Patent-Litigation Weekly: The Photo-Sharing Files

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

Comments

[Partner Emeritus]

It's a shame that Mssrs. Pitts and Kelling didn't do a simple patent search and/or freedom to operate opinion before investing nearly ten years of their lives into a technology invented by someone else. It seems pretty greedy that they now appeal to Congress because they had to take a license(!) to stay in business and keep making money. Just because you work really hard at tresspassing doesn't mean you're not liable for it.

[Joe Mullin]

They wrote their own software, and started businesses based on it. How is that "trespassing?" Also, how would doing a "freedom to operate" search have helped them?

You're making it sound like these entrepreneurs copied someone else or profited from the work of others -- but they haven't. Nor are they accused of doing so.

Consumers who use any of these 60+ photo-sharing sites are also alleged infringers. Should they have done a "freedom to operate" search?

[dave]

Does anyone have the numbers for these patents? The appropriate solution here is to out-invent these idiots and leave them in the dust.

[Don C]

Partner Emeritus: what research would you have them do? Did you read the letter? The patent trolls won't even identify what they violated. I assume from the tone of your posting you are one of the patent trolls. I hope Congress finally wises up to the damage being done to honest business people by the nonsense coming out of the courts in Texas.

[joeblo]

Patents on "organizing and sharing images online"? Surely these are "business methods". I hope the Supreme Court (In Re Bilski) can bring some sanity to this ridiculous software patent mess the lawyers have gotten us into.

[Don C]

If one were to go to freepatentsonline and keyword search "photo-sharing" one would get 505 hits. A perusal of these (esp. by any seasoned IT practitioner) would show these to be, in the main, obvious and most likely cases where prior art can be found. This situation is insane. We should not be rewarding people for merely documenting what any competent IT person would craft when faced with a particular requirement. This is not innovation, it is prior implementation of something inevitable. STOP THE INSANITY!

[anon]

Mr. Mullin,
It is trespassing because this is not copyright law. If the software they wrote includes something that was done in 1999 that is the subject of a valid patent, it is potentially infringing.

The freedom to operate search would have at least made them aware that a potential problem could exist down the road. Maybe they then could have taken steps like raising slightly more money to pay for the inevitable license, filing for their own patent to create a cross-licensing possibility to limit their financial risk, or at least incorporated these possibilities into their business plan.

Are people really advocating here that someone starting a technology-based company today need not do some prior investigation of what competitors or IP is already out in the market? It seems to me it is reasonable, and perhpas even should be a duty of any competent entrepreneur, to do some due diligence.

I do feel for these guys getting blindsided by this lawsuit. However, that they didn't pay a few bucks years ago to seek competent business or legal advice that would mitigate some of their present problems is not the fault of the patent plaintiff in this case.

In fact, it would be an interesting addendum to your article to indicate whether they had a business plan or received any legal or business advice when they were starting out, or whether they just made an awesome website, started doing well, and though, gee, this is great; we could make a mint and quit our day jobs...

[The Mad Hatter]

I would like to know the numbers of these patents, for use in a project of mine. If anyone is able to find out what they are, please post them as comments in my
blog.

[Joe Mullin]

I'm going to update the reference page, linked above as "FotoMedia Lawsuits," with patent numbers and other data later this week.

The patents-in-suit here are: 6,542,936; 6,018,774; and 6,871,231.

[Joe Mullin]

anon,

I still don't see what help could have come from a freedom-to-operate search, although it would certainly help drum up business for prior art searchers.

NPE = no business to cross-license with. Further, none of these patents issued until 2000, two years after the business started. Your most helpful suggestion amounts to: "Have more money, because when you are successful, others will want some of it."

Meanwhile, you're breaking a record for qualifiers per sentence. You write that the search "would have at least made them aware that a potential problem could exist down the road."

Indeed. Down the road, all kinds of potential problems might exist, the Pope might still be Catholic, and we might all be breathing oxygen on a planet called Earth.

But how is that helpful information?

[anon]

Mr. Mullin-

Precisely. Have more money, anticipate issues, have a business plan. Think before you act. If the company is going to fight in the marketplace and compete against other products, it should be prepared to fight in the IP arena as well -- not willfully closing its eyes.

If the search would not turn up this specific patent or patents, it would turn up some prior art to these patents -- still helpful intelligence that their company is not the only game in town.

If they cannot cross-license, at least they might have a patent to sell to the NPE to mitigate costs -- assuming of course that there was anything patentable (sorry for the qualifiers again).

In the end, all this preparation may not have helped them. Who knows?

I enjoy reading your blog because you focus more on the business side of patent and IP issues. It just seems to me that this particular company would have been well-served to have had more business advice earlier in their company's history.

I suspect that there will always be tension between "scrappy entrepreneurs" who are net risk takers, and their business and legal advisers who try to help those folks see more of the risks they are taking and prepare for those risks.

[anonymous]

I think you are missing the point: patents are granted to non-obvious inventions. Any company claiming patent infringement from something that 30+ other independent professionals came up with (almost) simultaneously is certainly not protecting a non-obvious invention. You should only need to search for patents when you try to solve a really difficult problem that is not obvious to solve: in that case it pays to search if it is already solved and pay them for your savings in research. Paying for something obvious is a scam.

[Chris]

Personally, as a defendant in these suits, I think the hardest thing is figuring out where the alleged infringement is. Our worst nightmare is to be sued over a patent we never dreamed could apply to us by a company we've never heard of that doesn't explain how they think we infringe.

We're left with paying a lot of money to law firms to try and figure it out, hoping that eventually our lawyers can get to the bottom of it and explain it to us in a way we can understand.

[anon]

Chris,
I think you hit the nail on the head.

The real tragedy is not the companies who are naive about IP and then play the victim to court the emotional response of Joe Public.

It's the companies who have done their IP due diligence, and still get sued by some company on a marginal patent. Even though they may have a strong non-infringement position, such companies are still faced with paying a heap of legal fees to evaluate the case and file an answer and motions in the early discovery stages until they can get their case dismissed.

[Bettawrekonize]

"Are people really advocating here that someone starting a technology-based company today need not do some prior investigation of what competitors or IP is already out in the market?"

The laws should be such that they shouldn't have to. When faced with similar problems people independently invent similar solutions (Newton and Leibniz both came up with calculus independently). If a patent law is going to prevent me from independently inventing a practical solution then it is only harming innovation. The purpose of patent law is to advance innovation, not harm it. If it harms innovation then we should eliminate it.

[Bettawrekonize]

"In fact, it would be an interesting addendum to your article to indicate whether they had a business plan or received any legal or business advice when they were starting out, or whether they just made an awesome website, started doing well, and though, gee, this is great; we could make a mint and quit our day jobs... "

Why should we have laws that hinder innovation? They came up with something innovative, it succeeded, and the only thing hindering innovation are stupid laws. Lets eliminate those laws. Such laws shouldn't exist.

[Bettawrekonize]

"If the company is going to fight in the marketplace and compete against other products, it should be prepared to fight in the IP arena as well -- not willfully closing its eyes. "

Again, this HARMS innovation. It's an extra costly unnecessary step to innovation which prevents people from innovating. Why can't companies (patent trolls) compete in the marketplace without requiring the government to intervene by creating a monopoly (with an obvious patent)? We don't need the government to distort the marketplace just so patent trolls can compete.

[CopyOwner]

A huge problem with our patent system is that the cost of litigation and the cost of losing are so sky high that people who receive a letter claiming infringement often have no choice. Conversely, the cost of sending a letter is so low that there is a big incentive for big windbags to reap huge profits from just the threat of litigation over what would most likely prove to be a bseless claim after both sides spent a couple of million litigating. Consider this: If real property owners could sue any trespasser for statutory damages of $75,000 for for each trespass, and more if the trespass was "wilful", we would see a big jump in trespass claims -- reaching over the fence, losing a ball, smoke from the backyard barbeque, sneezing in the wrong direction, would all place you at great risk. Well, that's exactly what the curent patent system looks like (and copyright too). People can make more money suing for infringement than they can on licensing an invention.

[Ben]

anon is a troll, he is arguing something illogical to provoke a response from those he offends or annoys.

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| TROLL's ! |
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ooO Ooo

[Partner Emeritus]

"If a patent law is going to prevent me from independently inventing a practical solution then it is only harming innovation."

This position is short-sighted.

Patent laws encourage you to find out if what you've independently invented has been done and patented before. If so, you're encouraged to design around. Design around = more invention.

And yes, asking the small, scrappy, entrepreneurial company here to get a freedom to practice search/opinion before making money is reasonable. It's a cost of doing business, like with any other law, and incumbent upon those who would succeed in the marketplace.

As mentioned above, the real shame is the innovative company who does their IP due dilligence but gets pinged by some ambiguous or obvious patent from an NPE. I would whole-heartedly support a legislative fix for such situations where the company has proof it independently invented and did due dilligence. But that's not the case here.

[Bettawrekonize]

"Patent laws encourage you to find out if what you've independently invented has been done and patented before."

The fact that I independently invented it is evidence of the fact that someone else's patent wasn't necessary for me to invent it. Hence, the patent simply prevents the advancement of innovation.

"If so, you're encouraged to design around. Design around = more invention."

No, I most likely came up with what I came up with because it's the optimal solution. So now I must advance a more expensive, less effective solution just because some patent troll already patented the most obvious, optimal solution (something I didn't need him for and hence the patent system wasn't necessary for the solution to be created). This is a terrible economic inefficiency.

Newton came up with calculus, so lets just find a way around using math. Leibniz can't use calculus despite the fact that he independently came up with it as well. If 2 + 2 = 4 but someone has a patent on it, should we find a way around it too? Math would never advance since it all builds on each other.

"And yes, asking the small, scrappy, entrepreneurial company here to get a freedom to practice search/opinion before making money is reasonable. It's a cost of doing business, "

It is not reasonable, it's an unnecessary cost of doing business that causes much economic inefficiency and harms innovation.

[Bettawrekonize]

"A huge problem with our patent system is that the cost of litigation and the cost of losing are so sky high that people who receive a letter claiming infringement often have no choice."

Exactly, why should someone advance an idea when they can simply think up an obvious idea, patent it, wait for someone else to independently think up and advance the same idea, and then parasite off of them.

[Bettawrekonize]

Thinking up an idea is far cheaper than actually implementing it, so what do these patent trolls do? They sit around all day and think up obvious ideas (really cheap), they have our incompetent patent office grant patents for those ideas (ie: swinging sideways, see http://www.newscientist.com/article/dn2178-boy-takes-swing-at-us-patents.html ), they wait for someone else to independently think of the idea and spend the resources to advance it (expensive), then if the company succeeds they sue. Very little risk for the patent troll, he didn't go through the trouble of investing countless dollars to advance an idea and make it succeed, someone else did, and if that someone else fails the patent troll loses nothing. If someone else succeeds on one of the many patents the patent troll has, the patent troll sues.

[Rob]

I'm an engineer at a large semiconductor company. I was shocked to be told NOT to read patents at the incoming orientation.

I asked, "Isn't the purpose of patents to spread information so we can build on it?"

"Not anymore" was the answer. "Now they're used to stifle competition."

If my invention infringes on a patent, there may be damages, but if I read the patent then the damages are treble.

It seems to me that owning a patent is a license to extort money from small businesses. Our failed patent system, underfunded by Congress, coupled with our failed legal system, combine to make this extortion possible. (Perhaps this is a business-process patent idea.)

The best solution is to move the Internet-based business to an off-shore save haven.