E-Commerce Faces Patent Threat

New Zealand companies wanting to conduct electronic business overseas could end up paying royalties to a U.S. inventor.

Virginia-based Ed Pool, with Doug Mauer, has applied for a patent in New Zealand and about 30 other countries, covering international computer-to-computer trade.

The application, based on one filed by Pool and Mauer with the U.S. Patent and Trademark Office (USPTO), was lodged with the New Zealand patent office in December 1997. It is entitled "Universal shopping center for international operation."

The USPTO indicated to Pool in May that it would issue a broad patent on his company DE Technologies' Borderless Order Entry System (BOES), covering "a process for carrying out an international transaction .... using computer-to-computer communication."

Using BOES technology, DE Technologies aims to let small to medium-sized enterprises (SME) digitize the export transaction for a membership charge and 0.3 percent transaction fee. BOES creates electronic purchase orders, invoices and bills of lading, using any language or currency, calculates freight costs and duties and offers electronic payment. DE Tech says it has contracted with the U.S. Foreign Commercial Service to help American SMEs bring their goods and services to export.

Presuming the U.S. patent is granted, any New Zealand company intending to operate a business involving electronic international transactions should consider carefully before doing so, says Baldwin Shelston Waters intellectual property lawyer Breon Gravatt.

"It seems likely that the patent will issue, so it's a matter of whether Pool can convince anyone using a product that infringes to pay a license fee without having to sue them," says Gravatt. None of the numerous large companies Pool has contacted have apparently signed licenses, though he has said several have since been in touch.

Pool's Web site says: "We encourage all organizations who are involved in building global e-commerce systems or producers who wish to direct sell to businesses or consumers to contact us to negotiate licensing and system management fees."

Pool, in an e-mail exchange with Computerworld, says he has made several trips to this country to further his claims. "I have actively tried to secure a relationship with Trade NZ for over three years to no avail."

A spokesperson for Trade NZ says Pool may have been in contact with the agency but it could find no record of communication with him.

The U.S. patent could be subsequently revoked if earlier use of the method or publication of documents that disclosed it were proved, says Gravatt. Suing companies would be expensive and risky for Pool, he says, since large companies such as those he has contacted may be looking at very large licensing fees.

"If they have been using methods like this for a number of years, or intensively since the patent was filed, they may well decide to fight it. If they are not currently using such methods, but may wish to, then they may opt to pay the license fees."

Pool filed the patent application in the early 1990s. He had been importing goods from Russia and commissioned a software program to deal with the logistics of the trade process, such as customs and shipping documents.

Dairy Board keeps eye on claim NZ Dairy Board spokesperson Neville Martin says DE Technologies appears to be offering organizations a seamless Internet trade service but also has a wider patent claim on international e-commerce. He says the board doesn't conduct much business via the Internet at this stage, so the patent's impact would be "minimal". But it is working on its own e-commerce projects and "we'll watch it very closely -- as will presumably a lot of people".

The dairy industry exports NZ$5 billion ($US 2.04 billion) of products, about one tenth of that to the U.S., Martin says. DE Technologies notes global trade is worth over $US5 trillion. IT Minister Paul Swain's office was intrigued by the patent, saying the minister would be "looking into it further", but did not reply in detail by deadline.

Many companies have filed patents for business methods, especially on the Internet, after a 1998 federal appeals court ruling upheld their validity. Amazon.com successfully forced its competitor Barnesandnoble.com to add complexity to its "one-click" shopping system, and has since announced a patent for its "affiliate" revenue-sharing program. British Telecom is aiming to enforce a patent for Internet hyperlinking. Priceline.com has patented its reverse-auction system; Microsoft holds a patent for Web page style sheets. In New Zealand business methods can be patented where they are implemented by means of software, says Auckland IP lawyer Breon Gravatt.

Critics of business method patents say many should never have been granted because they either cover processes that are obvious or are electronic forms of offline activities. The U.S. patent office is also widely seen as overworked and under-resourced.

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