The Prior Art

Patent Litigation Weekly: PubPat and "Patent Troll" Make Strange Bedfellows

The view that software patents are an impediment to progress—common among technologists—is rare among patent attorneys. But Dan Ravicher is not a typical patent attorney. He founded the Public Patent Foundation (PubPat), a public interest group that, according to its website, "represents the public's interest against undeserved patents and unsound policy." PubPat recently helped the ACLU launch a major challenge to human gene patents. In the past, PubPat has also challenged broadly asserted software patents, which Ravicher believes "hinder — rather than promote — innovation."

Meanwhile, it's not unusual that a patent-enforcement company recently set up in East Texas would file suit there this week against ten Internet-based and software companies. Nor is it unusual that Texas corporate records show the company is owned by an erstwhile big-firm lawyer, in this case David Garrod, formerly of Goodwin Procter.

What is surprising is that at the same time he is trying to wring licensing fees from such big online names as Google, Yahoo, and Amazon, Garrod is also spearheading a major PubPat initiative: filing lawsuits to rid the marketplace of false patent markings.

The company Garrod owns, Bedrock Computer Technologies, LLC, filed a lawsuit on Monday alleging that the defendants infringe U.S. Patent No. 5,893,120. The list of defendants includes seven big Internet companies—Google, Yahoo, MySpace, PayPal, Amazon, Match.com, and AOL—as well as the world's largest futures exchange, CME Group, and two software companies located in the Eastern District of Texas.

The buzz begins at Ocean Tomo patent auction; will deals follow?

I wasn't able to spend too much time Thursday at the Ocean Tomo events taking place in San Francisco, but I did manage to sneak in a few interesting conversations with folks in town for the events. One person I sat down with was Steven Hoffman, the CEO of ThinkFire, an IP consultancy and patent brokerage firm. Hoffman and I talked for a while in the Ritz-Carlton's lobby as it slowly filled up with patent wheelers & dealers talking business (or at least talking about the business they wish they were doing.)

This is the second Ocean Tomo event I've attended. Last year, the whispers in the hallways of the Ritz-Carlton were that Intellectual Ventures, Nathan Myhrvold's giant patent-holding firm, would be buying, depending on who was doing the whispering, half or two-thirds or perhaps even more of the patents going on the auction block. (Patent sellers at Ocean Tomo are identified, but the anonymity of purchasers is rigorously protected.)

This year, the talk in the halls is about how much smaller that number will be. No real surprise there: patents aren't immune to the vagaries of the wider economy. And Hoffman says conversations that he has had recently leave him believing that Intellectual Ventures, Ocean Tomo's biggest patent buyer, may indeed be moving out of its "acquisition" phase.

"IV will buy less—they will be less aggressive," says Hoffman. "I just don't know how much they're going to re-trench."

Google's top patent lawyer notes the "disturbing trend" of lawyer-inventors

Michelle Lee, Google's head of patents and patent strategy, wrote a post on a company blog this week calling for a renewed effort at patent reform. In the post, Lee mentions the fact that non-practicing patent holding companies—which represent 90% of patent infringement allegations against her company—are very often controlled by patent lawyers, who sometimes take the next step and claim inventorship themselves. "The temptations and opportunities for abuse have gotten too high," writes Lee.

Consider this: Of the 20 patent lawsuits filed against Google since late 2007, all but two have been filed by plaintiffs who don’t make or sell any real product or service — in other words, by non-practicing entities or “patent trolls.” Most of these cases seem to feature the same small set of contingent fee plaintiff's lawyers asserting patent claims against the same small set of companies. We've also noticed a more disturbing trend: in many of these cases, the patents being asserted against us are owned by — and in a surprising number of cases, are even “invented” by — patent lawyers themselves.

She concludes by opining that chances for patent reform in 2009 look better than they did in the past Congress.

More this week on patent reform: Zusha Elinson writes about Silicon Valley gearing up for the patent reform debate. More coverage of early jockeying for position in the 2009 patent reform debate on Patently-O and 271 Patent Blog. 

Saxon Innovations ITC case moves forward

Last month, I wrote about how a patent-holding company that has launched wide-ranging litigation against cell phone manufacturers, Saxon Innovations LLC, made an unexpected entrance at the ITC. Today I learned from Oblon, Spivak's new ITC blog that the ITC has accepted Saxon's complaint and will proceed with a Section 337 investigation. (The ITC deals with a number of fair trade issues; intellectual property disputes are referred to as Section 337 investigations.)

The ITC saw about 50 such investigations last year—a record number—but companies like Saxon, sometimes denounced as "patent trolls" since their only business is licensing and enforcing patents, have been conspicuously absent from the ITC. One presumed obstacle for such companies has been the "domestic industry" requirement; another is the sheer expense of litigating at the ITC.

The fact that the ITC is moving ahead with the investigation is not surprising. It's very unusual for the ITC to shut down a case at this stage. But lawyers I've spoken to have generally agreed that the Saxon case is pushing the envelope in terms of what constitutes a "domestic industry." There's a lot more detail on that in my story linked above, but it will be interesting to see how much of an issue this becomes going forward. In part, it depends on whether the respondents (what defendants are called at the ITC) choose to go after Saxon on that point, or focus their energies on other defenses.

The Saxon ITC case has five respondents: Nokia, HTC Corp., Research in Motion, Palm, and Panasonic. Saxon filed a companion lawsuit in an East Texas district court the same day it filed at the ITC, asserting the same patents against the same companies, asking for damages and an injunction. That case has been stayed until the ITC trial is complete.

High-end patent disputes in district court average about $5 million from filing through trial, and it typically takes 2-3 years to get through a patent trial. Compare that to the International Trade Commission, where trials are completed and decisions issued 12-15 months from filing, and legal fees during that period can get up to $10 million, or even more.

Most non-practicing patent-holders rely on contingency fee arrangements to pay for their litigation, meaning their lawyers have some "skin in the game." But if your legal bills are pushing towards the $1 million a month mark in an ITC case... well, that's a whole lot of skin in the game.

Neither Saxon Innovations nor their attorneys at Pepper Hamilton returned my calls when I reported on their ITC complaint in December, so I'm not expecting a press release detailing the fee arrangements for this case anytime soon. It's worth noting that Saxon is backed by Altitude Capital, an investment bank with $250 million to invest in the patent lawsuit business. 

In any case, Saxon's mere presence at the ITC, backed by a major law firm like Pepper Hamilton, seems like a sign that the business of pure patent enforcement is toughening up, not fading away. Even if the patent-licensing shops lose their ITC battles, they're going to leave a lot of scorched earth.

Saxon Innovation's ITC case is Investigation No. 337-TA-667. The corresponding district court lawsuit is Saxon Innovations, LLC v. Nokia Corp. et al, 08-cv-00494-LED, E.D. Texas (Tyler).

Image via Wikimedia: Charlemagne at war with the Saxons.

Will patent-holding companies flock to the International Trade Commission?

Below is an excerpt and link to my most recent story, on patent-holding company Saxon Innovations' complaint filed at the International Trade Commission, published earlier this week on The AmLaw Daily. The AmLaw Daily also has a link to the Saxon complaint. 

Each year a growing number of IP lawyers heads to the International Trade Commission, asking officials there to enforce Section 337 of the Tariff Act of 1930. That Depression-era law forbids various "unfair trade practices," including the importation of products that infringe a U.S. patent--the goal is protecting domestic industries and jobs.

But a new complaint brought by a Texas patent-holding company is looking to stretch the boundaries of what constitutes a "domestic industry" worthy of protection.

Last month, Saxon Innovations LLC filed a complaint asking the ITC to ban importation of six models of cell phones manufactured by Nokia Corp., HTC Corp., Research in Motion, Inc., and Palm, Inc., as well as a television controller created by Panasonic Corp. Saxon argues the devices infringe three of the 180 patents it bought from a spin-off of chipmaker Advanced Micro Devices, Inc., in 2007. Saxon isn't the first patent-licensing operation to file a complaint at the ITC, but a few factors make it stand out even in that small group.

What would the Commission be protecting by issuing an exclusion order on behalf of Saxon? The "industry" begins and ends with Saxon, a company that fits neatly within the definition of what some patent reform advocates call a "patent troll”: five employees, no products or services, a growing trail of litigation, and a leased office in the Eastern District of Texas, a popular venue with patent plaintiffs.

Read the whole story at AmLaw Daily: A New Troll Hangout?

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.

War stories: Fonality's battle with a patent troll

I noticed some traffic fluttering through to The Prior Art earlier this week that led me to the blog of Fonality CEO Chris Lyman. He recently ended his company's tussle with patent-holding company Rates Technology Inc., and writes about his experience in an amusing post he titled "How to (almost) beat a patent troll."

First tip: "Do not say uncle. Say 'bring it.' "

Chris Lyman is perhaps more vocal than your average CEO. But practitioners might glean some insights from his story, and it's told with a healthy dose of humor as well. To wit:

"I knew that one day, if Fonality kept growing at its torrid pace, I too would have to face these bottom dwellers of intellectual property... In some ways, facing this feared species is a rite of passage into startup adulthood."

Fonality was represented by Perkins Coie. Read the whole post here.

"Patent Trolls" — with them or against them?

Folks are choosing sides—first Howrey LLP (against), and now a veteran IP executive (against). Hat tip to Joff WIld's IAM blog for this one.

Dan McCurdy's new company, PatentFreedom, is an online community for companies to get and share intelligence about the non-practicing entities some critics call “patent trolls.” Membership is limited to “operating companies” with over $100 million of revenue that’s not from licensing, enforcing, or selling patents or other intellectual property. (Such revenue sometimes comes from the sale of “products,” which can be found on the shelves of most stores not located in North Korea.)

“Patent trolls know a lot about operating companies,” McCurdy told me today. Their targets, conversely, frequently know nothing at all. “Are they the only company being approached, or one of a thousand? Who funds them? How well funded they are?”

PatentFreedom will fill that void both with its own research and by creating a community where operating companies can exchange information, anonymously, if they desire.

But in order to found the new company, McCurdy will have to split from ThinkFire, the company he co-founded with Intellectual Ventures chieftain Nathan Myhrvold in 2001. The reason? Worries about conflicts of interest.  ThinkFire has an IP consulting and brokerage practice, as well as a group that provides licensing and litigation support to companies asserting patents, many on a contingency basis. It also helps companies defend against patent-infringement claims, billing hourly, like a law firm.

Also like most big law firms, ThinkFire plays both patent offense and patent defense. But PatentFreedom’s "fight-them-trolls" business model was too much; shortly before the April 14 launch, ThinkFire’s board decided it couldn’t play both sides on this one, and decided it will spin off  PatentFreedom as a separate company. McCurdy will officially move over to PatentFreedom in July.

Says McCurdy: “ThinkFire made the decision that it was not in its clients’ best interest to constrain the kind of advice that ThinkFire might be able to give to them, simply to meet the needs of PatentFreedom.”

Fear of conflicts, and perhaps hope for a competitive edge, already caused law firm Howrey LLP to actually agitate against so-called “patent trolls,” like the one pictured above, in its ads, as The Recorder reported in March. (free reg. required)

While we talked, McCurdy tapped into his database from his home office in Pennsylvania, browsing through electronic dossiers on—get ready—94 non-practicing entities, 249 affiliates, and more than 4,700 patents they’re known to hold. (Way more than the shuttered Patent Troll Tracker!) But McCurdy says he has no grudge against NPE’s; he’d just rather beat ‘em than join ‘em.

“When I walk into a cocktail party, I feel much better about myself saying that what I do is help companies defend themselves against NPE’s, or ‘patent trolls,’ than saying ‘I attack companies with patents I bought,’” he says. “I’m not saying that NPE’s are wrong… they have every right to pursue what they’re pursuing.” But targeted companies deserve tools that “at least somewhat equalize the playing field.”

So far close to 10 companies have joined, all “household names,” says McCurdy, and all confidential. He expects up to 20 by the time he officially leaves ThinkFire in July, and 50 members by year’s end.

Annual membership starts at $50,000. (Might make you feel like a subscription to IP Law & Business is a real bargain.)

Will the IP bar split over 'patent trolls?'

File under interesting timing: the lawsuit against Troll Tracker was reported the same day my colleague Zusha Elinson reports on Howrey's new advertisement urging clients not to support law firms that litigate for "patent trolls," which they call a "scourge on legitimate businesses everywhere." (article is here, free registration required)

I've had off-the-record conversations with folks at various firms about their opinions on taking work for patent-holding companies. Some say their high-tech clients are pushing them to not do such work; others have said there's no such pressure.

Definitely worth reading. I doubt IP will ever be like product liability or personal injury litigation, since (most) big companies that defend against lots of little-guy patent suits still think of themselves as potential plaintiffs. But the issue looms: will the big firms continue to be able to "work both sides of the street," as Henry Bunsow puts it? Or are we seeing the development of a new, more clearly  defined plaintiffs' and defense bar? There's certainly a fissure of tension, and Howrey's ad isn't shy about sticking itself in there.

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.