Part 2: Troll Wars: Defending Against the Tony Sopranos of the Legal World
Note: This blog is cross-posted from Mike Dillon’s personal blog.
What’s notable about the patent troll problem is that these entities seldom win their lawsuits. But their business model isn’t predicated on going to trial; instead it is dependent on casting as wide a net as possible knowing that some percentage of companies will pay a license fee rather than incurring the cost of litigation. A good illustration of this is Innovatio IP Ventures LLC, a patent troll that owns Wi-Fi patents (originally acquired from Broadcom Corporation) and claims they apply to everyone who uses a Wi-Fi connection. By some estimates Innovatio has sent out more than 10,000 letters threatening litigation unless the recipient pays a license fee of several thousand dollars. If your corner coffee shop or diner has a Wi-Fi connection they likely have been the recipient of one of these letters.
As a result, patent trolls, like Innovatio, invest little effort or expense in “mapping” the claims of their patent against a thorough understanding of an allegedly infringing company’s products or conduct to determine whether their allegations will hold up at trial. But, they really don’t need to because their objective isn’t to win a trial, but rather to intimidate a company into paying a license fee. Think of them as the Tony Sopranos of the legal world.
If a case does get litigated and they lose, it has little impact on the patent troll because the only consequence is that they incur their expense of litigation. Even this isn’t much, given that in most of these cases the attorneys representing the patent trolls are compensated on a contingency basis – meaning they get paid a percentage of whatever is recovered. If there’s no recovery, the patent troll pays no attorney fees. As a result, patent trolls really have little downside risk.
In the past, Adobe, like many companies, treated claims from patent trolls as a “cost of doing business” and handled it accordingly seeking to resolve the case in the most cost efficient way possible, including by paying a license fee. Over the past two years; however, we’ve changed our approach. Now, we are channeling our inner corporate Albert Finney and when faced with a patent troll case we fight them using a variety of tools. In some cases this is a motion to transfer the lawsuit to different jurisdiction, or to disqualify the law firm representing the patent troll because have previously represented Adobe and have a conflict of interest. In others, we’ve asked the U.S. Patent and Trademark Office to review whether the asserted patent should be invalidated. We’ve successfully deployed other strategies as well.
The results have been positive. Here’s a recent example. Select Retrieval is a privately held, patent-holding company based in Texas. It doesn’t produce anything – other than litigation. One of its only assets is a patent (6,128,617) that covers the way in which information from a database is displayed. This patent was granted in October, 2000 to David Lowry of Medford, Oregon. A decade later the patent was acquired by Select Retrieval. Needless to say, they then filed patent infringement lawsuits against hundreds of companies across the country. One of those lawsuits was filed in Southern California against a number of retailers, including PacSun, an Adobe customer. Under patent law you can be sued if you make, use or sell an infringing product. Patent trolls have taken advantage of this by now suing not only the company that makes the allegedly infringing product, but also their customers that use them. In this case, Select Retrieval sued the customers of a number of technology companies, including Adobe, in courts around the country hoping that these customers would put pressure on the technology providers to settle. Instead, Adobe agreed to defend and indemnify PacSun against this claim.
From our initial analysis it was clear that the underlying Adobe product did not infringe. Consequently, we filed an answer denying the allegations and proceeded to prepare the case for trial. Along the way, Select Retrieval dismissed or settled with all but one of the other defendants, and made several attempts to settle with us. The first was a settlement offer of $210,000, to which we replied “no”. (Actually, that may have been prefaced with a profanity.) Five months later, Select Retrieval offered a reduced settlement of $69,000, to which we again said “no”. Then shortly before opening claim construction briefs were due, Select Retrieval offered to settle for $30,000. Once again, we again said “no”.
A few months before the claim construction hearing (a key hearing where the court provides an interpretation of patent claims) they approached us again. This time they offered to settle for what is known as a covenant not to sue. In legal parlance it means we didn’t pay a dime in licensing fees and they dismissed the case. We continue to battle with Select Retrieval in other courts, but this one case against PacSun is over.
As I mentioned, this is just one example of a successful outcome for Adobe in responding to cases filed against our company and its customers. And, we are not alone in taking this more aggressive approach. Many companies, from Build.com to Newegg to Rackspace are doing the same thing.
Given all this, you may be asking: “Why don’t more companies fight back?”
And, why did Select Retrieval settle for nothing?