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)
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