A Patent Challenge for Dell


By Andrew Park Remember when dot-coms discovered the U.S. Patent & Trademark Office? In the late '90s, no puffed-up Internet idea was complete unless it included plans to file for patents that would supposedly recognize claims of being the first to do this or that in cyberspace. Scads of applications were made, and some patents were granted, most notably Amazon.com's (AMZN) failed 1999 attempt to keep rival Barnesandnoble.com from copying its "one click" payment system. The patent was never invalidated, but techies chastised Amazon for trying to protect what they saw as an obvious and unoriginal feature of its Web site.

The dot-com boom is history, but efforts to use patents as a competitive weapon are alive and well. On Oct. 27, Dell (DELL) was sued in a U.S. District Court by tiny Virginia outfit DE Technologies, which alleges that the PC giant has infringed on its patent covering a system for "facilitating international computer-to-computer commercial transactions," according to the complaint. In plain English: global e-commerce.

LONG ROAD. If DE's suit is successful, it would create shockwaves on the Net. Dell is on track to generate $12 billion of its estimated $49 billion in sales this year via the Web, and much of that will flow across national borders. Nearly any company that sells internationally over the Internet could be a target, too.

That's a big if, though. If litigation goes forward, it will focus on whether, as DE contends, it really was the first company to demonstrate a system for processing international sales online when it filed patent No. 6,460,020 in 1997. "That would not have been the least bit novel in 1997," says Ronald Mann, professor of intellectual-property law at the University of Texas at Austin, "There has to be some additional twist." A Dell spokesman says the company had not seen the lawsuit and declined to comment.

It has been a rocky road to the courthouse for DE, which took five years to win the patent, due to additional reviews. Repeated delays kept it from raising the capital it needed to bring the idea to market, says its president, Bruce Lagerman. Attempts to win licensing agreements from the likes of IBM (IBM), SAP (SAP), and FedEx (FDX) failed, and it has only enough cash to pursue its claim against Dell, says Lagerman, who adds: "We've become a licensing and litigation company."

SOARING APPLICATIONS. DE hasn't exactly come out of nowhere. In 2000, its patent efforts won attention from publications that included BusinessWeek and The Wall Street Journal, which first reported on the suit against Dell. Its patent, which includes methods for handling language and currency differences as well as taxes and customs duties, has been examined "probably more extensively than almost any other patent in history," Lagerman says.

Yet it's unclear how a court may rule on the issues. And critics of the patent office have long said it lacks the resources to fully vet Internet business-method patents. The number of applications for such patents soared to 8,700 in 2001, from 927 in 1997. Last year, patent examiners received 6,000 such applications. "The patent office just doesn't have access to enough prior-art materials," says Greg Aharonian, editor of Patent News, referring to documentation of earlier inventions.

Lagerman admits that DE has little chance of intimidating Dell. "We just want our rightful place at the table," he says. Even with its patent in hand, that may be a bit much to hope for. Park is a correspondent in BusinessWeek's Dallas bureau


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