Monthly Archives: October 2013

Defendant Files RICO Complaint Against Patent Troll

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C. ()

A colleague brought to my attention an interesting development in a patent “troll” case in the Southern District of New York that may foreshadow a new approach for companies to defend themselves in these kinds of lawsuits. It is a rather extreme approach, and it will be interesting to see how this case progresses.

MoneyLumen View Technology LLC filed a patent infringement lawsuit against FindTheBest.com, Inc. (Case No. 1:13-cv-03599-DLC). While this case was still pending, FindTheBest filed a separate lawsuit against Lumen View, its principals, and other related entities (Case No. 1:13-cv-06521-DLC), bringing claims under RICO and for extortion, abuse of process, civil conspiracy, and unfair business practices.

Background

According to the two complaints, FindTheBest operates a web site that provides consumers with data-driven comparisons of a wide variety of products and subjects, such as phones, cars, and ski resorts. Lumen View contends that FindTheBest infringes U.S. Patent No. 8,069,073, which relates to a “System and Method for Facilitating Bilateral and Multilateral Decision-Making.”

Lumen View was formed on February 23, 2012 and obtained the patent in suit seven days later. It allegedly conducts no other business aside from filing patent lawsuits and licensing in patents, and has filed more than 20 patent infringement lawsuits relating to the’073 patent in the last 18 months.

On May 30, 2013 (the day after the complaint was filed), FindTheBest claims that it received a letter from Lumen View enclosing the complaint and demanding that FindTheBest pay to settle the lawsuit. Lumen View apparently initially demanded that FindTheBest pay $85,000 for a licensing fee, but dropped that demand to $55,000 the day before FindTheBest’s answer to the complaint was due. FindTheBest rejected Lumen View’s settlement demands and continued with the lawsuit. The parties have submitted a list of claim terms to be construed, and FindTheBest has moved for judgment on the pleadings, arguing that the patent is invalid under 35 U.S.C. § 101.

On September 16, 2013, FindTheBest filed an entirely separate lawsuit in the same court against Lumen View, its principals, and other related entities, bringing claims for violating RICO, extortion, abuse of process, civil conspiracy, and unfair business practices. FindTheBest contends that Lumen View engaged in a criminal enterprise by failing to conduct proper due diligence before filing its lawsuits and knowingly pursuing frivolous cases in order to extort settlement money from its targets. Defendants in this second case have not yet answered the complaint.

What This Case Means

This is an interesting and aggressive approach to fighting back against what FindTheBest apparently believes is a frivolous and improper lawsuit. It is curious that it is bringing this second lawsuit at this time—before the first case is even close to being resolved. One wonders how the Court will respond to this second action. Will it allow it to proceed? Will it stay or dismiss the case pending the resolution of the first lawsuit?

Civil RICO cases are generally disfavored by the courts and notoriously hard to prosecute. In general, such a claim would be extremely difficult for a defendant to bring in a standard patent infringement lawsuit because RICO requires a pattern of racketeering activity and multiple victims. In this case, however, because Lumen View allegedly filed multiple extortionate lawsuits against multiple “victims,” FindTheBest may be able to overcome these pleading hurdles.

Regardless, as long as the second lawsuit exists, it creates immense pressure on the patent holder and the persons and companies associated with it and likely completely changes the settlement dynamic. For one thing, Lumen View likely cannot take the approach that Loadsys did against Kapersky Labs and unilaterally drop the lawsuit if it thinks it will not prevail. Such an action would feed right into FindTheBest’s theory that the lawsuit was a sham and increase the chances that FindTheBest could prevail in its lawsuit.

It will be interesting to follow this case and see how it progresses. If nothing else, it gives all parties something more to think about in lawsuits of this type.

Advertisements

What to Do About Patent Trolls?

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C. ()

The problem with patent assertion entities (PAEs), also called patent trolls, continues to be a hot-button issue among practitioners, companies, and the government. Recently, Gene Quinn from IPWatchdog wrote about one proposed solution he and others see to this problem—encouraging companies to fully litigate these lawsuits and not to settle quickly, thereby raising the costs of this kind of litigation to discourage the bringing of weak lawsuits. But, is this really a practical solution to the troll problem for everyone?

TrollQuinn believes that the issues faced by patent troll targets are similar to those faced by the auto insurance industry in the 1980s. Back then, the auto insurance companies frequently chose to settle cases for less than the litigation costs, regardless of the merits. This settlement strategy encouraged litigants to bring even more lawsuits, often of a questionable nature. It wasn’t until the industry decided to fight all of the cases that the more frivolous lawsuits disappeared. As Quinn states, “[t]he lesson was clear: if you don’t fight, and if you make yourself an easy target, people will sue you on both good and bad cases.”

In March 2011, Lodsys approached 55 companies demanding compensation for their alleged infringement of Lodsys patents. 51 of the companies settled out of court, and 3 others settled a few weeks after Lodsys brought suit. Only Kapersky Labs decided to vigorously defend itself. After over two years of litigation and just days before trial, Lodsys unilaterally gave up and dropped its lawsuit against Kapersky Labs. Because Kapersky Labs adopted this approach, Quinn expects that it will no longer be considered an “easy target” and that it will not be sued as often as before.

My feeling is that Quinn is correct that settling weak patent infringement lawsuits only encourages and perpetuates the troll system. The problem that I have with his solution is that it is not a universal solution and is really only effective for a limited number of defendants.

While some trolls are looking for a large payday, many are willing to settle for relatively small amounts in comparison to the litigation costs—in the thousands or tens of thousands range (see, e.g., here and here). Patent litigation is expensive, with pre-trial costs ranging from $350,000 to $1,000,000 for modest size cases and total costs ranging from $700,000 to $2,000,000. Thus, a company is faced with a decision of whether to pay a few thousand dollars now to end the litigation and receive a fully-paid up license or spends hundreds of thousands or millions to hopefully defeat the troll in the courts (which is no guarantee, as any litigator will tell you).

The law potentially allows a prevailing defendant to collect its fees and expenses, but there is no certainty that a defendant can meet the high standard required to get such an award or that it will be able to collect such an award from the troll. Many of these trolls are shell companies with little to no real assets. Even if the company is able to get and collect its fees and expenses, that still would not make it whole. The company will likely have wasted 2+ years in the litigation process, with all the distractions and stresses that it creates.

In addition, for many companies the litigation costs represent a significant portion of its annual profits. It may have to lay off workers, forgo development, or otherwise restrict its operations during the litigation simply to pay its legal bills. That is a lot to ask of a company in order to fulfill some greater societal goal of discouraging patent trolls, especially if it is not a frequent target of patent trolls itself.

Trolls are obviously counting on companies to engage in exactly this type of analysis, which is why they offer certainty at a relative low cost. It encourages companies to pay quickly and avoid both the long-term legal costs and the potential of a large judgment against them. As a purely business decision, it is hard to ignore, even if it is extortionate.

So, what is the solution? Larger companies that are frequent troll targets should seriously consider the approach that Kapersky Labs used (and Quinn encourages) of aggressively litigating these kinds of cases. (Of course, these companies always need to evaluate the merits of the case before deciding whether to litigate.) By raising the costs of doing business and denying the trolls an easy score, trolls will likely begin to avoid suing that company, which is a win for both the company and the legal system.

It is more difficult for smaller companies to adopt this approach, however. These companies likely will need help from the Courts, Congress, and the President to create disincentives to discourage trolls from bringing frivolous lawsuits in the first place. In the end, as long as there is money to be made, the trolls will exist and will find ways around whatever rules are in place.

Some of the approaches being discussed in Congress (see here, here, and here) are a step towards solving this problem, but they are likely not the final answer. Given that the large patent litigation costs are the primary driver that forces companies to settle, mechanisms that reduce these costs or delay them until a patent holder can establish that it has brought a legitimate lawsuit may be part of the answer.

In addition, in the rush to rid the world of trolls, Congress needs to be careful that they don’t tip the balances in traditional, “legitimate” patent infringement lawsuits so as to make it unreasonably difficult for patent owners to enforce their patents against actual infringers. The bottom line is that there do not appear to be any easy answers to this problem.