This week: A snapshot look at how the surge in infringement suits by patent-holding companies is causing big woes for small companies, and potentially affecting the ability of many people to engage in a popular pastime.
Creating and sharing images—drawings, paintings, photographs—are among the most ancient of human activities, and throughout history, technology that makes that sharing possible has been embraced as rapidly as it appears. Today, that technology takes the form of software applications for computers and cell phones.
That all helps explain why the collection of scrappy entrepreneurs who run small and medium-sized photo-sharing companies didn’t always think about patents as they built up their businesses.
But patents are certainly on their minds now that they’ve been sued for infringement by a company they've never heard of, in a place they've never thought about, in a case that illustrates how the surge in lawsuits by patent-holding companies isn’t just taking a bite out of big companies—it’s hitting small businesses too.
"You can't imagine the stress this caused, me thinking the company I put 10 years of effort into could have folded because of this," says Jeff Kelling, a partner in Texas-based software maker FotoTime.
FotoTime is one of more than 60 companies sued by patent-holding company FotoMedia Technologies, LLC, between 2007 and 2008. FotoMedia has accused FotoTime and the other defendants of infringing three patents it holds related to organizing and sharing images online. Those defendants range in size from the world's biggest camera makers to small, family-run startups, with the majority, including FotoTime, on the latter end of the spectrum. (See FotoMedia Lawsuits page for case names and details.)
In its suits, FotoMedia's lawyers have asked E.D. Texas Judge John Ward to shut down any photo-sharing website that won't pay for a license to its patents. Those range from services run by the world's biggest camera makers to small, family-run startups. The the majority, including FotoTime, fall on the latter end of the spectrum.
It turns out that companies in businesses related to photo-sharing are becoming favorite targets in infringement suits. On May 13, EasyWeb Technologies, a holding company working with the Niro Scavone patent boutique, filed suit against ten companies, including four already hit by the FotoMedia lawsuits. One week later, SmugMug, Inc. (a defendant in the EasyWeb and FotoMedia suits) filed a declaratory judgment action after being threatened by yet a third holding company, Virtual Photo Store, LLC, which has asserted patents against online photo services and independent photographers.
Two of the three patents asserted by FotoMedia were invented by Neil Mayle, a Massachusetts Institute of Technology graduate who created a photo-sharing site called YoBaby.com in 1997. In 1999, the site morphed into Opholio.com.
In June 2000, Mayle sold Opholio.com to Flashpoint Technology, a former Apple subsidiary that at one point created an operating system for digital cameras. After the dot-com bust, Flashpoint shifted its focus to licensing and litigating patents. The company’s CEO is Stanley Fry, an imaging technology expert. FotoMedia and its parent company, Scenera Research, are controlled by CEO Ryan Fry. Neither FotoMedia nor its lawyers responded to interview requests.
UPDATE: Shortly after this was published online, a McKool Smith lawyer got back to TPA and said the patents at issue relate to "early photo-sharing technologies," and use of metadata like tagging and commenting on photos. He declined to discuss the specifics of the infringement allegations at the present time.
In March, just before the Senate Judiciary Committee held its first hearing on the current patent reform bill, Kelling and his two partners decided to write to panel chairman Senator Patrick Leahy to express their frustration.
"All our hard work and dreams were almost ruined in the summer of 2008, when we were sued for alleged patent violations by a company called FotoMedia," FotoTime co-owner Karl Swierenga wrote. (The full letter was entered into the congressional record at the hearing. [PDF])
Swierenga, Kelling, and Andrew Pitts founded their Dallas-area company in 1999. (More on FotoTime's story from the Forth Worth Star-Telegram.) It took the three software developers five years to where they could quit their full-time jobs and devote themselves entirely to their new business. It was four more years before FotoTime began to thrive. Then, last summer, the trio received what Kelling describes as an odd piece of correspondence.
"We got an e-mail in our inbox from an IP law firm saying they wanted to represent us," he says. "We thought, represent us for what?" They soon found out. FotoTime was being sued for patent infringement. And it was going to be an expensive proposition.
Andrew Pitts and Jeff Kelling, co-founders of FotoTime, Inc. Photo courtesy of Jim Domke.
"We couldn't afford a real law firm to fight this or even settle for us," Kelling says. "We're a small company of three guys. IP law firms charge $500-800 an hour... It would have bankrupted our company so quickly. Basically, we saw that it was a couple million to fight one of these things, and even then, a fight doesn’t guarantee a win."
The uneasy feeling grew as Kelling and his partners started to learn about the venue where they’d been sued—about 200 miles east of their office, in Marshall, Texas, the hotspot of the Eastern District. Judges there rarely grant summary judgment, and the odds are against defendants.
"When you see that it's 80-20 against you, you think, why should I spend that money in the first place?" Kelling says.
He and his partners decided they had no choice but to settle. The settlement’s terms don't allow them to discuss how much they had to pay FotoMedia, or to denounce FotoMedia’s patents as invalid. Without getting into specifics, Kelling does say the settlement hurts FotoTime’s prospects in an already difficult economic climate.
“It is seriously affecting our capability to grow,” says Kelling. “We can't spend the money we would spend on advertising, or PR. We can't spend money on contractors like an artist and some other people we'd like to hire.”
And though Kelling describes the episode as "just the worst experience ever," he is determined to see something positive come out of it. Hence the letter to Congress: "We may have lost this lawsuit, but we're going to try to win this war and bring about some change."
So far, Kelling and his partners haven’t gotten a response to their letter. When the Senate began debating patent reform in March, there was plenty of testimony from patent experts, but nothing from small entrepreneurs like the FotoTime founders.
"Everybody thinks that these patent lawsuits are only hurting the big companies," says Kelling, who was pitted against some of the country’s most successful patent litigators when FotoMedia sued his company.
FotoMedia is represented by Sam Baxter and Gordon White, partners at McKool Smith's Dallas office, assisted by Ward & Olivo, a small New York firm with a long list of patent-holding company clients. Also on the team is The Ware Firm, a five-lawyer firm with offices in Dallas and Marshall.
For a full list of defendants, see TPA's FotoMedia Lawsuits page. The page will be updated soon with defendant law firms, patents-in-suit, and other information.
Finally, TPA will be publishing more about the FotoMedia lawsuits in the coming weeks, and is continuing to interview folks at the 63 defendant companies, attorneys, and others close to the lawsuits, as well as reporting on FotoMedia and related companies. If you have a tip or would like to share your part in this story, please contact me by e-mail or telephone.
Top Image: Cave painting at Lauscaux. Wikimedia / Prof saxx