Powerset, a San Francisco-based start-up, said it has signed an exclusive, open-ended license to use Internet search technology touted as a potential challenger to Google Inc. The 40-employee start-up based in San Francisco licensed the technology from the developer, Xerox Corporation’s Palo Alto Research Center. Financial terms of the arrangement weren’t disclosed. Powerset will start begin its first, public test of a search engine using the technology sometime later this year, Powerset Chief Executive Barney Pell said.

The Xerox technology is unique because it understands the meanings of words in a search query, along with any grammar or syntax. As a result, it lets someone search the Internet using their natural language. That’s a quantum leap from the more primitive understanding of language at Google and other major search engines, which essentially just find Web sites that contain search terms. During a demonstration, the Powerset product was asked “Who did IBM acquire in 1996?” The results correctly pointed to the appropriate companies. By comparison, the same query posed to Google’s search engine returned hundreds of Web pages. Moreover, the appropriate companies weren’t mentioned for at least the first five screens worth of results. The Powerset search engine was also able to handle complex questions such as “What do liberal democrats say about healthcare policy?”