In what promises to be just its first fight for a slice of the global e-commerce pie, a small Longueueil, Que. company is taking aim at New Zealand’s Internet merchants, claiming their international transactions are violating its patent over the process.
DE Technologies Inc. says it also has patents covering cross-border e-commerce transactions in Singapore and the United States, as well as applications for patents pending in 28 other countries, including Canada. The windfall for DE could be in the billions of dollars. Ed Pool, the company’s co-founder and CEO, said that a survey of this past Christmas season’s transactions from just 25 U.S. retailers should have netted DE US$6.5 million. All this makes New Zealand something of a test case for a quest that could redefine the economics of e-commerce.
DE’s Critics, like Russell McOrmond, an Ottawa-based Internet consultant who has taken up New Zealand’s cause, say DE’s claim is illegitimate, and that rather than providing technology, the company is spending all its time and energy on patenting and suing.
“They’re not providing a service or a product,” he said. “All they did was take a way of doing business and claim it as a monopoly.”
But Pool argues the company is simply trying to get compensated for more than a decade’s worth of work and investment. He said when DE first began developing the Borderless Order Entry System (BOES), international transactions involved a myriad of complex customs and financial paperwork that precluded all but the world’s largest companies. That was the early 1990s, long before most people knew about the Internet, let alone e-commerce. A computerized system for managing all aspects of an international trade transaction — from purchase orders to invoices to freight costs to duties in any language or currency — was something truly novel, Pool said.
“The way you have to look at a patent is in terms of when it was filed,”” said Pool, a Virginian who set up DE in Longueuil, after failing to do so in New Zealand. “”The fact of the matter is we developed this technology in the infancy of e-commerce when people were barely able to do domestic transactions.”
DE was granted its U.S. patent last October, five years after it was filed with the United States Patent and Trademark Office. The New Zealand patent application was also filed in 1997. Pool said to file patent applications DE had to make every aspect of the BOES system public, which allowed competitors to copy it. “It’s now been duplicated by so many software companies,” he said.
Last week, The New Zealand Herald reported DE had sent out letters to several Internet merchants in the country, in one demanding a US$10,000 signing fee and a 1.5 per cent cut of Web site transaction value. Pool said the news report was full of factual errors and added that if application service providers paid the appropriate license fees, DE would only look to merchants for a .4 per cent fee, compared to credit card companies, which regularly charge 5 per cent.
James Longwell, a patent and trademark lawyer with Ogilvy Renault in Toronto, said much of the confusion over the DE case stems from the fact the patent involves a business process rather than just a piece of technology. In these cases, he said, it is more likely patent offices will issue patents that will later be overturned, though he added DE’s patent could well be enforceable.
“Patent offices don’t have much history in looking at these types of cases,” he said. “They don’t have a bank of prior art.”
McOrmond said the situation in New Zealand is a wake-up call for Canada and offers an opportunity to define a clear policy for business process patents, especially where they concern software. McOrmond, meanwhile, said patent offices should be leery of software patents as the purpose of patents is to spur innovation and the success of the Internet and e-commerce has to date been largely the result of freeware and shareware.
“Anyone who would say the Internet wasn’t innovative is out to lunch,” he said.
Longwell said the Canadian Intellectual Property Office is currently preparing guidelines for business method patent applications and added software can currently only be patented in Canada if a number of specific criteria are met. He added DE’s patent was rejected in Europe, and DE is currently appealing the decision. In the United States, however, he said the patent system is here to stay for business patents.
Still, Longwell said it would not be incredibly difficult to avoid DE’s e-commerce patents. Internet merchants would simply have to cut out a small part of the transaction process. For example, the BOES includes the ability to select language and currency, but many Web sites in the United States only operate in English and U.S. dollars.
“If you look at their claims, they’re long and to avoid a patent, you just don’t do one of the steps.”