Learn from the mistakes of others

With an increase in patent activity across the globe, and businesses preparing to compete in expanding international markets, we ask if businesses need to be concerned with their intellectual property.

The horror stories are out there. In 2003, thousands of New Zealand and Australian businesses were caught off guard when US/Canadian company DE Technologies (DET), moved to enforce a patent it held on a method of conducting ecommerce.

DE Technologies sent letters to companies in Australia and New Zealand alleging patent infringement of a method of ecommerce used extensively for Internet-based transactions -- chiefly credit card payments -- demanding a US$10,000 licence fee, and a 1.5 to 2.5 percent fee from each transaction. Panic and outrage quickly followed.

The vast majority of businesses to receive letters from DET were small- or medium-sized businesses, many who depend on online credit card payments for their primary source of income. None of them could afford to challenge the patent in the high court but as the outrage attracted more and more attention, it began to raise hackles in bigger ponds.

At the time, the Australian Defence Force was buying Seasprite helicopters via secure ecommerce gateways from the Ministry of Defence in the UK. Theoretically, because the transactions were being done on a gateway that infringed DET's patent, the government was going to be forced to pay a 2.5 percent fee each time -- this would undoubtedly amount to huge sums of money.

All of a sudden organisations in the US were threatening to hold up goods on the wharves unless DET's annual licence fees were paid, says Matthew Tutaki, now head of government IP advisory body Sanseman Government, who at the time led the campaign against DE Technologies. "Once you receive an infringement notice it becomes next to impossible to overturn the patent, even if you have ‘prior art'. You actually have to go to the High Court to challenge it. This can cost hundreds of thousands of dollars in fees" he says. (Prior art differs between countries but it generally refers to: "any body of knowledge relating to your research that exists prior to the completion of the research or the filing of a patent application.")

In this instance the Australian Government was compelled to intervene. Senator John Tierney brought the issue to the Senate in August 2003, demanding the right of the Federal Government to protect Australian business in the face of anything considered as a predatory trade practices.

In the end, says Tutaki: "The government sent a clear message that if you try and do this sort of thing the full weight of the government will come down on you. However, it could be two or three years before we find out what the next one could be. You don't find out about them until the infringement letter arrives."

Patent trolls
Business process patenting is perhaps one the most controversial examples of patenting seen today. The US patent system, and especially business process patenting, has received huge criticism. Even with the emerging Australia United States Free Trade Agreement (AUSFTA), the clarity of Australia's position in regard to business system patenting remains somewhat cloudy and relatively untested.

Despite this, the level of activity surrounding patenting claims has increased dramatically over the past few years. Described as "patent trolls", the practice of acquiring patents and explicitly pursuing a return through threats and litigation is increasingly common -- especially in the US. At any time the majority of established IT companies are likely to be engaged in a range of IP battles. Even today Dell continues court proceedings in Texas with DE Technologies over these same patent issues. With lots of little software developers springing up all over the place to take on the big boys, it invariably becomes cheaper for the big boys to settle out of court.

Interestingly, almost all of the employees at DE Technologies, as it turns out, were patent attorneys, Tutaki says. "I think that we would be naive if we didn't think that people will come in and steal our stuff, particularly our knowledge. Knowledge is the thing that has the most value and currency in the world today. It gives us a semblance of ‘do we understand what these things are? Do we understand what the impacts of patents are on business here in Australia, and do we understand what's going on the greater world?'. The simple answer was we didn't. It caught everybody off guard," he says.