Tech exec puts up $1M to fight patent trolls
Summerland-based FindTheBest.com is fighting back against a patent troll with a $1 million commitment from its founder to defend itself and a lawsuit of its own alleging racketeering by the troll.
FindTheBest operates a network of sites that compile and synthesize publicly available data to help consumers find the best of anything according to their preferences, whether it’s a bottle of scotch or a company to invest in. In May, the company was served with a lawsuit by company called Lumen View Technology alleging that it violated a patent it held and a letter demanding a settlement for tens of thousands of dollars in “licensing fees.”
Lumen View’s attorney did not return a request for comment from the Business Times. FindTheBest reviewed the suit, decided it didn’t infringe and determined not to settle because its leaders thought the suit was frivolous.
Lumen View has all the marks of what technology companies have come to call “patent trolls” but what are more neutrally called patent assertion entities. The company does not provide any products or services. Instead, its main purpose appears to be to enforce patents that inventors have assigned to it. It sued more than 20 companies over the same patent involved in the FindTheBest case.
Patent litigation requires specialized lawyers, is always handled in federal court and can become expensive very quickly. Young companies and smaller companies often settle, even when the claims seem totally bogus, to avoid the cost of fighting.
Unluckily for Lumen View, FindTheBest was founded by Kevin O’Connor, a serial entrepreneur who sold advertising platform DoubleClick to Google. Disgusted by Lumen View’s actions, O’Connor personally committed $1 million of his own money to fighting the suit.
“These are scam artists preying on small companies,” O’Connor told the Business Times. “I put up with a bully in high school, and the day I stood up to him, he disappeared. That’s always been my attitude with jerk bosses, customers who were rude or anyone else. Just say no.”
Lumen View’s attorney letter to FindTheBest threatened the company with dire consequences for saying no. It outlined an avalanche of record requests that could be made to investigate potential patent infringement. It also said it would escalate the amount of its settlement demands for each motion made by FindTheBest in the suit. The initial demand was $85,000.
O’Connor wanted to find out more about the case and the patent, a broadly worded “business method” patent that describes using computers to match two parties who have expressed preferences, such as on a dating website. His director of operations had called Lumen View’s attorneys to talk about the patent but was not satisfied. O’Connor called the inventor listed on the patent.
After that conversation, Lumen View’s lawyers called FindTheBest’s lawyers. In that conversation, described later in court documents, Lumen View’s attorneys accused O’Connor of committing a “hate crime” by calling the inventor a patent troll and threatened to file criminal charges and report O’Connor to the judge overseeing the patent case – unless O’Connor apologized to the inventor and cut a settlement check by the close of business that day, among other demands.
O’Connor decided not to. FindTheBest filed pleadings to fight the suit. In the meantime, it also filed a complaint under the Racketeering Influenced Corrupt Organization Act, commonly known as the RICO Act, against Lumen View, the patents inventors, and a number of companies allegedly connected to them.
In that suit, FindTheBest alleges that the inventors use a string of shell companies to “extort” licensee fees from vulnerable companies without doing any due diligence to determine whether the targets may have actually violated the patents. “This is a very high bar we’ve got to cross, but we think the behavior they exhibited — especially threatening to file criminal charges if we didn’t settle that day — was extortionary,” O’Connor said.
FindTheBest is not the first company in the region to be hit with patent suits that seemed baseless. Impulse Advanced Communications, an Internet service provider, was hit with a similar suit. It concerned patents that allegedly applied to hardware that company had purchased from vendors. (Patent law counts those who use a technology, not just those who sell it, as potential infringers.) Impulse banded together with several other companies facing the same claims and successfully defeated them.
There are legitimate reasons a non-practicing company might seek to enforce a patent, and it’s an important part of how the intellectual property ecosystem works, said Steve Sereboff, a partner with SoCal IP Law Group in Westlake Village. Universities routinely file lawsuits to protect intellectual property that is an important source of revenue. Sometimes technology companies file suits to protect patents they aren’t currently using but plan to use in the future and it has become common for them to do it through shell companies. And sometimes enforcing patent rights is the only way to recover money for shareholders who were wiped out when a startup did not survive and has sold off all its other assets.
“They’re trying to return some value to the shareholders. It’s an important part of startup financing,” Sereboff said. “One of the reasons that boards of directors push for patents is that it’s downside protection.”
Sereboff said there’s an analogy to personal injury law or medical malpractice law, in which there’s a legitimate need for access to justice but also the potential for abuse.
Some of the explosion in patent suits in recent years has come from rule changes. For starters, patent holders must now file individual suits against alleged infringers rather than naming multiple defendants in a single suit. And thanks to a technical rule change, patent holders essentially must skip straight to a lawsuit if they want to retain the ability to pick the venue where legal action will occur, an important strategic consideration for any case.
But the most egregious behavior seems to have caught the attention of federal and state officials. In June, President Obama issued executive orders to patent regulators to tighten up overly broad patents. Though patent suits are handled in federal courts, several states are considering laws that would allow counter suits in state courts claiming malicious litigation.
FindTheBest appears headed for victory in its own suit. On Sept. 24, the court put the case on hold indefinitely until Lumen View can provider a better explanation of how FindTheBest infringes on the patent, a move that could essentially end the case.
In the meantime, the company is continuing its RICO case, and O’Connor said it’s important for firms hit by patent trolls to stand tough, be vocal and seek out other companies that were affected to fight back.
“Most people stay quiet about this. Our attitude is, we want every patent troll to know we will fight you. We will make it so expensive and painful for you, don’t even try,” O’Connor said. “If everyone stood up and fought these things, they’d go away tomorrow.”