the patent, the letter reads in part. It mentions the possibilities of damages, costs and an injunction, before offering licensing terms of $10,000 plus a royalty rate of 1.5% of total transaction values.

Hosting companies are offered a separate licence, starting at $25,000 plus royalties of 1.15%, split between hosting provider, e-tailer and purchaser.

The letter “requires” a response within 14 days.

“It’s quite unbelievable really,” says Kristina Cope, a director of online retailer Products from New Zealand. “It just seems unbelievable that a country could grant a patent so open-ended.”

Cope says the company can’t afford to fight a patent case. “We have only been online for about a year and a half,” she says. “I think that it would be in everybody’s best interests to band together.”

Richard Shearer, CEO of e-commerce developer WebFarm, says the patent has “far-reaching” consequences. “Basically, any website that calculates shipping could be affected.”

Shearer questions why the patent was granted. “We think it’s absurd,” he says. “None of the ideas are unique.

“The proposition has been floated that we could band together to fight this. We’ll see what develops.”

Stuart Clark, CEO of e-commerce developer EstarOnline, first heard of DE Technologies’ letter last month. He says the letter sent to clients was “pretty daunting”.

“I suppose the most disappointing part of it is that this patent is allowed,” Clark says. “I see it as very similar to domain name squatting.”

Clark says targeted e-tailers have the choice of disputing the patent claim or ignoring it, but legal costs in either case could amount to $100,000. It’s more than small companies can afford, Clark says, but most would be hesitant to challenge the case alone. “The last thing they need is any interruption to their business.”

Court action might require a budget of $100,00 or more, he says.

Kim McLeod, a partner in law firm A J Park, says even though the Intellectual Property Office has granted a patent, it might still be successfully challenged.

“The IPO might not have examined this too closely,” McLeod says. “My view is that it’s certainly open for challenge at least.”

McLeod says his firm’s view is that business process patents should not be granted in New Zealand. “But it’s open to argument.”

Asked what the impact would be if the patent were found to be enforceable, McLeod says it “would change people’s view” of what is patentable. “That would obviously have an impact on business in New Zealand.”

James & Wells lawyers acting for DE Technologies were not available for comment.

InternetNZ’s executive director, Peter Macaulay, is dismissing DE Technologies as an “e-bully”.

“They may have a patent, but nobody can claim rights to all e-commerce,” he says. “We can’t afford to have all small companies pay huge amounts just to keep trading.”

Macaulay doubts the strength of the patent, saying a “stack” of e-commerce activity predated the patent application. “If these guys have a good product, they should go out and sell it.

“InternetNZ will most likely get some legal advice very quickly on this.”

If the patent is found to be enforceable, Macaulay says the government must get involved to protect the local e-commerce industry. “My view, since I’m not a politician, is that this is not a matter for the courts,” he says.

“My major concern is that we have to make sure that these guys don’t injunct us out of e-commerce.”

The government is less keen to be involved. A representative of Judith Tizard, the associate commerce minister with responsibility for IP-related issues, says the patent could be challenged in court on the basis that the invention was not new or was an “obvious progression”.

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