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JUNE 28, 2000

TECHNOLOGY

Cutting Through a World of Red Tape
DE Technologies has patented a technology for processing sales worldwide — easily — via the Internet

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It's a tiny private company with six employees. But DE Technologies in Union Hall, Va., has patented what it claims is a seamless way to conduct international commerce over the Internet, orchestrating the myriad steps involved in selling goods to foreign customers. The patent, granted by the U.S. government last month, could have far-reaching implications for all companies looking to manage exports over the Web, intellectual-property lawyers say. But for small- and medium-size companies without the resources to develop their own software or foreign-sales departments to help implement it, the technology may particularly prove to be a boon.

"We know domestic sales over the Internet are booming, but international sales are just beginning," says Ed Pool, cofounder of DE Technologies. "There's a dramatic difference between the two. And at the international level, the product itself isn't as critical as the calculations of the point of sale and the movement of documents which are evidence of the transaction."

It's impossible to know how important Pool's patent is yet. It hasn't been published, so the company can't enforce it, and competitors can't challenge it. One thing is certain, however. Pool's message about international e-commerce rings loud and clear in the boardrooms of almost every company that ships overseas. Exporting over the Internet is an entirely different beast from domestic e-commerce, and companies are just beginning to develop strategies.

ONE-STOP SHOPPING. Pool has built a career around orchestrating international sales, which are far more complicated than they may appear on the surface. Traditionally, an international order of any goods involves the calculation and processing of duties, tariffs, freight, insurance, taxes, titles, letters of credit, pro forma invoices, and ocean and airway bills of lading. Dozens of documents may be necessary to prove when, where, and how the product was shipped -- not to mention currency and language translations. But right now, no single Web tool that offers one umbrella solution, according to Pool.

Several companies -- including Vastera in Dulles, Va., and ClearCross in New York, both private -- have begun selling to major corporations Web tools and services that handle parts of the transaction. But Pool says they may be trampling on his technology, and he plans to contact them when his patent is officially issued sometime this summer.

"It's possible that DE Technologies' patent could be the real deal. This could define international sales over the Internet," says Terry Callahan, a partner for the intellectual-property law firm Price, Heneveld in Grand Rapids, Mich. That's assuming Pool's patent is enforced by the company and found to be valid in court, he cautions.

"If not enforced, this just gives DE Technologies a nice trophy that says they were first to market," says Patrick Sullivan Jr., a Silicon Valley management consultant for ICM Group in Palo Alto, Calif.

LEVELED FIELD. Whether companies sell computers, construction cranes, or cases of Japanese sake, DE Technologies' Borderless Order Entry System (BOES) enables them to import and export products using the Internet, Pool says. "Currently, the only businesses capable of cost-effectively exporting products overseas are multinational companies with international-trade departments. The efficiencies of this technology will allow small- and medium-size companies to compete with major corporations."

Pool knows international trade as well as any entrepreneur. In the '70s and '80s, he worked for a Chicago company that sold bulldozers and cranes to businesses and governments in Europe and Asia. In the '90S, he founded DE Technologies with a partner whose background in software and database applications allowed the company to begin exploring international sales over computer lines. Back then, few companies were even talking about e-commerce, let alone international sales over the Internet.

If the technology and patent sound like a wide net to cast for a small company, remember that so far e-commerce exists largely in the domestic realm. DE Technologies is targeting the first wave of international e-commerce -- a small but explosive sector of the $5 trillion global marketplace. Pool envisions BOES incorporated in the export operations of every Fortune 500 company one day.

"GOVERNMENT SEAL." And patent lawyers see several reasons why e-commerce industry leaders should listen to him. For one, his technology will be protected by a broadly worded business-method patent, a controversial and relatively new form of intellectual-property protection that is tremendously valuable on the Web. "A patent with a U.S. government seal carries a lot of weight. It carries the presumption that it is valid," says Price, Heneveld's Callahan. "A company like IBM could not simply ignore DE Technologies."

For many companies, international e-commerce will soon offer greater potential than domestic sales. Even the biggest software and Internet companies have been slow to tackle Web exports because of the complex transactions they involve. Many major e-tailers still are clueless when it comes to exporting efficiently over the Web, according to Greg Stock, vice-president for marketing at Vastera, a leading e-commerce solutions company whose clients include IBM and Dell Computer.

Stock says Vastera recently conducted a test of six well-known U.S. companies' global-sales capabilities over the Internet. Vastera had customers place orders for six different products in six parts of the world from six companies. The customers bought a golf club, a piece of lingerie, a cell phone, a calculator, a bottle of wine, and a CD player. Four weeks after the orders were placed, two of the six products had been shipped -- with one arriving two weeks late. Four had not turned up. In fact, Forrester Research estimates that 46% of Internet-based orders to the U.S. from international clients go unfilled because companies lack the proper procedures.

Pool claims that DE Technologies can do in minutes what usually takes days. "Normally, if your customer in Germany wants the actual price on a crane shipped to Rotterdam, the seller in the U.S. would have that price in three to four days," Pool explains.

COURT TEST COMING? Pool's corporate counsel, Bruce Lagerman, says his client's technology may raise eyebrows in the legal departments at IBM and Dell, among other e-commerce pioneers. Today many such business-method patents are being tested in court. The most notable lawsuit involved the patent covering Amazon's "1-Click" method, which allows easy identification of a repeat shopper. Last winter, Amazon forced a court-ordered injunction against barnesandnoble.com for using a similar process to track shoppers. Similarly, Priceline.com's online-auction method, the backbone of that company's explosive growth over the last two years, carries business-method patent protection.

"The fact that Amazon and Priceline's patents have stood in court, that's a major advantage for us," Pool says.

Pool's patent will very likely be tested in court also. Other companies are expected to design competing export-management systems for small businesses. What's more, Pool doesn't have customers yet. And given the host of ways companies can approach global e-commerce, it's conceivable that a Dell or an IBM may not pay attention to DE Technologies and Ed Pool.

If IBM or Dell acquires DE Technologies, Pool's technology could get swallowed into a vast library of patents. He says he doesn't plan to sell, but he admits that his patent could become a test case as courts figure out where to draw e-commerce lines.

TOO OBVIOUS TO PATENT? Inevitably, 20% to 25% of all business-method patents will be invalidated, according to Terry Callahan of Price, Heneveld. Richard Samuel, a lawyer with Goodwin, Procter & Hoar, agrees with that percentage. "One would expect that a high number would be invalidated, either because of a lack of novelty or because the technology would seem obvious to people skilled in the art," Samuel says. Even if one in five is rejected, though, "that still means 80% are upheld," remarks patent lawyer Kevin Rivette, founder of Aurigin Systems, which assembles databases of patents held by major companies.

What do the Dells and IBMs and Amazons say about DE Technologies? Not much. All three declined to comment on DE Technologies and the e-commerce solutions for international trade that it's developing. IBM has contacted DE Technologies to talk about the patent, as has UPS and other shipping outfits, Pool and Lagerman say.

Pool says he's prepared to go to court if necessary to enforce his patent. Vastera, SAP of Germany, and i2 Technologies have already begun selling tools that, on the surface, seem to be closely related to Pool's technology.

"Every couple months, somebody tries to patent something in this space. This isn't the first time and won't be the last," Vastera's Stock says. "We just keep plugging along, trying to solve problems for our customers."