The Prior Art

Highlights from the May issue

The May issue of IP Law & Business is out. The cover story profiles 50 top IP people  under 45, and is available online. (free registration required)

More highlights from the May issue (subscribers only):

• Patent bar to E.D. Tex: enough is enough. AIPLA has filed a brief urging the U.S. Court of Appeals for the 5th Circuit to force East Texas judges to transfer more cases out of the district. It's an effort to head off more heavy-handed venue reform that could come from Congress, but there are already early signs that the local judiciary is thinking of ways to keep the patent docket heavy even if they lose this case, which involves a product liability lawsuit against Volkswagen.

• Keyword-advertising showdown in Manhattan: Google brings in the big guns, hoping for a solid win at the 2nd Circuit to make it clear that selling trademarked keywords is perfectly legal, pro-consumer—and not so different than traditional advertising practices.

Ward Jr. may have pursued Troll Tracker for months

Following up on the recent demise of the popular and controversial Troll Tracker blog: I've read T. John Ward, Jr.'s defamation complaint (link) against Patent Troll Tracker, thanks to Patently-O and the Zura 271 blog. Readers should note that it's an amended complaint. According to the case docket in Gregg County District Court (link), the case was originally filed as John Ward, Jr. v. John Doe et al. on Nov. 7, 2007, as a petition to depose someone at Google. I'm guessing that the goal was to discover Troll Tracker's identity. (Google hosted the anonymous blog.) Since then:

Jan. 24: Petition to depose granted.

Feb. 23: Troll Tracker reveals himself as Rick Frenkel, an IP director at Cisco Systems.

Feb. 27: Ward Jr. filed an amended complaint claiming defamation against Cisco and Frenkel.

March 3: Eric Albritton files a separate complaint against Cisco and Frenkel. I have not seen this one. (link to docket)

The two posts Ward objects to are dated Oct. 17 and Oct. 18 of last year; those posts are printed out and attached to the end of his complaint. If those printouts are accurate, Frenkel edited the language of his Oct. 18 post at some point, and acknowledged doing so; the language in the Ward Jr. complaint differs from my version, which I saved on Feb. 25, 2008.

The first two paragraphs of the Oct. 18 are the same in both the complaint and my copy:

I got a couple of anonymous emails this morning, pointing out that the docket in ESN v. Cisco (the Texas docket, not the Connecticut docket), had been altered. One email suggested that ESN’s local counsel called the EDTX court clerk, and convinced him/her to change the docket to reflect an October 16 filing date, rather than the October 15 filing date. I checked, and sure enough, that’s exactly what happened – the docket was altered to reflect an October 16 filing date and the complaint was altered to change the filing date stamp from October 15 to October 16. Only the EDTX Court Clerk could have made such changes.

Of course, there are a couple of flaws in this conspiracy. First, ESN counsel Eric Albritton signed the Civil Cover Sheet stating that the complaint had been filed on October 15. Second, there’s tons of proof that ESN filed on October 15. Heck, Dennis Crouch may be subpoenaed as a witness!

Here's the end of the Oct. 18 post per the Ward complaint (emphasis mine):

You can’t change history, and it’s outrageous that the Eastern District of Texas may have, wittingly or unwittingly, helped a non-practicing entity to try to manufacture subject matter jurisdiction. This is yet another example of the abusive nature of litigating patent cases in the Banana Republic of East Texas.

(n.b.: don’t be surprised if the docket changes back once the higher-ups in the Court get wind of this, making this post completely irrelevant).

And here's the end of my version (emphases mine):

You can’t change history, and it’s outrageous that the Eastern District of Texas may have, wittingly or unwittingly, helped a non-practicing entity to try to manufacture subject matter jurisdiction. Even if this was a "mistake," which I can't see how it could be, given that someone emailed me a printout of the docket from Monday showing the case, the proper course of action should be a motion to correct the docket.

(n.b.: don’t be surprised if the docket changes back once the higher-ups in the Court get wind of this, making this post completely irrelevant).

EDIT: You can't change history, but you can change a blog entry based on information emailed to you from a helpful reader.

So it looks like he got some more evidence and scaled down the tone a notch. Either way, it hardly sounds defamatory to me.

For the Oct. 17 Troll Tracker post, the version in the lawsuit matches my version exactly. You can read the relevant parts of that in my earlier post about Troll Tracker's demise, and Cisco's response.

Patently-O has links to other coverage, and the clearest description of the events at issue in the Ward v. Frenkel lawsuit, which involves the filing date of the ESN v. Cisco lawsuit. (link) If this is defamation... I don't even know where to begin. Ward files patent infringement lawsuits one minute after the stroke of midnight, and then sues when people think he filed a day too early? Obviously, this could have been cleared up without a lawsuit, but Ward Jr. hasn't been too communicative (he's never returned my calls, including one yesterday afternoon). The original complaint really was time-stamped 10/15, as noted on Patently-O, which would mean Ward's patent gun was shooting blanks.

Troll Tracker sued: Judge Ward's son is the plaintiff

The Daily Journal's Tuesday edition (not linkable) reports that Troll Tracker author Rick Frenkel, and his employer Cisco, have been sued for defamation by two East Texas attorneys who are players in that district's patent litigation scene, Eric Albritton and T. John Ward, Jr.

T. John "Johnny" Ward, Jr. is a Texas lawyer who has filed a large number of patent infringement lawsuits in recent years. Between January and mid-October of 2007, his name was attached to 54 separate lawsuits by my count; in all but four, he represented the plaintiff. He is also, as I reported in October, the son of Judge T. John Ward, the judge who is largely responsible for making the Eastern District of Texas a hotspot for patent litigation.

I haven't yet read the complaints. But I did re-read a copy of the Oct. 17, 2007 post two October posts that apparently inspired the lawsuits. (that's a small assumption on my part--but it's one of only a few posts that mentions Cisco and the only one I know of that mentions both Cisco and Ward & Albritton, and Craig Anderson's DJ story says the post is from October.) The Oct. 17 post is titled "Troll Jumps the Gun, Sues Cisco Too Early," and alleges that Ward & Albritton filed an amended complaint solely to change the filing date on a lawsuit where Cisco was a defendant.

The 10/17/08 Troll Tracker post begins:

Well, I knew the day would come. I'm getting my troll news from Dennis Crouch now. According to Dennis, a company called ESN sued Cisco for patent infringement on October 15th, while the patent did not issue until October 16th. I looked, and ESN appears to be a shell entity managed by the President and CEO of DirectAdvice, an online financial website. And, yes, he's a lawyer. He clerked for a federal judge in Connecticut, and was an attorney at Day, Berry & Howard. Now he's suing Cisco on behalf of a non-practicing entity.

I asked myself, can ESN do this? I would think that the court would lack subject matter jurisdiction, since ESN owned no property right at the time of the lawsuit, and the passage of time should not cure that. And, in fact, I was right:

(he goes on..)

Of course, Frenkel works for Cisco, as we now all know. So it's unlikely that he was actually, as he says, "getting [his] troll news from Dennis Crouch now." I'd guess he was well aware of the ESN lawsuit. Still, he was careful to write about it after Patently-O author Crouch, who reported the same basic facts: that the ESN v. Cisco patent infringement lawsuit was filed on 10/15/2007, a day before the patent in question was actually issued, thus "jumping the gun." Crouch didn't mention the amended complaint, which hadn't yet been filed.

In this subsequent motion, Ward and Albritton say they filed the ESN v. Cisco lawsuit at 12:01am Central Time on 10/16, and that Cisco filed suit in Connecticut ten and a half hours later, at 11:32am EST 10/16. They insisted the case should be kept in Texas. , but then apparently changed their minds--they stipulated to dismissal on Nov. 2.

The PACER entry does list 10/15/07 as the date he lawsuit was filed, but the first document--the complaint--is listed as being filed on 10/16.

Back to the Troll Tracker 10/17 post:

One other interesting tidbit: Cisco appeared to pick up on this, very quickly. Cisco filed a declaratory judgment action (in Connecticut) yesterday, the day after ESN filed its null complaint. Since Cisco's lawsuit was filed after the patent issued, it should stick in Connecticut.

Perhaps realizing their fatal flaw (as a couple of other bloggers/news items have pointed out), ESN (represented by Chicago firm McAndrews Held & Malloy and local counsel Eric Albritton and T. Johnny Ward) filed an amended complaint in Texarkana today - amending to change absolutely nothing at all, by the way, except the filing date of the complaint. Survey says? XXXXXX (insert "Family Feud" sound here). Sorry, ESN. You're on your way to New Haven. Wonder how Johnny Ward will play there?

And how will a Silicon Valley lawyer who referred to East Texas as a "Banana Republic" play in Longview? Albritton and Ward Jr. have probably hauled enough Californians into court to know the answer to that one.

UPDATE: A Cisco spokesperson asked me to add their statement on this issue:

"The parties have mutually agreed to make no comment  on the lawsuit in question at this time. That said, we would like to  underscore that the comments made in the employee's personal blog represented  his own opinions and several of his comments are not consistent with Cisco's views. We continue to have high regard for the judiciary of the Eastern  District of Texas and confidence in the integrity of its  judges."

I should also add that the only place I have seen the "Banana Republic" comment thus far is in today's Daily Journal. Craig Anderson writes: "In the October posts at issue in the complaints, Frenkel accused the court of conspiring with the company, on whose behalf the Texas lawyers had filed the patent infringement lawsuit at issue, and referred to the court as 'the Banana Republic of East Texas.'"

It does not appear in my version of the TT posts, which were saved on Feb. 25. But there is a notation that indicates the October 18 post was edited later. I may post up relevant portions of other posts at a later date, but I'm going to hold off until I'm clear on what the accusations are.

UPDATE again:  This post has gotten a lot of attention. (Can't read Troll Tracker, work sucks, what're you going to do?) I'll write more on this soon. Meanwhile my colleague Zusha Elinson at The Recorder has a bit more on Cisco and Troll Tracker here.

Patent Player Acacia Takes a Hit

As anyone writing about patents quickly discovers, Acacia Research Corporation is a big name in a controversial business. Acacia makes money by getting companies to pay for licenses to its patents; those that won't pay often meet Acacia in court.

The Newport Beach-based patent-holding firm has filed dozens of patent infringement lawsuits against more than 100 defendant companies. But until last week, none of those lawsuits had been tested in a jury trial.

A Beaumont, Texas jury took only two hours Thursday to decide that Acacia’s lawsuit against Microsoft didn’t hold water, and tossed out Acacia’s patent to boot. The company’s stock has since lost more than a third of its value, dropping from $17.90 to just about $10.00 on Monday afternoon. Before closing arguments, an Acacia expert said Microsoft should be forced to pay $2.50 per copy of Windows XP, which various reports have pegged at between $600 million and $900 million.

Acacia's detractors say the company is a prime example of a "patent troll," using the threat of litigation  based on overly broad patents to make money off others’ hard work. Critics put the Newport Beach, Calif.-based company at the heart of a new industry they say abuses the patent system. Others have labeled their model "patent holdup" or even "patent terrorism."

The company does not share that view. Acacia officials say they defend innovation by helping small inventors and companies to outsource the difficult and costly business of licensing their patents.

"We’re the only really pure licensing company in the country that small technology companies can partner with," Acacia CEO Paul Ryan told me yesterday. "We have the expertise and experience—500 licenses including every major company in the country."

That gives the little guy leverage against big corporations that would otherwise blow off valid patents, said Ryan. Acacia's point of view is well articulated in this February 2007 profile, and in this 2006 interview with CNET.

Last week's verdict also leaves seven other East Texas lawsuits that Acacia filed last month in limbo, since they are based on the same patent asserted in the Microsoft case, 5,933,630. Ryan told me the company hasn’t decided whether or not to appeal the Microsoft verdict—which it would have to do to keep the other lawsuits alive.

The full story is in today’s Daily Journal, complete with some colorful quotes from Weil Gotshal & Manges partner Matt Powers, a Silicon Valley patent litigator who went toe to toe with a “dream team” of Texas plaintiffs’ lawyers to defend Microsoft. ("Defendant Microsoft Wins Big Patent Suit in Plaintiffs' Haven", 11/20/07) Marketwatch also has well-reported coverage of the lawsuit.

Computer Acceleration Corp. v. Microsoft Corp., 06-cv-00140, ED Tex.

Lawyers expecting the Eastern District of Texas to lose its pro-plaintiff luster shouldn't hold their breath. The day after its big win, Microsoft lost a round in the patent wars when the Federal Circuit upheld a $142 million ED Tex verdict against it for infringing a patent held by z4 Technologies.

A final note for blog readers--

The Battle in Beaumont was ultimately a dispute between two Washington State companies. The '630 patent originally belonged to eAcceleration, a software company located about 40 miles away from Microsoft headquarters in Redmond. eAcceleration CEO Clinton L. Ballard, who did not testify at the trial, is named as one of two inventors on the patent. Ballard's company was public but terminated its registration with the SEC on July 12, 2006, just six days after Microsoft was sued.

Lawyers get $7.5 million to call off Texas patent attack

LeapFrog's third quarter financial results, filed with the SEC Friday, reveal that the Emeryville company agreed to pay $7.5 million to get rid of a lawsuit brought by two local lawyers who style themselves "Tinkers & Chance."

It's a significant payday for Brian Marcus and Warren Heit, two Bay Area patent attorneys who claim they invented certain forms of child-computer interaction in 1995, and parachuted their California partnership into the Eastern District of Texas ten years later "specifically to enforce its intellectual property," filing a lawsuit the same day they moved.

How much of that will go to their legal team led by Haynes & Boone partner Phillip Philbin, I don't imagine I'll find out.

The check will come next year, but the educational toy company booked the payment immediately, tacking it on to the $2.8 million net loss it reported to investors last week.

LeapFrog notes in Friday's quarterly SEC filing that Tinkers & Chance made an earlier demand of $41 million plus interest and attorney's fees. While $7.5 million is a good deal less than that, and a mere 1.2 percent of the $625 million Heit suggested as a starting point in a 2004 letter, it doesn't buy much these days. Just a no-expenses-paid trip back to California, and the right not to be sued by Marcus and Heit until at least 2014.

I blogged yesterday about this story here, with documents, and the full story is in today's Daily Journal. ("Lawyer/Inventors Will Get $7.5 Million in LeapFrog Settlement", 11/13/07, subscription required)

A University Challenges Google

Saturday’s Boston Globe reports that Northeastern University is the latest plaintiff to sue Google for patent infringement. The University joined a small tech company, Jarg, which is owned by an associate professor, Kenneth P. Baclawski.

The idea of targeting Google with a lawsuit apparently came from a Boston-area law firm—Jarg president Michael Belanger refused to say which firm. Belanger also told the Globe that it took him 2 ½ years to find a firm that would take the case on a contingency basis.

The lawsuit was filed in the Eastern District of Texas, a popular venue with patent plaintiffs.

Northeastern University et al v. Google, Inc., 07-cv-00486-TJW.

Companies that make no products, but sue others for patent infringement, are often derided as “patent trolls” by their critics, who say this “license or lawsuit” approach amounts to a patent holdup, a tax on true innovation. But like beauty, trolldom is in the eye of the beholder, or the defendant, as the case may be. Often, the folks who call “troll” are connected to big companies, especially big tech companies, that are getting deluged by patent infringement lawsuits.

The phrase itself is controversial. While I have used it several times during my short time here on the IP beat, I’ve kept it in quotes (literally or figuratively), following the style of WSJ's Law Blog and letting others do the dirty work of directly applying this "popular pejorative phrase." 

Universities occupy a problematic middle ground in this debate. They typically don’t have products or services in the areas their patents cover, but still insist on getting paid by those who use their patented technologies, and few question their right to do so. Many critics who would lambaste a patent-holding company for suing in pro-plaintiff East Texas don’t have any problem with the University of California or MIT bringing a lawsuit in San Francisco or Boston.

LeapFrog dodges a Texas showdown

In today's Daily Journal: Emeryville-based LeapFrog reached a last-minute settlement Monday before facing a jury trial for patent infringement in Marshall, Texas, Judge T. John Ward, presiding. ("LeapFrog, Bay Area Lawyers Settle Patent Case," Daily Journal 11/9/07)

UPDATE: LeapFrog revealed the settlement terms: $7.5 million. Blogged here.

It’s no surprise that a Bay Area company would prefer not to roll the dice in front of a jury in the Eastern District of Texas, a famously pro-plaintiff district feared by defendants worldwide.

The plaintiffs in this case aren’t typical, though. They’re two Bay Area patent lawyers, Brian Marcus of Vierra Magen Marcus & DeNiro, and Warren Heit, a partner at White & Case.

Marcus and Heit, who declined interview requests, have acquired a group of patents that cover devices where children use blocks or other easy-to-handle objects to control computers. They’ve asserted those patents against at least four toy companies over the past several years. (Zowie Intertainment, Publications International, Small World Toys, and LeapFrog.)

Subscribers can read the full story in the newspaper. Here on the blog, I'll point out that this story brings up several issues I’ll continue to look at in the future:

Lawyers with "patents on the side"

At what point does a big firm lawyer’s own patents become a potential problem or conflict of interest? I’ve written a few articles about Scott Harris, the former Fish & Richardson partner now embroiled in a lawsuit with his former firm. (Patently-O has a good synopsis here). Whereas Harris tried to distance himself from his patents under pressure from his firm, Marcus and Heit actually got help from a White & Case colleague in one case. Publications International, Ltd. v. Tinkers & Chance, 05-cv-03256-MHP (ND Cal). 

Venue Reform and the Eastern District of Texas

Early in the litigation, LeapFrog lawyers said Tinkers & Chance’s last-minute Texification was a "sham," noting the case involved “two California lawyers suing a California business relating to an invention conceived in California and products developed in California.” LeapFrog still wasn’t able to escape. LeapFrog lead counsel Henry Bunsow said it's an "open question" whether the company's motion to transfer would be denied today, given new case law. 

At Patently-O, Dennis Crouch suggests ED Tex may soon be on the wane; the anonymous Patent Troll Tracker strongly disagrees.

The Cost of IP

How much did LeapFrog's last minute ticket out of Marshall, Texas cost? Publicly traded LeapFrog will make some disclosure about the settlement in the future. How much disclosure, and when, I don't know but would like to.

For now, it’s confidential. Bunsow told me it’s “far less” than the original request.

Good thing, since the suggested retail price of the Marcus-Heit patents was $25 million plus $600 million over the life of the patent. A discount was available "for a limited time." (see Heit’s letter below)

Marcus and Heit settled with New World Toys for $250k plus $100k annually, per this email.

Far less than $600 million could still be a lot more than that. SEC records show LeapFrog sold $502 million of product last year, and my cursory reading shows the struggling company has not seen any net profits for a couple years.

Documents

Tinkers & Chance v. LeapFrog Enterprises, Inc., 2:05-cv-00349-TJW-CE, (ED Tex).

Tinkers & Chance Fourth Amended Complaint
LeapFrog's Motion to transfer (denied by Judge Ward)
Tinkers & Chance marketing brochure
LeapFrog’s chart of Marcus and Heit's group of patents, with a common ancestor
Heit's letter to LeapFrog citing his patents' MSRP of more than $600 million (cropped to cut address)