Subject: Tech Giants Form Super League to Fight Patent Suits Tue Jul 01, 2008 10:13 pm
Aim to buy up IP, protect smaller companies
Just like a the greatest comic book superhero teams -- the X-Men, the Avengers, and the Justice League -- a real world league of mighty powers is forming to fight a formidable adversary. Plagued by the persistent sinister designs of patent trolls, the nation's largest tech companies have decided to form a coalition to fight back.
Patent law is a very controversial topic in today's legal community. There are those that say the system works and only need minor revisions. Then there are those who point the increasing number of broad and vague patents and the rise of patent trolls.
A "patent troll" is a term for a company which makes a living off amassing massive amounts of IP and then suing companies who have products that might be covered under the patents. Much of their IP is bought from failing companies, universities, or other bargain sources.
Much criticism has been leveled against these organizations, such as NTP Inc., as they generally do not try to market or produce any useful product and only show a perfunctory interest in courting corporate partnerships. Their goal is merely to develop large vague patents and then reap the rewards from lucrative lawsuits. Some argue that this is a brilliantly clever capitalistic scheme, while others less favorably view the companies as the business world equivalent of a leech.
In some cases, the settlements can nearly put legitimate companies with viable products out of business. NTP Inc., a small Virginia firm labeled as a "patent-monger", attacked the wildly successful Blackberry after it successfully contended that they violated a series of vague wireless email delivery patents, which it held. Though NTP had never produced a single piece of hardware, it ended up settling for $612.5M USD, leaving Research In Motion Ltd., makers of the Blackberry, to limp away and lick its wounds.
Now a coalition of the tech industry's largest players, tired of expensive litigation and settlements has assembled to fight the so-called trolls. Leading the way are Verizon Communications Inc., Google Inc., Cisco Systems Inc., Telefon AB L.M. Ericsson and Hewlett-Packard Co. Together with many other companies, they form the Allied Security Trust (AST).
The AST team aims to buy patents that would be used against its members. In essence, it aims to out-troll the patent trolls. Each company joining it will contribute $250,000 and will put $5M USD in escrow to aid in future purchases.
The group is not the only super-powered group looking to take down the patent mongers. Also operating is the Coalition for Patent Fairness, which is hard at work lobbying for patent reform legislation in Washington D.C. According to the group, the number of patent lawsuits increased from 921 in 1990 to 2,500 last year. It points to NTP, and also blames companies like Qualcomm Inc. and Rambus Inc., who produce legitimate products, but use patents as a means of beating down would-be competitors.
Currently much of the reform legislation is on ice.
The AST is not an entirely new idea. It is somewhat similar to Intellectual Ventures LLC, a patent holder run by former Microsoft Corp. executive Nathan Myhrvold. Various companies give Mr. Myhrvold money to buy patents, and he in turn provides them with licenses to his portfolio. Some, however, are growing fearful that IV will at some point turn on companies and use its massive patent library to litigate against the major tech players. Mr. Myhrvold has said that he currently has no plans to pursue such an option, but, he darkly adds, he has not ruled it out for the future.
To prevent such developments in the new group, companies will sell patents they acquire after being granted a nonexclusive license to the patent's underlying technology. Brian Hinman, a former vice president of intellectual property and licensing at IBM explains how AST is different stating, "It will never be an enforcement vehicle. It isn't the intent of the companies to make money on the transactions."
Currently, the identities of the team, aside from the major players are secret, and Mr. Hinman's lips are sealed on the topic. Mr. Hinman says there should be no antitrust problems for the group as it’s nonprofit and its members don't own patents, merely grant themselves licenses.
Ron Epstein, CEO of patent brokerage IPotential LLC labeled by many as a patent troll, offers perspective from the other side of the table. He states patent hoarding companies are beneficial to small inventors, who might otherwise be exploited. Mr. Epstein, who formerly worked as director of licensing at Intel Corp., says that any company should be free to aggressively litigate regardless if it produces or intends to produce the patent item.
Mr. Epstein sees attempts like the AST as an unfortunate effort to foil what he sees as a useful business vehicle. He hopes that patent laws in Washington continue to allow generously for litigation and patent collection.
Patent Troll Uses Shell Companies to Circumvent No-More-Lawsuits Covenant
Judge considers forcing aggressor to pay attorneys' fees
Plutus IP, a patent assertion company, suffered a major blow last March after a jury found the company shuffling patents between shell companies in order to launch multiple lawsuits against the same target, circumventing a previous do-not-sue covenant.
Now, U.S. District Judge Barbara Crabb is mulling over whether or not to force Plutus IP owner Erich Spangenberg to pay DaimlerChrysler’s attorneys’ fees.
The covenant dates back to 2006, when Plutus settled with car company DaimlerChrysler over a “broadly-worded” patent on software the company uses for sales tracking. Rather than challenge the patent – a battle it was likely to have won – DaimlerChrysler instead opted to settle with Plutus IP for $2.3 million in order to stave off a court battle that would have been far more expensive. As part of the settlement process, Plutus IP entered into an agreement not to sue DaimlerChrysler for the sales technology or any other related patents.
Reports indicate that Plutus then transferred the patents in question to an unknown Plutus affiliate, and proceeded to file three additional suits against DaimlerChrysler, as well as Mercedes-Benz and Toyota, in March 2007. This time, however, DaimlerChrysler chose not to settle, instead countersuing the Plutus affiliates for break of contract. The jury’s decision in favor of DaimlerChrysler concluded a three-day trial that found Spangenberg in breach of the March 2006 settlement agreement.
Joe Mullin, author of patent and IP blog The Prior Art and reporter for IP Law & Business magazine, notes that Spangenberg sits at the “heart” of a “massive empire” of patent-holding companies, including Taurus IP, Gemini IP, Caelum IP, Phoenix IP, Orion IP, and Constellation IP, together with his attorney David Pridham.
Mullin reports that his investigation of the case is complicated by the Wisconsin court’s unusually high propensity for granting Spangenberg’s requests to seal court documents, and the case court docket reports indicate a complicated array of parties on both sides.
Spangenberg could be on the hook for up to $4 million in attorneys’ fees, payable to DaimlerChrysler’s legal team at Kilpatrick Stockton LLP. Mullin notes that Spangenberg acknowledged having $6 million in the bank of account of one of his “many shell companies,” adding that the amount is “surely just a small fraction of his fortune.”
“I can't see any justification for this radical action,” wrote Mullin. “Federal judges are often too loose in allowing lawyers to seal documents in patent cases, but this is by far the worst I've seen.”
While U.S. Judge Barbara Crabb has yet to reach a decision regarding attorneys’ fees, the suit underscores a larger political climate of large technology companies turning against firms that hold patents on a “speculative” basis, exercising their patent rights in a court of law without building products of their own.
The highly controversial Patent Reform Act, which ZDNet recently called “dead for 2008,” sought to reform abusive patent practices like “forum shopping,” or the act of filing patent claims in preferred, patent-friendly venues like the Eastern District of Texas, as well as streamline the infringement complaint process and place caps on damages awards. The bill pitted the computing industry, which is currently plagued by patent-trolling by the likes of firms like Plutus IP and SCO, against the pharmaceutical industry, which says it relies on current practices and awards amounts to protect drug research.
Subject: Supreme Court Weighs in on Patent Double-Dipping Tue Jul 01, 2008 10:18 pm
Supreme Court Weighs in on Patent Double-Dipping
Computer builders breathe a collective sigh of relief
Companies seeking to “double dip” on patent royalties had their tactics curtailed by the Supreme Court on Monday, after it ruled against the collection of multiple royalties after a licensed product is sold by the licensee.
The Supreme Court’s ruling strengthened the idea of “patent exhaustion,” which removes the patent holder’s ability to exert patent rights over the customers of its licensees. While precedent for patent exhaustion already exists, plaintiff LG Electronics contends that it did not apply to certain kinds of patents – specifically, goods that rely on patented “methods and processes,” as was the case in its lawsuit against system builder Quanta Computer.
Specifically, LG claimed that Quanta Computer’s products “embodied” its patented methods beyond the terms of its licensing agreement with Intel. The company accused Quanta of patent infringement after it declined to pay royalties, and a federal appeals court initially sided with LG. Supreme Court Justice Clarence Thomas, in a unanimous ruling with the rest of the Court, reversed the appeals court’s decision, after it determined that patentable methods were no different than physical product with respect to how the patented idea manifests in the product itself.
“The authorized sale of an article that substantially embodies a patent exhausts the patent holder's rights and prevents the patent holder from invoking patent law to control postsale use of the article,” wrote Thomas. “It is true that a patented method may not be sold in the same way as an article or device, but methods nonetheless may be 'embodied' in a product, the sale of which exhausts patent rights. Our precedents do not differentiate transactions involving embodiments of patented methods or processes from those involving patented apparatuses or materials.”
Quanta v. LG Electronics saw outside input from a variety of heavyweights, including chip maker Qualcomm, the Bush Administration, and Consumer Reports publisher Consumers Union.
While the Bush Administration cited the “inconvenience, annoyance, and inefficiency” of allowing patent holders to demand licenses from multiple steps in the production chain, Qualcomm said failing to allow that would create an “unworkable” situation.
An analysis at Ars Tecnica notes that a ruling in the other direction would expose a wide variety of businesses to patent liability issues, from companies as large as Dell, HP, and Cisco to groups as small as individual eBay sellers. Unclear rules on patent exhaustion have “already … subjected eBay to patent-owner pressure,” forcing the auction company to remove “allegedly infringing items” from its listings and sanction the sellers who post them.
Subject: Tech Giants Form Super League to Fight Patent Suits 
Tue Jul 01, 2008 10:13 pm
