E-Commerce Patent Flap In New Zealand

The latest chapter in the ongoing saga about E-commerce patents and their effect on the E-business landscape is being written in an unusual place: New Zealand. Several small E-retailers in that country have received letters from a Canadian firm instructing them to license the company's patent for automating the paperwork and transactions involved in international E-commerce--or face the legal consequences.

DE Technologies, based in Longueuil, Quebec, was granted U.S, patent number 6,460,020 last October for its "Universal Shopping Center For International Operation." DE Technologies' patent, which was also granted in New Zealand and Singapore, was the subject of controversy for its broad claims, its potential wide-ranging impact, and for being one of a growing number of so-called "business-method patents," which grant ownership of a unique method for conducting business, as opposed to a formula or an apparatus.

Kristina Cope, president of Products From New Zealand Ltd, a small E-retailer in Auckland, says she received a letter from the New Zealand law firm of James & Wells, representing DE Technologies, on July 7. The letter informed her that DE Technologies believes Cope's Web site (www.productsfromnz.com) is in violation of at least one of the claims of the patent: a process for "determining a language for the display product information, and determining a currency for pricing." The letter instructs her that legal proceedings against her company may result in an injunction preventing her from operating her Web site, as well as payment of damages. The letter says Cope can license DE Technologies' patent, for 36 months, for an initial fee of $10,000 plus a royalty rate of 1.5% per transaction value plus $.11 per document generated. She has 14 days from the date of the letter to respond.

"I think they're starting here because we're the small fry," says Cope, who adds that she doesn't have the financial wherewithal to either license the patent or fight it in court. And her online business is crucial to her company's survival. "We're quite small, but we're large on the Internet," Cope says. She and several New Zealand E-retailers that received similar letters have set up a Web site to gather information and broadcast their situation (www.fightthepatent.co.nz).

Patents related to the methods and operations of E-commerce have been controversial since the dot-com boom, when many companies sought to patent or protect various ways of conducting business on the Internet. Last year. a company called PanIP LLP sent letters to dozens of small E-commerce sites in the United States attempting to get them to license the company's two E-commerce patents. A company called MercExchange recently won a $35 million court ruling against eBay for a patent it holds on online comparison shopping October.

Not all companies holding E-commerce patents look to license them or haul violators into court. E-commerce patents can be used as bargaining chips when dealing with competitors and as assets in a potential merger. Indeed, DE Technologies originally said it had no intention of litigating its patented intellectual property: "We have no intention to file any lawsuits or make any claims on this patent," said Bruce Lagerman, president of DE Technologies and a former patent attorney, said in an InformationWeek story last October. Instead, DE Technologies was interested in marketing the system it had developed from the patented technology, which it calls Borderless Order-Entry System (BOES). DE Technologies could not be reached for comment on this story.

As the technology industry contracts and companies examine all their assets for potential competitive advantage, E-commerce patents are likely to become more visible in the marketplace. That means the rules and regulations regarding E-commerce are likely to be written--or rewritten--in the courts.

Cope says she's been advised by lawyers who have agreed to represent her and the other companies involved in DE Technologies' letter-writing campaign, for the time being, not to do anything. "We'll wait and see what they're going to bring out next," she says. Cope is convinced DE Technologies is serious about enforcing its intellectual property, and that it won't stop in New Zealand. "After they've set the precedent here, then they'll go after the big guys," Cope predicts.