[Ecommerce] Speed Trap: The patent that could hobble e-commerce in New Zealand

[James Love]

http://www.nbr.co.nz/home/column_article.asp?id=6645&cid=3&cname=Technology

Speed Trap: The patent that could hobble e-commerce in New Zealand
Francis Till

It could be the biggest speed bump on the e-commerce superhighway yet 
seen in this country and it has government ministers and businesses on 
both sides of the Tasman solidly on the back foot.

New Zealand patent attorney firm James & Wells is representing an 
obscure Canadian company that says it has a patent on several key 
processes used in basic international e-commerce ­ and that if Kiwi 
companies engaged in the activities don't pay up, the patent owners will 
seize their goods.

Anywhere there's money, there are sure to be litigants ­-- and 
e-commerce is no exception.

Suing one's way to wealth has become a cottage industry in much of the 
developed world but the shape of New Zealand's liability landscape had 
kept local industry out of major harm's way ­-- until DE Technologies 
(DET) appeared on the horizon.

Much of the core value in e-commerce accrues in the form of intellectual 
property (IP) through patents that allow owners to licence tools and 
processes --­ an inventory of about 60 such patents were one of the main 
reasons Yahoo! recently paid $US1.6 billion for search engine Overture, 
for example, and the sums involved in IP valuations can be stratospheric.

This in turn has led to a number of novel litigation strategies that 
have the potential to wreak havoc, even in New Zealand's relatively 
litigation-averse universe.

Such claims have arisen mainly from patents for frequently amorphous 
processes like "one click shopping" (Amazon), clickable linking in 
hyperspace (BT) and now the "universal shopping center for international 
operation," a patent held in New Zealand (NZ505284), Singapore and the 
US (US6460020) by DET.

At stake, some say, are licence and transaction fees that could 
eventually amount to millions of dollars and force many companies to 
stop international business online.

One Australian commentator, for example, where the patent's final 
approval is on hold to allow the government to take a closer look, told 
the Age that the patent claim, if successful, would give its prosecutors 
"ownership over all international e-commerce transactions conducted by 
Australian business."

In New Zealand, DET has already approached several small e-commerce 
sites through James & Wells asking for a signing/licence fee of 
$US10,000 and continuing payments of 1.5% of sales, among other claims, 
and threatening those that don't comply with injunctions that would 
prevent them from operating.

DET principal Edward Pool told Canada's National Post last week his 
plans for New Zealand go beyond that, though, contending "we've exerted 
our legal rights and the damage clock is running."

If the Kiwi firms don't pay, "we will seek a ruling with the 
International Trade Commission against infringing New Zealand companies, 
and if we're successful, we'll have their goods seized."

Not surprisingly, the DET/James & Wells initiative has galvanised local 
e-tailers to organise a collective opposition, assisted by intellectual 
property law firm AJ Park.

Online at www.fightthepatent.co.nz <http://www.fightthepatent.co.nz>, 
the group --­ led by several of the more seriously at risk e-commerce 
operations including top-tier hosting and e-commerce facilitator WebFarm 
as well as the Internet Society of NZ --­ takes the threat very 
seriously, especially after receiving advice from Associate Commerce 
Minister Judith Tizard that retailers who feel threatened by the claim 
should take it seriously and hire lawyers.

"For a small business the costs may seem daunting but the costs to your 
business of ignoring such a letter could be even greater," she said in a 
press release last month.

The patent first came to the notice of the New Zealand government 
through an approach by DET in 2001.

At that time, DET's Ed Pool ­-- who jointly owns the patent with 
co-principal Doug Maur ­-- wanted the co-operation of Trade New Zealand 
to set up shop and make New Zealand the hub of his patent litigation 
scheme.

Trade New Zealand declined, noting the scheme would put it in an 
adversarial role with the very e-commerce operations it was helping to 
develop.

The patent application here, however, attracted no comments from anyone 
in the e-commerce or government communities; it slipped through, 
apparently unnoticed and was finalised.

Now, in the wake of the furore over the DET/James & Wells letters, 
Associate IT Minister David Cunliffe is re-examining the issue of 
software patents generally.

Still, there's no promise, even should the government take steps to 
prevent patents like DET's from succeeding in New Zealand, that DET's 
will be disallowed retroactively --­ leaving countless small players the 
option of attempting to negotiate settlements they can afford, spending 
up on expensive legal representation, risking adverse judgements ­ or 
capitulating to the demands.

But DET, it appears, may be just the tip of a new wave of patented 
process litigation making its way around the world.

In May, eBay was told by a Virginia jury to pay $US35 million for 
infringing on a patent that basically covered the "idea" of online 
auctions. EBay is appealing that decision, but according to groups 
target="_blank">YouMayBeNext.com <http://www.YouMayBeNext.com> and 
BustPatents.com, such demands ­ and awards ­ are building like a tsunami.

Currently involved in litigation experiments in a dozen US states, PanIP 
(Pangea Intellectual Properties), for example, was formed in March 2002 
and has been making demands ­ and filing lawsuits ­ for up to $US30,000 
from e-tailers it says are violating either of the two patents it holds 
on technologies and processes that it says apply to any business 
conducting online commerce.

And Chicago-based Divine Inc is suing to force licence fees from 
"violators" of 66 patents that cover, among other things, widely used 
"shopping cart" technologies in use on many e-commerce websites.

Neither company is known to have staked a claim in New Zealand. But it's 
only a matter of time.

1-Aug-2003

-- 
James Love, Director, Consumer Project on Technology
http://www.cptech.org, mailto:james.love@cptech.org
tel. +1.202.387.8030, mobile +1.202.361.3040