Newegg Asks Appeals Court For Help After Waiting Nearly Two Years For East Texas Judge To Actually Rule In Patent Case

from the get-moving-now dept

You may recall that back in November of 2013, we wrote about an absolutely insane ruling by a federal jury in East Texas, arguing that e-commerce vendor Newegg infringed on an absolutely laughable patent, held by a patent troll named TQP, which claimed to cover encryption. Newegg immediately promised to appeal the ruling -- so you may be wondering where that appeal is right now. So is Newegg. Yesterday, the company filed a petition for a Writ of Mandamus basically asking the appeals court to tell the district court to do its damn job and issue a final ruling (either on behalf of Newegg, or against it so it can appeal). Basically, Newegg has been stuck in limbo for nearly two years on this case for no clear reason. The judge in the case, Rodney Gilstrap, has just been sitting on the case, doing absolutely nothing for nearly two years, leaving Newegg unable to appeal.

The now-expired patent in question, 5,412,730, and here's the entirety of the claims:

1. A method for transmitting data comprising a sequence of blocks in encrypted form over a communication link from a transmitter to a receiver comprising, in combination, the steps of:

providing a seed value to both said transmitter and receiver,

generating a first sequence of pseudo-random key values based on said seed value at said transmitter, each new key value in said sequence being produced at a time dependent upon a predetermined characteristic of the data being transmitted over said link,

encrypting the data sent over said link at said transmitter in accordance with said first sequence,

generating a second sequence of pseudo-random key values based on said seed value at said receiver, each new key value in said sequence being produced at a time dependent upon said predetermined characteristic of said data transmitted over said link such that said first and second sequences are identical to one another a new one of said key values in said first and said second sequences being produced each time a predetermined number of said blocks are transmitted over said link, and

decrypting the data sent over said link at said receiver in accordance with said second sequence.

2. The method as set forth in claim 1 further including the step of altering said predetermined number of blocks each time said new key value in said first and said second sequences is produced.

TQP, a company controlled by notorious patent troll Erich Spangenberg (who now claims to have left the patent trolling business), claimed that this covered basically any encryption online and it sued hundreds of companies with most choosing to settle rather than fight -- with a variety of companies paying out over $45 million to settle TQP lawsuits. But, you know, that's not how NewEgg rolls, with its pledge to never settle with patent trolls.

The company went to court fighting this patent, even bringing out some of the biggest guns possible, having Whit Diffie and Ron Rivest appear as expert witnesses, explaining how ridiculous the patent in question was and how everything in the patent was in use in the market well before the "inventor" on this patent, Mike Jones, applied for it. And yet, because it's east Texas, back in November of 2013, the jury sided with the patent troll.

That's the stuff you already know. As mentioned, Newegg promised to appeal, but first it asked Judge Gilstrap to set aside the jury's verdict, as he is able to do. And then... nothing. As you can read in the petition for the Write of Mandamus and the even lengthier appendix to the petition, Newegg is getting pretty damn tired of waiting around. If Gilstrap rejects the company's request, then Newegg will appeal, but without him doing anything, the company is stuck in limbo, unable to actually move forward on appeal.

This Petition involves a case tried in November 2013 that still has not reached any appealable judgment. Although the jury found infringement and awarded $2.3 million in damages to TQP Development, LLC (“TQP”), it is beyond any reasonable debate that Newegg does not infringe the asserted claims, and Newegg sought appropriate post-trial relief on that basis. In the absence of a judgment, however, Newegg has been unduly burdened with an untenable $2.3 million liability on its books for 20 months and counting, which prejudices Newegg’s ability to make business decisions regarding that considerable sum.

Newegg has respectfully encouraged the district court to decide Newegg’s motion for judgment as a matter of law no fewer than four times, and has communicated the prejudice caused by the delay. It is now approaching two years after trial and no action has been taken by the district court on Newegg’s motion. This is several times longer than the time it has taken most other patent cases, tried before the same judge and around the same time, to reach final judgments. With no appealable judgment, and none ostensibly forthcoming, Newegg has no realistic recourse aside from seeking a writ of mandamus.

Newegg further points out that in the very same court, with a different judge, it was ruled that Intuit did not infringe on TQP's patent, despite using the identical encryption system on its site, and making the same arguments as Newegg.

Moreover, in a closely related case brought by TQP asserting the same patent and the same claims against Intuit, Inc., Judge Bryson of this Court (sitting by designation) granted Intuit summary judgment of non-infringement on the same grounds Newegg argued. Judge Bryson’s ruling applied to Intuit’s accused systems that were identical to Newegg’s, was based on testimony from the Newegg trial, and was made under a claim construction slightly broader (and thus more favorable to TQP) than the one given in Newegg’s case. Although Newegg was already entitled to judgment of non-infringement prior to Judge Bryson’s ruling, the force of collateral estoppel from the ruling further vindicates Newegg’s positions. This is not to mention the principles of comity that strongly encourage deference by Judge Gilstrap to Judge Bryson’s prior ruling on the exact same issue.

Newegg's filing goes through the full timeline, in which it has repeatedly asked the court to actually issue a final ruling one way or the other so it can get on with things. And... nothing.

Newegg notes that it's been sitting there with this giant $2.3 million liability that it can't do anything about and it also fears that the longer it waits, the more likely it is that TQP dissolves, leaving Newegg with no way to go after the company for fees and "other relief."

The failure of the district court to act while Newegg’s prejudice compounds cannot be remedied by awaiting the ordinary course of a final judgment and appeal. Nor can Newegg effectively do anything before the district court to avoid further delay. Indeed, Newegg attempted to encourage prompt resolution of this case in the district court no fewer than four times—twice requesting an oral hearing and twice submitting controlling dispositive supplemental authority—but can only do so much at the district court level to move things along. Newegg has been patient but firm, and filed the present Petition only as a last resort when no action from the district court appeared to be forthcoming 20 months after trial.

Newegg’s post-trial appealable judgment has already been delayed up to four times longer than other patent cases that went through trial around the same time as Newegg (November 2013) before the same judge. See, e.g., Hitachi Consumer Elecs. Co. v. Top Victory Elecs. (Taiwan) Co., No. 2:10-cv-260-JRG (5 months from April 2013 trial to appealable judgment); Wi-Lan Inc. v. HTC Corp., No. 2:11-cv-00068-JRG (5.5 months from October 2013 trial to appealable judgment); Cassidian Comms., Inc. v. microDATA GIS, Inc., No. 2:12-cv-00162- JRG (7.5 months from December 2013 trial to appealable judgment); Google Inc. v. Beneficial Innovations, Inc., No. 2:11-cv-00229-JRG (7 months from January 2014 trial to appealable judgment). Even considering the time from the close of post-trial briefing to judgment, the delay in Newegg’s case is still excessive— while Newegg has been waiting 15 months since briefing closed on its JMOL motion, the cases cited in the preceding sentence received judgments only two to five months after post-trial briefing closed. All told, data pulled from Lex Machina shows that Newegg’s case has been pending longer than 98.8% of cases filed before the same judge. Newegg’s case has taken far, far too long to reach an appealable final judgment.

In the filing, Newegg notes that it "makes no assertions" of "bad intent" by Judge Gilstrap. However, in an email from Newegg's Chief Legal Officer, Lee Cheng, you can sense his frustration:

Many have expressed concern and dismay about the rules, practices and rulings of various federal judges in the Eastern District of Texas (“EDTX”) in patent cases, including Judge Gilstrap. There is a common perception that the judges in EDTX adopt rules, engage in practices and issue rulings (or instructions that lead to jury verdicts) that favor plaintiffs, or which encourage or force defendants to settle even meritless cases to avoid the cost and risk of trial in EDTX. Some examples of such rules, practices and rulings are identified in the Petition. Commentators have speculated as to the judges’ motivations. Statistical evidence on patent infringement filings in EDTX generally, and with Judge Gilstrap specifically, seems to support the proposition that the venue and Judge Gilstrap are indeed favorites of the patent plaintiffs’ bar.

While he insists that the company does "not wish to speculate as to the motives or rationale" behind what's happening, "actions speak louder than words."

The facts of this matter are objectively egregious, and we have not received any guidance or reasonably acceptable explanations from Judge Gilstrap for almost 2 years for the incredibly prejudicial and extended delay in providing us with an appealable judgment. We need, and we deserve, justice and judicial relief in this matter now, under these exceptional circumstances.

This really is an incredible story. The whole thing is ridiculous and provides yet another reason why people should raise serious questions about the way in which the district court in East Texas handles its business.

Filed Under: appeal, cafc, east texas, erich spangenberg, patent troll, patents, rodney gilstrap, writ of mandamus
Companies: newegg, tqp

Patent Troll's Frivolous Attack On Startup Forces Startup To Sell Out To Another Patent Troll

from the fix-patents dept

The folks over at the App Developer's Alliance (a trade group for app developers) recently posted the following video of Peter Braxton discussing his run in with a patent troll: In short: Braxton started a company called Jump Rope Inc., which made an app that would let you pay a fee to skip a line (first use case: pay your way to get into a popular bar ahead of the line). No matter what you might think of that kind of app, Braxton was quickly threatened and then sued by a patent trolling operation called Smart Options which has a patent (US Patent 7,313,539) on a "method and system for reserving future purchases of goods or services." In short, it's a patent on electronic options buying -- which should never be patentable in the first place. It's "take something that happens in the offline world (options buying) and put it on a computer" which isn't supposed to be patentable. Either way, the idea that line jumping violates a patent for options buying seems doubly ridiculous.

And, Braxton actually went to court to fight it, spending his own money to do so after returning his investors' money. As he noted, his investors had bought into a startup, not a lawsuit. Eventually, he not only won the case, but Smart Options was ordered to pay attorneys' fees under Rule 11 for filing a frivolous lawsuit (including never actually using the Jump Rope app and falsely describing its functionality in the lawsuit):

Despite Jump Rope’s warnings that its application did not meet the limitations of claim 1, however, Smart Options did not purchase a Jump or ensure that the basis for its claims was not “factually inaccurate” before continuing to pursue its infringement claims.... Smart Options’ failure to avail itself of the easy, inexpensive opportunity to actually test and analyze Jump Rope’s product, particularly after it received Jump Rope’s initial Rule 11 motion, is unreasonable....

Moreover, even if Baker had purchased a Jump or had sufficient information about Jump Rope’s application to compare its functionality to the ‘539 patent, Smart Options failed to reasonably construe the claim terms in order to allow for such a comparison....

[....]

Smart Options also could not have sufficiently compared its patent with Jump Rope’s product, not only because it did not have familiarity with its functionality, but because it did not construe the claim terms. Smart Options, therefore, did not conduct a reasonable pre-filing investigation and had no reasonable factual basis to file its complaint, or to refuse to withdraw the complaint during the safe harbor period after Jump Rope served its original Rule 11 motion and letter.....

For the foregoing reasons, the Court grants Jump Rope’s motion for sanctions. Specifically, the Court awards Jump Rope all of the reasonable attorney’s fees directly resulting from Smart Options’ frivolous complaint, including attorney’s fees incurred during the filing of the present Rule 11 motion.

Braxton discusses some of this in the video, but adds in another tidbit that is absolutely crazy. After that ruling above, Smart Options appealed and both sides went to mediation to try to resolve it (Braxton noted he had no money to continue the lawsuit). Here's how Braxton describes how that went in the video:

This is the first time that I met the plaintiff, after a year and a half of litigation. He waived confidentiality and he said: "Look, I'm going to make this real easy for you. This isn't a mediation. This isn't arbitration. This is what you're going to do. You're going to settle the lawsuit. We're not going to pay you any Rule 11 capital. We may or may not win this case," they said, "but what we are going to do when this case is over. We're going to sue you with another patent in our portfolio of patents and you're going to start this process all over again.

This kind of story is not that unusual. For years, we've pointed to the similar story of how IBM tried to shake down Sun Microsystems in its early years, threatening over seven patents. Sun's engineers and lawyers went through all seven showing how they didn't infringe and were then told:

"OK, maybe you don't infringe these seven patents. But we have 10,000 U.S. patents. Do you really want us to go back to Armonk [IBM headquarters in New York] and find seven patents you do infringe? Or do you want to make this easy and just pay us $20 million?"

Originally, after seeing that video, I was going to just focus on that threat to sue again with this post, but as I continued investigating the story, it turns out that it gets even weirder and more ridiculous. For what it's worth, Smart Options' lawyers claims he never made such a threat... but also in the next breath does claim that the company has other patents that Jump Rope violates.

But, the crazier part is in a NY Times article that tried to follow up on this story. The reporter, Daivd Segal, heard Braxton's story, and called up Erich Spangenberg, one of the world's most notorious patent trolls, who definitely has experience with situations like the one above. In fact, Spangenberg once got hit with a ruling saying he had to pay $4 million for suing the same company with the same patent twice, despite an earlier settlement promising not to do so.

Spangenberg's response to the questions about Braxton's situation? He smelled blood in the water and agreed to invest in Braxton's company -- basically buying low, with a promise that he could then strong arm Smart Options into going away. Really:

A free consultation quickly became the beginnings of a negotiation. Mr. Spangenberg offered to take an equity position worth $500,000, in exchange for solving all of Jump Rope’s legal problems.

“I’m going to invest as well,” Mr. Spangenberg said. “Peter, what do you need to get this back up while we raise money from people with lots of money?”

“About half a million bucks,” he said.

“That’s what I figured,” Mr. Spangenberg replied. “So we’d fund that.”

And Spangenberg knows that he's buying distressed assets here:

“Look, I’ll get $500,000 in equity for taking the legal piece off his plate,” he said. “It’ll cost me $100,000 to make the lawsuit go away.” He promised to locate “pressure points” on either Smart Options or Hugh McNally, its C.E.O.

“I get to make a great investment on great terms,” he said. “Then I let Citadel” — a large hedge fund that had expressed interest in funding Jump Rope — “put a big chunk of money into it and I go off and do something else.”

The article notes that Spangenberg has now invested in about 25 similarly "distressed" companies -- distressed by other patent trolls playing the same game that Spangenberg perfected. And, even the terms mentioned above weren't good enough. In the end, the article reports, Spangenberg's IP Nav bought 40% of Braxton's company for merely $200,000.

The story tries to play this out like a "patent troll done good," but it's horrifying. It's one patent troll beating up on a startup, and then allowing a second one to come in and vulture up the leftovers. It's certainly not good for innovation in any way.

People fighting against the patent reform bill that's currently making its way through Congress keep insisting that the bill is designed by big tech companies to harm startups. But that's ridiculous. The bill would have significantly helped Braxton, allowing him to get out of the lawsuit faster and for less money, and likely awarding attorneys' fees in a simpler and faster process. In fact, it's more likely that Smart Options never would have sued in the first place if the PATENT Act were law at the time.

Filed Under: erich spangenberg, line jumping, options, patent act, patent trolling, patents, peter braxton, shakedown
Companies: ip nav, jump rope, smart options

Insanity Rules In East Texas: Jury Finds Newegg Infringes On Ridiculous Encryption Patent

from the why-trolls-love-east-texas dept

There's a reason why patent trolls love east Texas -- and big part of that is that the juries there have a long history of favoring patent holders, no matter how ridiculous or how trollish. That was on display last night, when the jury in Marshall, Texas sided with patent troll Erich Spangenberg and his TQP shell company over Newegg. As we've been describing, Newegg brought out the big guns to prove pretty damn thoroughly that this guy Mike Jones and his encryption patent were both not new at the time the patent was granted and, more importantly, totally unrelated to the encryption that Newegg and other ecommerce providers rely on. Having Whit Diffie (who invented public key cryptography) and Ron Rivest (who basically made it practical in real life) present on your behalf, showing that they did everything prior to Jones' patent, while further showing that what Newegg was doing relied on their work, not Jones', should have ended the case.

But, apparently TQP's lawyers' technique of attacking Diffie's credibility somehow worked. The jury said both that the patent was valid and that Newegg infringed -- and they awarded TQP $2.3 million -- a little less than half of what TQP wanted, but still a lot more than TQP settled with many other companies (including those with much bigger ecommerce operations than Newegg). In other words, yet another travesty of justice from a jury in east Texas. Newegg will appeal, as it did in its last big patent troll lawsuit (which was much bigger), against Soverain Software. Again, Newegg had lost in East Texas, but prevailed big time on appeal. Hopefully history repeats itself.

Joe Mullin's coverage (linked above) has a bunch of little tidbits about how everyone responded to the verdict, but I think Diffie's response is the most honest. Asked how he was feeling:

"Distressed," he said. "I was hoping to be rid of this business."

Yeah, he's not the only one. The sheer ridiculousness of a jury simply not believing the very people who created the very building blocks of modern encryption, and instead buying the story of someone who did nothing special either with the concept behind his patent or with that patent once it existed, is just distressing. It shows how arbitrary jury trials can be, especially when you have jurors who simply don't understand the technology or the history at play. Blech. I think I may have to go buy an anti-patent troll t-shirt from Newegg.

Filed Under: cryptography, east texas, erich spangenberg, marshall texas, patents, whitfield diffie
Companies: ip nav, newegg, tqp

Newegg Brings Out Whit Diffie, Ron Rivest & Ray Ozzie To Debunk Patent Troll's Claim; Troll Attacks Diffie's Credibility

from the cue-laughter-now dept

Last week, we mentioned Newegg, a company that has publicly declared it won't settle with patent trolls, fighting in court against the world's most litigious patent troll, Erich Spangenberg. If you'd bet that's a recipe for some courtroom drama, it appears you would have won that bet. Joe Mullin continues his excellent reporting from East Texas, and talks about Newegg breaking out some heavyweights in support of its argument that some guy named Mike Jones didn't actually invent the cryptography that made e-commerce possible. Among those appearing on behalf of Newegg were three names that I hope all of you already recognize: Whitfield Diffie, Ron Rivest and Ray Ozzie. If not, look them up, but suffice it to say Newegg has credibility on their side.

They also had Alan Eldredge, a guy who worked on the original Lotus Notes to talk about how they implemented everything in Jones' patent (using Ron Rivest's RC4) before Jones filed for it. The interesting tidbit there is that Eldredge wasn't your typical expert witness hired by one of the parties in the case:

Eldridge wasn't paid, as expert witnesses were—he came down to testify against the Jones patent out of a feeling of "civic responsibility," he said. He didn't know who the defendants in this case were until he was told. "I hadn't even heard of New Age until Saturday," said Eldridge at one point, as laughs were stifled in the courtroom.

From the sound of it, Diffie oozed credibility on the stand, as he should, and Mullin believed the jury was eating it up (for more details on the specifics of the testimony, read Mullin's full article linked above):

Diffie's testimony went on some time, but he seemed to have the jury in the palm of his hand. A few jurors laughed at his jokes and smiled, and the more serious ones were certainly focused on his testimony. After about two hours, Albright passed the witness.

Spangenberg's lawyer, Marc Fenster, apparently decided the way to respond to this incredibly credible witness (the dude invented public key cryptography!) was to... attack his credibility. First, he attacked his credentials. Diffie never completed a master's degree, nor has he held a full time academic position -- which, of course, doesn't even remotely matter for anything, but Fenster tried to use it to make him seem like a charlatan, leading up to a claim that Diffie didn't actually invent public key cryptography. But, of course, that's not actually true. This story is well known in cryptography circles and you can find variations of it online. The UK's equivalent of the NSA, GCHQ, more or less figured out much of the same thing, but kept the whole thing secret. Fenster referred to James Ellis of GCHQ, who had conceived a similar idea, but wasn't able to do the math. The math was done later at a time much closer to Diffie's efforts (the exact timing here is somewhat in dispute). However, as many people have pointed out, none of that much matters, because the folks at GCHQ did absolutely nothing with this, and from all accounts, they didn't even think it was anything important or special.

And, more importantly, none of that actually takes away from the stuff that matters here: all the important work happened long before Mike Jones got his patent, and Spangenberg's company TQP's claim that Jones' work enabled e-commerce still looks like complete bunk. Even if GCHQ had figured out public key cryptography before Diffie, it doesn't change the fact that his version is the one that made it well known, RSA's implementation made it work, and that's actually what made secure e-commerce possible, not anything from TQP's patent.

It appears that Newegg is so confident that it's going to win the case completely that it didn't even bother having its final witness take the stand. That witness was going to challenge the $5.1 million damages claim from Spangenberg. But that only comes into play if the jury finds for TQP. While it may be a bit risky, Newegg seems to be betting big that damages aren't even going to be in play here at all.

Filed Under: encryption, erich spangenberg, patents, ray ozzie, ron rivest, whitfield diffie
Companies: newegg, tqp

Newegg Battles World's Most Litigious Patent Troll Over Bogus Claims Of 'Inventing' E-Commerce Encryption

from the good-luck,-newegg dept

Joe Mullin is down in an East Texas court room, covering all the details of a key patent lawsuit, pitting the world's most litigious patent troll, Erich Spangenberg, against well-known electronics retailer, Newegg, a company that has vowed never to settle with patent trolls -- a strategy that has been quite successful so far. Spangenberg is infamous for his "sue first, license later" approach to patent trolling, but the details revealed during the lawsuit show how profitable it is. Spangenberg has sued a ton of companies over this very patent -- with nearly all of them settling for much less than it would cost to fight a patent suit in court (fighting is estimated to cost upwards of $1 to $2 million). Nearly all the settlements are for much less:

Target had a website; Target got sued by TQP. It got out of the case by paying $40,000.

Some paid less than that—but most paid more.

Dodge & Cox, a mutual fund, paid a bit more than $25,000. Pentagon Credit Union paid $65,000. QVC paid $75,000. MLB Advanced Media paid $85,000. PetSmart paid $150,000. PMC paid $400,000. Cigna paid $425,000. Bank of America paid $450,000. First National paid $450,000. Visa paid $500,000. Amazon, Newegg's much larger competitor, paid $500,000. UPS paid $525,000.

IBM paid $750,000. Allianz Insurance paid $950,000. Microsoft paid $1,000,000.

All in all, Spangenberg has squeezed $45.37 million out of licenses for this one patent, which almost certainly does not actually cover the encryption used in online shopping, as Spangenberg claims. Oh yeah: Spangenberg's deal with the original inventor of the patent? The inventor gets 2.5% of the money, plus $350/hour for consulting. End result? He's made $588,000, while Spangenberg keeps the rest -- all on a patent he bought for about $750,000.

And, yes, the patent (which has since expired) is highly questionable in the first place. While Spangenberg's lawyers (representing his shell company called TQP) tried to claim that the inventor, Michael Jones, was some sort of visionary genius who predicted the world of e-commerce, there's no actual evidence to support this. Newegg (thankfully) has famed cryptography expert Whitfield Diffie on hand to call bullshit on the claims that Jones (a) invented anything special or (b) that his invention is even remotely in use on e-commerce sites today. Diffie, of course, is one of the inventors of public key cryptography, which happened prior to Jones' invention, and is what is actually used online.

Jurors got a short dose of the conventional historical record when Newegg lawyer Kent Baldauf gave them a preview of Diffie's testimony. "It's Dr. Diffie's invention that allows credit cards to be encrypted today," explained Kent Baldauf. "He's the one that figured out how you could send information to some remote server that you've never had any contact with before without these keys somehow being pre-set and pre-arranged in a closed system."

Baldauf also raised the basic themes of Newegg's defenses. The patent described symmetric cryptography—two hard-coded modems talking to each other. It wasn't that different in theory than the code books that have been exchanged since ancient times. It had nothing to do with public key cryptography that kept Internet data safe; Newegg therefore does not infringe, he argued.

To boot, to the extent Jones is an inventor at all, he isn't the first. The RC4 cipher was designed two years before Jones' patent filing and was combined with Lotus Notes by Ron Rivest of RSA Security.

Of course, with a patent jury trial in East Texas, you never now how things are going to turn out. But, this case is at least interesting in helping to open the books on how patent trolling works -- getting tons of companies to pay up on questionable patents by offering "settlement" rates below what a lawsuit would cost, even if the patent is totally bogus. And, kudos, once again, to Newegg for fighting this. It could have easily settled like all those other companies, but is fighting this one out on principle -- and in the hope that it will stop the next patent troll from doing the shakedown game.

Filed Under: e-commerce, encryption, erich spangenberg, michael jones, patents, whitfield diffie
Companies: newegg, tqp

NY Times Profiles One Of The World's Worst Patent Trolls

from the probably-a-good-time-to-downsize dept

We've covered patent troll Erich Spangenberg a few times over the years, starting with the time a court told him he needed to pay $3.8 million to DaimlerChrysler after he had signed a patent licensing agreement over some patents in one of his shell companies, transferred those patents to another shell company... and sued DaimlerChrysler once again. The NY Times now has a big profile on Spangenberg, in which he claims to be making $25 million per year, and he claims that the "mauling" that the judge gave him in that particular case (which he's still appealing) was actually good for business:

“It was a mauling,” Mr. Spangenberg said of Judge Crabb’s takedown, now under appeal. But weirdly enough, the ruling turned out to be terrific public relations.

Soon after Judge Crabb’s decision, IPNav’s phone was ringing with new business. RadioShack, Bridgestone and other companies wanted to strike a variety of deals to monetize their patents. The mauling had laid bare Mr. Spangenberg’s aggressive business techniques. IPNav soon grew from five employees to 80, most of whom are patent specialists; it currently manages about 10,000 patents

Okay, time to add RadioShack and Bridgestone to the list of companies never to do business with again. The article, by the way, approvingly mentions the "many unprintable names" that commenters right here at Techdirt have called Spangenberg.

Spangenberg tries to play the same card that all the big patent trolls now claim: that they're helping poor independent inventors get their due. The article highlights Steve Dodd from Parallel Iron, whose highly questionable patents and lawsuits we've covered a few times as well. Hearing Spangenberg and Dodd tell the story, they're just helping the little guy build a business:

“Erich saved our bacon,” said Steve Dodd, a patent holder with a client company called Parallel Iron. “We were more than $1 million in debt and I was getting ready to file for bankruptcy.”

Right. The reason he was $1 million in debt was because his business failed. Under a capitalist system, when that happens, you go out of business. You don't use highly questionable, almost certainly bogus, patents to shake down everyone for using a basic file system that they came up with entirely independently. But that's what Spangenberg and Dodd have done.

And this is the key point that is woefully lacking in so many stories about patents and patent trolls -- including in this particular profile: the fact that these cases almost never include stories of anyone actually copying someone else. Perhaps, in those rare instances, you can make an argument that a patent prevents flat-out copying that may feel unfair (whether or not it actually is is a whole different story). But, here, we're talking about Parallel Iron claiming that anyone who uses Hadoop infringes on the patent, despite the fact that Hadoop was created independently, and that when Parallel Iron tried to build an actual business, it failed. That's because what matters in business is rarely the idea, but almost always the execution. Parallel Iron couldn't execute. The idea that it gets to sue those who do is really quite ridiculous.

The rest of the profile of Spangenberg is interesting too, though I find it interesting that Spangenberg is apparently downsizing. He's apparently selling his 14,000 square foot home in Dallas (it could be yours for merely $19.5 million) and has moved into a 2,000 square foot apartment. He's also sold off all but one of the 16 cars he recently owned (including six Lamborghinis). He kept a Ferrari, however. He claims that the home and all the cars were "a combination of 'nouveau riche on steroids' and midlife crisis" that he's since decided he's outgrown. Of course, there's another possibility. With the White House coming out strongly against patent trolls, and the FTC and DOJ beginning to investigate the businesses of patent trolls, one wonders if he doesn't see the writing on the wall... Of course, perhaps he and his wife can focus on her side business of trademark trolling.

Filed Under: erich spangenberg, patent trolls, patents, steve dodd
Companies: ip nav, parallel iron

Rackspace Sues Famed Patent Troll For Breach Of Contract

from the not-for-the-first-time dept

Well, well. Rackspace, who has been successfully fighting back against a bunch of patent trolls lately, is fighting back again, and this time they're taking on one of the more notorious patent trolls out there: Erich Spangenberg. Rackspace explains a bunch of the details on their site, though it helps to know a bit of the background. While some of the reporting out there suggests that Rackspace's reference to "the most notorious patent troll" is about the company Parallel Iron, it's really Spangenberg who is the target.

First, some background. Spangenberg has built up quite a business for himself by buying up awful patents and suing tons of companies, often getting them to pay up. He's claimed in the past that he likes to sue first and ask questions later. He famously got in trouble a few years back for shuffling some of his patents around and suing Daimler Chrysler twice over the same patent even though the company had settled the original lawsuit and licensed the patent. That didn't go well for Spangenberg, as he was told to pay $4 million. Remember that story, because it seems like Spangenberg's apparent sloppiness in actually living up to the terms of deals he signs may be part of why he's likely to be on the hook against Rackspace.

The other time we wrote about one of Spangenberg's schemes failing massively was when he used one of his many shell companies, IP Nav, to demand a license from Renaissance Learning. Except that IP Nav wasn't the patent holder, but claimed to be "representing" the patent holder, and then it refused to tell Renaissance how they were infringing or even what the patent was unless the company agreed to sign a total gag order, such that they couldn't talk at all about whatever came from the discussions. Renaissance, smartly, went to court instead, issued a subpoena demanding Spangenberg identify the patent and the patent holder, and then sought declaratory judgment that it did not infringe. The court sided -- strongly -- with Renaissance, and smacked Spangenberg down a bit for his actions.

Some might look at the silky wording of IP Nav's letter to Renaissance and see a close question; this court, however, sees an unmistakable and intentional warning shot across the bow. The actual message is pellucid to any patent litigator, so that IP Nav's use of apophasis is disingenuous and unavailing. Remember Mark Antony's funeral oration in Julius Caesar? That's how an experienced business executive or lawyer would view IP Nav's assertions that "we are focused on addressing these issues without the need for costly and protracted litigation" and "our client's preferred approach is to conclude licensing discussions without resorting to litigation. We hope you share this objective." The implied "or else!" oozes from this letter like lye from lutefisk. To paraphrase an observation attributed to Anton Chekhov, you don't hang a gun over the mantle in Act I unless someone is going to fire it in Act III.

Not surprisingly, this wasn't the only time that IP Nav and Spangenberg tried these kinds of tactics. Rackspace recounts a similar approach from IP Nav:

Our dealings with this particular troll reach back to December 2010 when IP Navigation Group (IP Nav), as agent for a supposedly secret patent owner, now known as Parallel Iron, accused Rackspace of patent infringement. IP Nav told us that they could not divulge the details of their infringement claims – not even the patent numbers or the patent owner – unless we entered into a “forbearance agreement” – basically, an agreement that we would not sue them. IP Nav was worried that as soon as we found out what their patents and claims actually were, Rackspace would sue to invalidate their patents or for a declaration that Rackspace does not infringe.

Rackspace pushed back against this, and instead "negotiated a mutual forbearance agreement that required either party to give 30 days’ notice before bringing suit."

Since then, Parallel Iron has become a popular name in patent trolling circles, suing a ton of companies for their choice of file systems. They basically claim that the super popular Hadoop file system violates their patents, which seems incredibly dubious. Parallel Iron has already shifted around what patents it's suing over, as earlier cases got dismissed due to another mistake by Parallel Iron. As Rackspace's lawsuit explains:

Unfortunately, the lawsuits filed on the ‘565 patent were just part of the pattern of misconduct by Parallel Iron and IPNav. Parallel Iron-Texas did not have standing to sue because the ‘565 patent was not enforceable by Parallel Iron- Texas. The ‘565 patent was subject to a terminal disclaimer, requiring that the ‘565 patent be commonly owned with an earlier patent. Unaware that Parallel Iron- Texas had no right to enforce the ‘565 patent, many of Parallel Iron-Texas’s targets settled out to avoid the high cost of litigation. But when one of the targets discovered the lawsuit’s fatal defect, Parallel Iron-Texas immediately dismissed all but one of the remaining defendants (the last defendant, EMC, was not dismissed until July 2012).

However, the new version of Parallel Iron has filed nearly two dozen new lawsuits over the past few months making similar claims using other patents, and finally got around to suing Rackspace in one of these rounds. But, apparently someone forgot about that agreement that Rackspace had signed with IP Nav a couple years ago, and did not give Rackspace the 30 days notice. So, not only is Rackspace seeking declaratory judgment that it does not infringe, but it's also going after IP Nav for breach of contract.

Each party agreed “that it [would] not bring litigation against the other Party from the date of execution of [the Forbearance Agreement] until 30 days after either Party provides written notice to the other Party that discussions between the Parties have ended.” Parallel Iron provided no such notice, yet sued Rackspace in Delaware. Thus, it breached essentially the only covenant of the contract.

Parallel Iron’s premature lawsuit amounts to a material breach of the Forbearance Agreement. Rackspace has been completely deprived of the benefit of the Forbearance Agreement. Rackspace cannot be adequately compensated for Parallel Iron’s breach. Parallel Iron cannot cure its breach. Parallel Iron’s behavior—breaching the only covenant of the contract—cannot be said to comport with the standards of good faith and fair dealing.

IPNav—in addition to Parallel Iron—is liable on the Forbearance Agreement because it was the agent to an unidentified principal. The Forbearance Agreement did not contain any language releasing IPNav from liability.

Rackspace also notes that it "has been forced to expend time and money to defend" this "wrongfully brought" lawsuit, suggesting they're going to seek attorneys' fees as well.

Filed Under: breach of contract, erich spangenberg, patent trolls, patents
Companies: ip nav, parallel iron, rackspace

Famed Patent Troll Smacked Down Over 'Anonymous' Threat Letter

from the you-don't-hang-a-gun-over-the-mantle-unless-you-plan-to-use-it dept

We've written about famed patent troll Erich Spangenberg and the variety of shell companies under his control a few times in the past. He's the guy who a court told to pay $4 million for shuffling patents around among shell companies and suing the same company twice with the same patent, despite a settlement the first time that precluded future suits. Spangenberg is also famous for his motto, "sue first, ask questions later," in part because he wants his lawsuits to take place in Eastern Texas.

Apparently, he doesn't always sue first, but can't resist being sneaky anyway. On behalf of an anonymous "client," he (under the guise of his company IP Nav) sent a letter to Renaissance Learning, asking them to enter into totally secret negotiations over possible patent infringement. He refused to name the client or the patents, but wanted Renaissance to sign a gag agreement that they would never talk about anything that came out of the discussion. Renaissance, instead, went to its local court, in Wisconsin, and got a subpoena asking Spangenberg to identify the patent and the patent holder, for the purpose of getting a declaratory judgment that it did not infringe the anonymous patent holder's unknown patent.

Spangenberg, perhaps regretting not following his "sue first" mantra, filed a motion to quash in Eastern Texas, arguing that the Wisconsin court had no jurisdiction (despite Renaissance being in Wisconsin). The court leaned towards agreeing with Spangenberg, saying he had raised "substantial questions" about the jurisdiction, but that it was an issue for the Wisconsin court to discuss. In response, the Wisconsin court looked at the issue and issued a pretty damning order about Spangenberg's threat letter being enough to file for a declaratory judgment. While it notes that Spangenberg may have been careful to avoid making a direct threat (necessary for declaratory judgment), the intent is clear... and the court uses Julius Caesar and Anton Chekov to make the point:

Some might look at the silky wording of IP Nav's letter to Renaissance and see a close question; this court, however, sees an unmistakable and intentional warning shot across the bow. The actual message is pellucid to any patent litigator, so that IP Nav's use of apophasis is disingenuous and unavailing. Remember Mark Antony's funeral oration in Julius Caesar? That's how an experienced business executive or lawyer would view IP Nav's assertions that "we are focused on addressing these issues without the need for costly and protracted litigation" and "our client's preferred approach is to conclude licensing discussions without resorting to litigation. We hope you share this objective." The implied "or else!" oozes from this letter like lye from lutefisk. To paraphrase an observation attributed to Anton Chekhov, you don't hang a gun over the mantle in Act I unless someone is going to fire it in Act III.

Doe enlisted IP Nav�a specialist in "monetizing" patents for its clients�to communicate with Renaissance on its behalf. The fact that such correspondence was sent anonymously through a hired gun proud of its "aggressive pursuit of patent infringers" reasonably would invoke "a different reaction than would a meet-and-discuss inquiry by a competitor, presumably with intellectual property of its own to place on the bargaining table." Hewlett-Packard Co., 587 F.3d at 1362. The letter makes clear that Doe or IP Nav already has gone to the expense of analyzing Renaissance's products and has concluded that there was a "basis for . . . infringement claims against [Renaissance's] products or services." Further, IP Nav's refusal to identify its client or the patents at issue, along with the unnecessarily tight ten-day response deadline, reasonably can be viewed as components of a strategy to preclude Renaissance from obtaining the facts it needed to file a declaratory judgment action; from this approach one also could reasonably infer that Doe already was prepared to litigate if necessary and intended to retain for itself the choices of when and where to file its lawsuit if Renaissance would not play ball. Then there is demand for a one-sided forbearance agreement that required that Renaissance not file suit but imposed no reciprocal obligation on Doe. All of this reasonably implies that Doe intends to enforce a patent and that a real controversy exists.

Filed Under: erich spangenberg, lawsuits, patents, threats
Companies: ip nav, renaissance learning

East Texas Jury Actually Invalidates One Of EFF's 10 Worst Patents, Held By Infamous Patent Hoarder

from the track-record-not-so-hot dept

We've been following the EFF's patent busting efforts for its list of the 10 worst patents, and it looks like an East Texas jury may have at least partially invalidated one of the patents, 6,411,947, which describes a method for automatically routing emails. As the EFF noted, this patent appeared to cover "basic natural language processing techniques taught in introductory computer science courses."

Things took a more interesting turn when the guy holding the patent, Erich Spangenberg and his hoarding company, Polaris IP, decided to sue Google, Yahoo, Amazon, AOL, IAC and Borders for daring to automate email responses without first paying him. If Spangenberg/Polaris sound familiar, it's because he's become one of the more prolific patent hoarders out there lately, and a couple years ago had to pay out $4 million to Daimler, after he apparently used various shell companies to move some patents around and sue Daimler multiple times over the same patent, even though an earlier settlement had him promising not to assert that patent against the company again. Spangenberg also believes in suing first before contacting a company, and always suing in East Texas, because the juries there like to hand out giant awards.

Spangenberg's legal strategy in this particular lawsuit was also quite questionable, as he demanded that Google hand over information concerning its lobbying efforts on patent reform. What that had to do with whether or not Google infringed on this particular patent was never clearly explained.

Either way, Spangenberg's faith in East Texas juries may have been misplaced this time around:

The jury found three of the patent's claims invalid based on the public use bar, obviousness, and for lacking written description. The jury also found that neither Google nor Yahoo! infringed those claims. Finally, the jury found the entire patent invalid due to improper inventorship.

Separately, per Google's request, the USPTO has already been re-examining the patent. The scorecard on this list of patents is increasingly tilting in the EFF's favor, but it's a statement of how awful the patent system is to note how long this has taken. The EFF announced its patent busting project in 2004. And while the process is on-going to invalidate many of them, it's taking quite a long time -- all the while allowing patent holders to create frivolous lawsuits that waste money that could be spent on actual innovation.

Filed Under: email, erich spangenberg, patents
Companies: eff, google, polaris, yahoo

Patent Troll Mantra: Sue First, Ask Questions Later

from the that's-efficient dept

We've talked about Erich Spangenberg a few times on the blog before. He's become one of the more aggressive patent hoarders out there, buying up patents, putting them in one of a huge list of shell companies and suing everyone he can think of, especially Google, (oh, and his wife has focused on suing Google over questionable trademark issues as well...). Spangenberg has gotten into some trouble for shuffling patents around, even suing companies multiple times over the same patent, despite promises not to do so.

Law.com now has an article about a recent panel discussion that included Spangenberg, where he explained that it was always better to sue first, without first contacting a company about licensing or alerting them to the fact that you believed their products infringed. Why? Because he's afraid that if you contact them first, they'll sue for declaratory judgment, and that would suck, because those lawsuits won't take place in Spangenberg's favorite court in East Texas. Why does he like East Texas, by the way? Because the folks there just love handing out huge awards. While recent reports said that Florida may be more favorable in winning lawsuits, Spangenberg thinks they'll give lower awards:

"Unfortunately you have a buch of retirees [on Florida juries], so your award is going to be around a couple hundred grand,"

At some point, isn't someone going to realize that folks like this are clearly abusing the legal system for profit, well outside of the intent of patent law? Just the fact that he admits he sues first before any sort of communication shows that he's abusing the system. There's no real interest in licensing, outside of licensing at the end of a lawsuit-shaped gun barrel. Of course, don't expect the current neutered attempt at patent reform to fix anything. When asked about it, Spangenberg correctly notes that it won't change anything.

Filed Under: erich spangenberg, lawsuits, patents