The Economy Hub
8:00 AM EDT, October 13, 2013
To Kevin O'Connor, the first straw was also the last straw.
In May, a start-up company he founded, Findthebest.com, got a letter from a Connecticut law firm explaining that it had filed a lawsuit accusing the start-up of infringing an obscure software patent and offering to discuss an out-of-court settlement. The letter also threatened, however, that if Findthebest so much as filed an answer to the lawsuit, the price of settlement would go up.
For each motion Findthebest filed, the letter warned, "Plaintiff will incorporate an escalator into its settlement demand."
O'Connor smelled a troll. "It was written in this Stalinist way," he said recently. "It said, you've committed a crime but we're not going to tell you how or why, just come clean and write us a check."
The result is one of the most closely watched patent cases in the technology world. Instead of folding and settling, as do most young tech companies faced with the prospect of spending hundreds of thousands of dollars to fight off a patent claim even if they're sure of winning, Findthebest is fighting back. In September the firm sued Lumen View, the shadowy plaintiff behind the demand letter, for racketeering and extortion.
O'Connor's strategy of fighting purported patent trolls with RICO, the federal Racketeer Influenced and Corrupt Organization Act, is an unusual one, in part because it hasn't been successful in the past. But he thinks Lumen View's demands were so outrageous and its claims so threadbare that he has a chance of success.
Plenty of people in the high-tech world are cheering him on. That's because patent trolls have become a multibillion-dollar burden for small companies. Trolls, loosely defined, are firms that own patents but don't use them to make or sell anything. (The technical term for them is "non-practicing entities," or NPEs.)
Not all patent-owning companies are trolls; some exist legitimately to help inventors profit from their patented inventions, as inventors have a right to do. Nor is it entirely plain that Lumen View qualifies as a troll. That question depends on whether it's trying to enforce its software patent against companies it genuinely has reason to believe are infringing.
Among the hallmarks of trolldom are lawsuits brought largely for the purpose of exacting hasty out-of-court settlements from defendants who can't afford to fight. These lawsuits are often sprayed out like machine-gun fire, aimed at dozens of companies at a time. Typically the plaintiffs do minimal research to determine if they have a legitimate case. Often, at the first sign of return fire in court, they withdraw — after all, pursuing a lawsuit to enforce a patent can run up six-figure legal fees. That's not the trolls' business model.
"Trolls do a really good job of targeting start-ups at their most vulnerable moments," says Julie Samuels, a staff attorney at the Electronic Frontier Foundation and holder of its Mark Cuban Chair to Eliminate Stupid Patents. That's not a joke: Cuban, the high-tech entrepreneur and owner of the NBA Dallas Mavericks, has been campaigning to outlaw software patents, the trolls' lifeblood.
"Dumb-ass patents are crushing small businesses," he told an interviewer earlier this year. Several of his own start-ups have been fired at, he said.
O'Connor feels almost as strongly. Findthebest, which offers online ratings of consumer goods from smartphones to mountain bikes, doesn't have the money in its corporate coffers to carry on an open-ended lawsuit. So he's putting up his own money — as much as $1 million of his take from the $3.1-billion sale of the online advertising service Doubleclick, which he co-founded, to Google in 2008.
As O'Connor describes the genesis of the case, it looked like trolling from the outset. The patent cited by the demand letter from Damian Wasserbauer, a Lumen View attorney, didn't seem to apply to Findthebest's business. The patent covered the use of a computer to match two or more parties each listing their preferences — two users of a dating service, for example. Findthebest seeks preferences from only one user — the person looking for that best smartphone. O'Connor doubted the patent would survive a court challenge, anyway.
The letter was excessively threatening. It advised Findthebest to collect and safeguard all its electronic messages and documents going back six years (the company was founded in 2009) including personal messages sent and received by employees they might "regard as personal, confidential, or embarrassing."
Lumen View, which had acquired the patent from its inventor, Eileen Shapiro, a Cambridge, Mass., business consultant, didn't seem to have an existence outside of the 20 lawsuits it had filed alleging infringement. (All but two have been settled out of court.) When Findthebest executives called Wasserbauer, "he couldn't tell us how we were infringing," O'Connor says. "All he wanted to talk about was a settlement check for $50,000."
O'Connor did reach Shapiro, who said only that she was the inventor, he says. A few days after that call, he says, the company got an email from Wasserbauer accusing him of a "hate crime" for having called Shapiro a patent troll in a message left on her phone. Lumen View wanted a payoff by the end of the day, he said, or he would seek criminal charges against O'Connor. (He never followed through on the threat.)
Neither Shapiro nor Wasserbauer returned my calls asking for comment.
O'Connor's RICO action won't be easy to win. Tech giants Cisco Systems, Netgear, and Motorola tried the same tack last year against Innovatio, a company trying to enforce a patent claim over WiFi by suing hotels and coffee shops that offered the service to customers using those companies' routers. They lost, although a case challenging Innovatio's patents is still on.
For a RICO claim to succeed, Samuels says, the infringement claims must be "objectively baseless." That's a high bar because issued patents have a presumption of validity even when "the patents are so crappy and so broad," as she puts it.
Aggressive countermoves like Findthebest's do tend to scare patent trolls off. A study by Georgetown law school found that counter challenges against non-practicing entities succeeded in court more than 90% of the time — but that most defendants settled before reaching that point.
But the trolls won't really go away until there are changes in the law and U.S. Patent Office practice. Samuels and others argue that software patents are typically too vague, which allows their owners to exploit them on claims that shouldn't really apply.
Their 20-year terms may also be too long. In the pharmaceutical industry, where it can take years and more than $1 billion to bring a drug to market, it makes sense to provide enough time to make a profit. "Software just doesn't need that," Samuels says.
Whether software should be patentable at all is still a controversial question. It wasn't until the 1970s that the U.S. started issuing patents for computer applications, and not until 1996 when the patent office codified the rules for examiners. Patents were ruled out only on "abstract ideas, laws of nature or natural phenomena."
Congress could resolve the question but hasn't chosen to take it up. The next battle may be waged before the Supreme Court, which has been asked to hear two cases, including one involving a patent for showing an advertisement on the Internet before showing copyrighted content. (Hulu is the defendant in that case.)
Until that happens, it's up to people like O'Connor to stand their ground. Lumen View may have picked the wrong company to threaten with a lawsuit. On the other hand, given how unpredictable patent cases can be, maybe it will win.
Michael Hiltzik's column appears Sundays and Wednesdays. Read his new blog, "The Economy Hub," at latimes.com/business/hiltzik, reach him at firstname.lastname@example.org, check out facebook.com/hiltzik and follow @hiltzikm on Twitter.
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