Chris Barton: Lumbering reaction to software patent claim

Ed Pool's patent bombshell last week has caught local e-tailers and the Government by surprise. But the patent on a means for handling the international sale of goods really shouldn't have caught anyone on the hop.

Pool and his Virginia company, DE Technologies, have been broadcasting their intentions since 2000, when an article was published in the Wall Street Journal.

In June 2001, Pool talked to Trade New Zealand about setting up his operation here and turning New Zealand into a "cyber Switzerland".

His plan was elegantly simple. Armed with his patent - currently granted in New Zealand, Singapore and the United States, but also filed in 26 other countries - Pool would not only build his invention here, but also unleash a pack of patent attorneys on the fledgling e-commerce world to enforce his intellectual property rights. (DE Technologies)

Trade New Zealand didn't want anything to do with Pool or his plans.

"Our understanding is that DE Technologies are claiming that all e-commerce solutions are using their intellectual property and will be seeking payment from other developers," Ian Shields, investment manager of Investment New Zealand, Trade NZ's investment division, told the Herald at the time.

"This puts Trade New Zealand and Investment New Zealand into a potential conflict-of-interest situation as we are working with many of the New Zealand e-commerce providers."

So if the Government fully understood the implications of DE Technologies' patent back then, before the patent was actually granted, why didn't it do something?

Possibly it did, but because the wheels of government grind so slowly, nothing has yet come to pass. In about three weeks, Associate Minister of Commerce Judith Tizard will present proposed changes to "patentability" in the 1953 Patent Act.

Pool's patent falls into the controversial category of "business methods" and computer software. Whether these should be patentable was raised in the Intellectual Property Office of New Zealand's March 2002 discussion document. Surprisingly, DE Technologies was not mentioned. There were 14 submissions on the issue, with most "in favour of computer software and business methods being patentable in some form".

Interestingly, patent attorney firm AJ Park, which is leading the legal fight against Pool, submitted that patent applications for computer software and business methods should not be treated differently to other types of inventions.

Lawyers are such a fickle life form.

The problem with business methods or software patents is that they are so bleedingly obvious it's hard to see how they can possibly be regarded as an invention. Often they're just electronic versions of everyday real-world activities.

Amazon.com began the whole thing by claiming a patent for its system of "one-click ordering" online. Then travel discounter Priceline secured the name-your-own-price reverse auction business method - which has been the way of the bazaar since time began.

Soon the floodgates opened. IBM patented a method for keeping track of people waiting in line for the bathroom. DoubleClick has a patent on the "method of delivery, targeting, and measuring advertisements over networks". And eBay is fighting a Virginia man's patent on selling auctioned items at a fixed price. Where will it end?

DE Technologies' patent is a software design for international transactions - a cross-border electronic pipeline from buyer to seller, handling everything from letters of credit to shipping, freight forwarding, exchange rate calculations, insurance, import duties and tariffs. Which sounds awfully like what happens when you buy something by credit card over the web and have it delivered to your door.

The software was born out of necessity in 1992 when Pool was exporting night vision gear and other equipment from Russia to the US. Every time a buyer wanted a price for goods he would have to make complex calculations based on the exchange rate of the rouble at the time, freights costs and tariff duties, which also fluctuated wildly.

Pool could see huge benefits from automating the process - so he put the whole thing down on paper and applied for a patent. As he told the Herald in 2001: "One of the first things I was taught in business was that if you have a good idea you should patent it."

His patent was granted here because it fits the Patent Act's obtuse definition of "invention" - something which constitutes a "manner of new manufacture" and where the process involved must also "result in a product that is an 'artificially created state of affairs' that has utility in the field of economic endeavour".

Clearly it's a definition that didn't see the artificial state of affairs that computers and the internet could create. It's also clear that the current crop of business methods and software patents will have a chilling effect on e-commerce competition. Potentially, if Pool carries through with his mission, all New Zealand e-tailers selling overseas will be paying him royalties.

Legislative change cannot come soon enough. Some submissions to the Intellectual Property Office suggested computer software and business methods should have a "technical character" or "technical innovation" to be patentable.

Whether that would be enough to disallow patents such as Pool's is a moot point. But given that his patent is already granted, the real question now is whether the new legislation will be retrospective.

* Email Chris Barton