What's so bad about "business method" patents? Small PR firms "goosed" by a patent on press releases

Those who have read the U.S. Supreme Court’s Bilski decision know that it involved a big "almost" — a four-justice minority that wanted to ban business method patents. While that's an ill-defined term, it's clear that such a ruling would have effectively invalidated many patents already involved in litigation.

Lawsuits asserting business method patents continue to be filed. In Marshall, Texas, a patent that seems to cover the act of distributing a press release online (No. 6,370,535) was used to sue six companies that are in that business; it was filed on Friday June 24—just three days before the Court ruled in Bilski decision that business methods will continue to be patentable. The plaintiff  behind the suit is a strangely named patent-holding company: Gooseberry Natural Resources, LLC.

One defendant targeted by Gooseberry who spoke with The Prior Art, eReleases owner Mickie Kennedy, reacted as many small companies do when hit with such a lawsuit—surprise that a patent claiming to cover what his business does could even exist.

Kennedy's business proposition is simple: For a one-time fee of $399, eReleases distributes press releases generated by his small business clients to thousands of members of the media and to the PR Newswire wire service. For an additional fee, Kennedy will write a release.

Kennedy was drawn to the press-release business because he had seen how a well-worded and properly distributed release can help small businesses get started, he says. "I've helped businesses secure contracts," he says. "For small businesses, it's been a lifeline. Before these [Internet-based press release] companies existed, the only other option was PR firms."

"It's straightforward and what I consider simplistic," says Kennedy, whose background is in communications, not technology. When he launched the company in 1998, he used a modified shopping-cart software that was available under an open-source license. That's why he was shocked that such a business model could be hit with a patent suit.

"Are there innovative business processes that deserve patenting? I don't know. There could be. But I have my doubts about this one."

Kennedy's company is one of six sued by Gooseberry. All the defendants are privately held, distribute press releases online, and don't appear to be very large companies. At eReleases, for example, Kennedy has just four employees. Even that is a recent development. For most of the company's 12-year history, Kennedy operated as a solo entrepreneur out of a home office.

The non-practicing entities, or "patent trolls," like Gooseberry that file lawsuits generally go after large, public companies with deep pockets. But that isn’t always the case. Small businesses also get hit with patent lawsuits. To them, it's often an unfamiliar, frightening phenomenon, and the legal costs can make it a no-win situation. NPEs usually pursue a strategy of accepting settlement offers that are lower than the cost of litigation, which can add up quickly in patent suits. The American Intellectual Property Law Association estimates that the average cost of a patent suit in which more than $1 million is at stake is $2.5 million.

The idea of making such payments is tough for Kennedy to fathom. After talking to attorneys who said they could represent him for a sum in the mid-six-figures, Kennedy knows that mounting such a defense could devastate his business—even if he were successful.

"It would mean me not taking any profit, or salary, or anything, for the entire duration of the lawsuit," he notes, assuming the average three-year lifespan of a patent suit. Defense fees might also mean he'd have to tap into retirement or home equity funds, he adds.

"Would $10,000 make this patent guy go away?" wonders Kennedy. "That's a lot cheaper than going to trial. But there's also an element of principle going to it, because you're going to kind of resent giving money for a settlement when you feel you're completely in the right."

Putting aside the validity of the patent, Kennedy notes that the application wasn't even filed until 1999—a year after he started his business.

"I said, okay, I precede this," he said. "I thought, I'll just have to file that paperwork, whatever that is. And then I found out there's no paperwork. It's called a trial."

After a few hours’ online research, Kennedy found no less than 20 companies involved in the press release business before the filing date of the patent. In some instances, he was even able to use Internet Archive to access the companies' order forms, which appear to mirror many of the steps featured in the patent. Kennedy has already set up a website where he hopes to collect information and communicate with other PR professionals who may get hit with a lawsuit from Gooseberry, as well as raise money to challenge the patent.

"It's pretty clear this was commonplace prior to the patent, and yet the patent was awarded," he says. Unfortunately, presenting that evidence in court would require him to pay those six-figure legal bills. Kennedy has been talking to different attorneys but hasn't hired one yet. "This is not something I want to jump into," he says. In the meantime, he's advised his wife, who currently helps him run eReleases, to consider polishing her resume. "We might need another source of income in the family for a while."

It's additionally frustrating to Kennedy that he can't know who is actually accusing him of patent infringement. Gooseberry Natural Resources, LLC has taken extraordinary steps to hide the identity of its owner. Corporate records held by the Texas Secretary of State show that a second Delaware-based shell company, Vertigo Holding LLC, owns Gooseberry. Since Vertigo Holding is incorporated in Delaware, it is not required to list its officers or owners. Vertigo's address is the same Newark, Delaware address as A.I. Business Services, a company that sets up "virtual offices" to help clients "portray the image of a large corporation." It boasts that its staff "are all trained in sales and customer serice and daily play or act as if they are in Delaware, Florida, or Texas—regardless of where our offices truly are."

Gooseberry is represented by Melissa Smith of Gilliam & Smith, a two-lawyer Marshall law firm that typically provides local counsel services in patent cases. Smith did not return an inquiry regarding the Gooseberry case.

Lead inventor on the patent-in-suit, Eileen C. Shapiro of Cambridge, Massachusetts, declined to discuss her invention or the lawsuit it spawned, saying only that she was "under an NDA about the sale of the portfolio." Shapiro's LinkedIn profile notes that she has eight issued patents and six pending applications, and includes an accolade from her patent attorney, Bruce Sunstein, who writes that Shapiro has a "deep understanding of how intellectual property provides business leverage."

The dilemma Kennedy faces is a smaller-scale version of the one faced constantly by, among others, large Internet retailers, which submitted an amicus brief [PDF] in the Bilski v. Kappos case to decry the proliferation of lawsuits based on vague e-commerce patents. The Prior Art covered those critics of business method patents in another recent column. As Peter Brann, the author of that brief, put it, those suits often boil down to an assertion of "we own a patent, you operate a website." That adds up to a hidden “tax on Internet commerce” that sucks hundreds of millions of dollars from companies that operate online to patent owners and their lawyers.

Many lawyers, as well as some professional groups such as AIPLA, argue that the best way to deal with bad patents is to invalidate them on grounds of obviousness or lack of novelty. But the Internet Retailers and other groups, such as the Computer and Communications Industry Association, say that isn’t enough and want a clearer limit placed on patentability. Because the high cost of patent litigation gives patent trolls so much leverage, kicking out individual business method patents on grounds of non-obviousness or lack of novelty is an expensive and never-ending exercise, Brann and other critics argue. Courts should rule that they're not appropriate subject matter for a patent grant, period.

But that argument failed to convince a majority of justices on the Supreme Court.

• Read Gooseberry Natural Resources' patent infringement lawsuit [PDF]

Photo: flickr / foundphotoslj

Second photo: courtesy Mickie Kennedy

Comments

[Mike]

There are options:
1) request reexamination.
2) Join forces with others in suit.
3) Join forces with larger newswires.

This is a weak patent and/or has narrow claims. Make sure the claims have been properly interpreted and design around them.

The bad thing about business-method patents is not that they exist, it's that they don't get examined well and rejected. Software and business method patents need an independent database that is indexed and searchable. The lack of a good, indexed database hinders examination and quality of these patents. If there were more searchable art, there would be less bad patents.

[International Shoe]

For a story about small company defendants, a notable omission is a discussion of proper personal jurisdiction in E.D. Texas. For example, eReleases appears to be a small company based in Maryland. Is it so clear that eReleases is subject to personal jurisdiction in Texas that the issue need not be mentioned?

[Joe Mullin]

International Shoe,

Thanks for your comment. As you can see in the complaint, none of the six defendants are even near the Eastern District. Only one is even in Texas (Houston).

Many plaintiffs seem confident that they'll be able to stay in Texas using one strategy or another. Picking defendants scattered around the country is one of those strategies. And sometimes it works.

It certainly doesn't look clear, but we'll see if venue becomes an issue.

The suit does claim all defendants do business within the Eastern District. Essentially, it appears that a client or two in ED Tex is enough to allow an ED Tex lawsuit, from the plaintiff's point of view.

[Joe O'Neil]

I don't see what the big deal is over "business method" patents. I mean, if something took a company time, effort, and resources to develop - how is that any different from a patent for a physical device that also gives them a competitive advantage?

[patent litigation]

In light of Bilski, requesting re-examination seems like a no-brainer. This patent seems to be about as close to a "method of organizing human behavior" or an "abstract idea" as you can get. It's patents like this one that help bring patent law into disrepute and supply the anti-IP with endless ammunition.
http://www.washingtontimes.com/news/2010/may/25/patent-reform-misses-the-mark/