The Prior Art

Patent Litigation Weekly: Foley Tries Turning Tables on Spangenberg

This week, the man behind a notorious network of patent-holding companies finds himself in an unaccustomed spot: on the defense.

When it comes to litigation, Erich Spangenberg, well known for running a network of patent-holding companies, is usually a plaintiff. Now, though, he's on the other side of a lawsuit, having been named as a third-party defendant in a dispute between patent-holding company DataTern and its former lawyers at Foley & Lardner.

DataTern—a spinoff of an operating company, Firestar Software—made news last year when it settled a closely watched East Texas patent infringement suit against open source software leader Red Hat Inc. The settlement was considered novel because of the protection it offered to Red Hat's developer community. At the time, the parties kept financial terms of the settlement confidential; it has since been revealed that $4.2 million changed hands. (See Red Hat's press release on this settlement; analysis of the agreement at Groklaw; IPLB profile of Red Hat lawyer Richard Fontana.)

Foley & Lardner, which represented DataTern in the suit, claims it is still owed more than $1.5 million in fees for its work on the case. But rather than paying up, DataTern filed suit against Foley in January, essentially saying the firm did such poor work on the matter that it should be the one doing the paying. With the litigation now heating up, Foley has named Spangenberg, his wife, Audrey, and several related companies as defendants in a third-party complaint filed on October 1.

Good Magazine Goes Bad: The Ethics of Patent Trolling

In its current issue, GOOD magazine has a lengthy profile of Erich Spangenberg, one of the most successful "patent trolls."

Good, founded by Ben Goldhirsh to be a magazine for people who "give a damn," missed a great opportunity to address the ethical quandaries at the heart of large-scale patent assertion. While I write for a primarily a legal and business audience, I think that the kind of people who read Good would want to know how widespread patent lawsuits affect them—as consumers and as citizens. It’s an important issue, given that the purpose for patents under U.S. law is to "promote the progress" of science. 

It's one thing to say "patent trolls" aren't such bad guys after all and fill a needed niche in the economy. But Good goes so far as to compare Erich Spangenberg to Robin Hood. Hm... wouldn't we need some poor people to come into the picture after the "rob from the rich" part?

The reporter who wrote Good’s Spangenberg story really missed the point. First, she made the common mistake of mostly ignoring the most important public record of how patents are actually used—federal court litigation. It’s easy, but misleading, to go on and on about the "intellectual property business" when you conveniently ignore what's really happening—patent-holders going to court to enforce monopoly rights. 

Of Patent Trolls and Trademark Champions: A Tale of Two Spangenbergs

Audrey Spangenberg sees her story as a straightforward David versus Goliath saga: as CEO of a small, struggling software business, she resents search giant Google selling ads that are triggered by users typing her company's trademarked name, Firepond, into the Google search box.

"I was sitting around this one day, and I thought, I'm going to Google 'Firepond' and see what comes up," said Spangenberg. "I was blown away to see that one of the competitors was using my trademark as an ad word."

After consulting a team of lawyers, she filed a lawsuit against Google on Monday that she hopes will become the first class action trademark claim against the company's practice of selling ads on trademarked keywords, a practice she hopes to stop.

Spangenberg says her suit isn't about money, it's about respect for intellectual property. "I'm very troubled at Google's continued disregard for the trademarks of others," she says. "Unless we're a huge company like Google, our property isn't valuable?" That’s how Spangenberg framed the issue in an interview with IP Law & Business on Friday—and the way she framed it yesterday, when she told The New York Times that Google's policies made her "furious."

But that version misses the byzantine backstory to this suit: Spangenberg and her husband Erich already sit atop a sizable fortune, won through intellectual property litigation. Since 2004, the Spangenbergs have moved patents purchased from various sources—including Firepond—through a complex network of shell companies set up in the small town of Marshall, Texas. In the last five years, these companies have filed dozens of patent lawsuits against hundreds of companies, most of them in Marshall or neighboring towns in the Eastern District of Texas, a venue considered friendly to patent plaintiffs—the same venue for the new class-action trademark suit.

Polaris IP, suing Google, argues for wide-ranging discovery

On Friday, I wrote about how lawyers working for Polaris IP (Erich Spangenberg) want to use the discovery process in Polaris IP v. Google to learn more about Google's patent reform efforts. Google asked for a protective order; now Spangenberg's response is available. [PDF via Justia]

What's the relevance? Polaris lawyers want to know "Google’s views and efforts relative to the Accused Instrumentalities being able to use the patented technology of others without providing damages adequate to compensate for the infringement." The "Accused Instrumentalities" are the Google products Spangenberg believes he should be paid a royalty on: Google Search, AdWords, and AdSense.

If I hadn't recently watched a patent trial (almost) in its entirety, I think I'd have a hard time understanding what Polaris might be after. But now I can imagine the deposition clips that a skilled lawyer could get from this: "Do you really expect this jury to believe that Google respects patent rights? Isn't it true that Google doesn't want to pay when it uses other people's intellectual property? Didn't Google spend millions lobbying Congress to get the penalties for using other people's intellectual property reduced?" ... and so on.

Spangenberg lawyers want to dig into Google's patent reform efforts

Polaris IP, aka Bright Response, is an arm of Erich Spangenberg's patent-holding empire. In one of its lawsuits, filed August 2007, it targeted Google, Yahoo, AOL, and IAC/InterActiveCorp, accusing them of infringing U.S. Patent No. 6,411,947. This patent, which is on natural language processing, became somewhat infamous after it was targeted by EFF's Patent Busting Project. EFF has the prosecution history of the patent on its web site. Spangenberg companies now own the entire interest in this patent.

In this litigation, Polaris and Google are presently engaged in an interesting discovery dispute. Polaris wants to learn all about Google's lobbying efforts in favor of patent reform, by making the search giant hand over any related documents on the subject, and depose its top patent lawyer about lobbying efforts.

Last month, Google lawyers responded, saying that the company's lobbying efforts are entirely irrelevant to the Polaris lawsuit. Even if the lobbying was relevant, Google claims it has a First Amendment right to lobby the government, and that should protect it from discovery on this issue. 

Neat trick: Facebook dodges Spangenberg's search patent

PA Advisors, LLC is an arm of Erich Spangenberg's patent-holding empire. Its job is to assert U.S. Patent No. 6,199,067, which claims the use of user profiles in Internet search; it was used to sue Google, Yahoo, Facebook, and several other smaller players in November 2007. [full PA Advisors docket]

On Friday, Law360 reported that the suit was dismissed against Facebook; and remarkably, a Facebook spokesman said that no payment at all was made to Spangenberg. That's pretty unusual in a case brought by a patent-holding company.

If a case isn't going well, it's still typical for a plaintiff to get at least a small payment. That payment might not even cover the plaintiff's legal costs, so it's effectively a defense win; but it allows the plaintiff to save face. But not here: “After meeting with Facebook and learning more about our technology, we appreciate that PA Advisors decided to dismiss their claims without any payment or other agreement,” said the Facebook spokesman.

Spangenberg will pay opponent's legal fees — again — while his patent faces new scrutiny

Orion IP, now re-christened Clear With Computers, is a patent-holding company controlled by lawyer-investor Erich Spangenberg. Orion/CWC continues to insist that a vast array of online retailers are infringing its patent and thus owe it money.

Today we learn from EFF's Deep Links blog that one of Spangenberg's most profitable patents, the 5,367,627 patent, has been challenged and will face a re-exam at the U.S. Patent Office.

"If you remove the word 'electronically,' the patent covers exactly what sales people have been doing for customers for ages," writes EFF's new IP attorney, Michael Kwun. "Unfortunately for the patent owner (and fortunately for the rest of us), saying 'do it with a computer' does not an invention make."

How profitable is the '627 patent? When you take Hyundai Motor Company to a jury trial in E.D. Texas, $34 million profitable.

The process now underway is called an "ex parte re-exam." It entails a third party asking the PTO to take a second look at the patent to see if it's really valid. Ex parte re-exams can be requested anonymously, and that's what happened here. (The law firm requesting the re-exam, Los Angeles IP boutique Chen Yoshimura LLP, confirmed to me its client chose to remain anonymous.)

Meanwhile, Spangenberg is also appealing a judge's order that he must pay $3.8 million in legal fees to Chrysler for repeatedly suing the company over the same claims; his appeal to the Federal Circuit quickly won him a write-up in PA Tracer, where blogger Kyle Fleming goes through Judge Barbara Crabb's 62-page order more thoroughly than I did; read down to the second half of his post to get some choice quotes and analysis on Judge Crabb's finding that Spangenberg, through a subordinate, attempted to intimidate a witness in the case.

Fleming writes: "Did Spangenberg and Anderson really think this was OK or did they think they wouldn't get caught? If this was the only sanction imposed (and I don't know if it was), then the problem is that there is no real punishment or deterrence for this type of behavior."

One setback, predictably, has led to another. In another one of Spangenberg's "actually, we're not done yet" lawsuits against a car company, Orion IP, LLC v. Mercedes-Benz USA, LLC, 07-cv-00451, E.D. Texas, Judge Leonard Davis threw out Orion IP's patent infringement claims on summary judgement, but allowed Mercedes-Benz to re-plead and move ahead with its counterclaim for breach of contract.

Rather than see a replay of the Wisconsin debacle—they were up against the same legal team from Kilpatrick Stockton—Spangenberg and his lawyers admitted they had breached their earlier "no more lawsuits" settlement agreement, and have agreed to pay $76,500 in legal fees. (Dismissal & judgment, PDF)

Illustration: from Uranographia by Johanus Hevelius, via Wikimedia.

Relentless

You can't keep Erich Spangenberg down. Setbacks are just opportunities to think of new company names, and if that doesn't work, heck, just use an old one. Just a month after the Wisconsin jury held him liable for breach of contract, Orion IP took on an alt-neu moniker, naming itself Clear With Computers, LLC on April 18, according to Texas corporate documents. 

Clear With Computers, Inc. was the Minnesota-based company founded by Jerome D. Johnson, who started filing patents in the early 1990s that are now alleged to cover selling stuff on the Internet. Johnson's patents were later bought by Spangenberg, who has licensed over 100 companies and had made, as of last October, at least $72 million.

Last month, the new and improved Clear With Computers filed suit in E.D. Texas against 47 more defendants. Lots of big retailers; partial list at right does not include Palm, Canon, Sprint, Uniden, or Motorola. All guilty of doing business over the Internet without paying the new economy's self-appointed tax collector, former Jones Day attorney Erich Spangenberg, who still wields U.S. Patents 5,615,342 and 5,367,627. 

Two days ago, Apple and Hewlett-Packard were sued on the same patents. Also, Spangenberg's lawyers have filed motions for a new trial and JMOL in the aftermath of the Wisconsin smackdown. One of their arguments is that when Spangenberg took $2.3 million from Chrysler to not be sued again, that agreement didn't include U.S. Patent No. 6,141,658, which had been "sold" to Caelum IP. "You see Your Honor, during the settlement negotiations they shook my right hand, but I had long ago moved this particular patent to my left hand..."

So Orion IP sold to Caelum IP, which became Constellation IP, which sold to Taurus IP, which filed suit against DaimlerChrysler et al., which my father bought for two zuzim...

Spangenberg must pay $3.8 million in legal fees

Earlier this month I wrote about how Erich Spangenberg could be on the hook for $4 million in attorneys' fees to car companies that he repeatedly sued for patent infringement. He will indeed have to pay. There's a story on Law.com today.

We learn that Orion IP—perhaps the most active of Spangenberg's many patent-holding companies—has raked in $72.3 million over a few years, forcing about 100 companies into settlements by claiming various aspects of their websites infringe the handful of software patents he bought.

Judge Barbara Crabb's order will surely put a chill on patent-holders who thought that the Western District of Wisconsin might become the new E.D. Texas. The lawyers that took down Spangenberg's empire are from Kilpatrick Stockton; this is a huge victory for them.

I have more to add on this case, which reveals some of the inner workings of this mysterious business.

But first, and I'm speaking solely on my own behalf here, it's incredibly dismaying that Judge Crabb has allowed nearly every document filed in the case since trial to be filed under seal. This lawsuit is, in one sense, about online shopping technology. That affects everyone in this country. For three months now Crabb has operated a secret, closed court; I've read through hundreds of patent dockets and I've never seen anything like it. This should stop. I don't know if it's legal, but I know it ain't right.

 

Will Erich Spangenberg be on the hook for $4 million in attorneys' fees?

I'm looking over dockets for IPLB's annual patent litigation survey—and I'm finding some interesting cases along the way.

Erich Spangenberg and his lawyer David Pridham are at the heart of a massive empire of patent-holding companies named after stars, including Taurus IP, Gemini IP, Caelum IP, Phoenix IP, Orion IP, Constellation IP. At the head of them all is Plutus, named after the Greek god of wealth.

Of all the large networks of patent-holding companies, the Plutus IP group is the most mysterious. Spangenberg doesn't talk to the press. (But John Letzing of Marketwatch wrote a good profile of Plutus IP back in September.)

Now it looks like Spangenberg has suffered a serious blow in Wisconsin. He's at risk of having to pay up to $4 million in attorneys' fees to DaimlerChrysler's legal team from Kilpatrick Stockton LLP.

How did this happen? Well, Chrysler had already paid Spangenberg off—$2.3 million in 2006. That was supposed to get the companies a broadly construed "no-more-lawsuits" agreement. But then Spangenberg shuffled around some patents to different shell companies and sued DaimlerChrysler not once but three more times.

In March 2007, he sued DaimlerChrysler along with Toyota and Mercedes-Benz USA for infringing a software patent on a system of using software to track sales information. DaimlerChrysler sued back for breach of contract, saying that Spangenberg had breached the no-lawsuit settlement agreement.

In March of this year, a Wisconsin jury sided with DaimlerChrysler after a three-day trial. Now U.S. Judge Barbara Crabb, one of two judges in the Western District of Wisconsin, will decide what kind of damages, if any, Spangenberg will have to pay. He's acknowledged having $6 million in the bank account of one of his many shell companies—surely just a small fraction of his fortune.

(Crabb has allowed almost every document filed in the past month in this case to be sealed, turning these proceedings into a de facto secret and closed court. I can't see any justification for this radical action; federal judges are often too loose in allowing lawyers to seal documents in patent cases, but this is by far the worst I've seen.)

Since his setback in Wisconsin, another Spangenberg shell, ST Sales Tech Holdings LLC, has had to drop its E.D. Texas patent suit against DaimlerChrysler and several other car companies. And a Seattle-based automotive sales support company, Cobalt Group, Inc. has sued in Los Angeles to invalidate a Spangenberg patent, naming as defendants not just ST Sales but also Orion IP, Plutus IP Holdings, and Spangenberg personally.

According to a Cobalt Group court filing, Spangenberg called the company's CFO personally, and "inquired about Cobalt's reasons for filing this case and initiated discussions on behalf of himself and the other defendants, including ST Sales, regarding potential dismissal or settlement of this lawsuit. He specifically asked that Cobalt's counsel get in touch with him directly because he was hoping to resolve this matter quickly."

Is this empire starting to crack?

Illustration: "Plutus, Dante and Virgil" from the illustrations to Dante's "Divine Comedy" (1824-27)