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Copyright, IP, Patent, Risk Mangement, Trademark

Top 3 IP ‘Bullies’ And How To Handle Them

There’s something about the underdog, whether it’s Rocky Balboa, Rudy, or Bob Kearns, that makes us feel good inside.  Most of us like to see David topple Goliath … What if Kearns, instead of patenting an incremental improvement to a windshield wiper, had patented an incremental improvement to better facilitate e-commerce?  And what if, instead of Kearns’ invention being used without recognition or payment by every major automotive manufacturer, had been used by thousands of software developers operating individually, or through small, closely held companies?

Below I’ll discuss three accused IP  “Bullies” and their alleged “crimes” (one of which should already be recognizable from my hypothetical above). In short, the question is this:

Who do I root for when the little guy goes after even littler guys?

IP Bully No. 1: Lodsys, LLC
Offense: Not giving alleged infringers a free-pass just because they’re “small”

The current IP bully du jour in the patent space is a company called Lodsys, LLC.  This bombshell came to the collective Internet’s attention this past Friday (like clockwork, immediately after I took issue w/ Mike Wokasch‘s suggestion that patent owners, rather than infringers, behaved like “typical” bullies) with a series of letters sent to developers of applications for Apple’s “iOS” platform (i.e. apps for devices like iPhone and iPad).

Like most patent owners, Lodsys is sending out letters, advising companies of the existence of their patent and their belief that the companies need to license their products.  The letter also supposedly makes the companies aware that Lodsys may resort to litigation if the companies can’t agree on licensing terms outside of court.  The company is also communicating with the media and developers via its company blog, in part disclosing the financial terms (a 0.575% royalty) it is requesting from the companies.

For the most part, there’s nothing out of the ordinary about Lodsys’ patent assertion.  Oh, except for the fact that many of the companies Lodsys has contacted have extremely small revenuesOne developer commented that “A decent IP lawyer will burn all the profits from [his company's software app sales] in one day.” Lodsys explains its rationale for not just letting these small guys off the hook:

There is a misalignment in the market where the litigation costs greatly influence the incentives.  At the low end, the cost of litigation exceeds the value of the license and this puts strong pressure on small vendors to take a license rather than litigate. …

From a fairness perspective, we have decided that  Lodsys should attempt to license all users of the patent rights, on proportional terms, rather than let many “free riders” not pay while only selected companies pay.

When small businesses threaten large enterprises with patent suits, the enterprise can try and intimidate its opponent by explaining that it has more lawyers on its payroll than the patent owner has employees.  In this case, the roles are quite reversed.  While most software developers should recognize that being in business carriers an element of risk, patent enforcement is probably one that most believed they were years away from confronting.

So how should these companies respond? Truthfully, every case is unique, and part of the calculus is considering the downside of just turning a deaf ear to the demands (risk of litigation and willful infringement), the cost of challenging the patent before the patent office, and the possibility of pooling resources with other similarly situated developers.  There’s also the question of whether you can afford the amount Lodsys is asking, which requires an understanding of your overall profit margins and added overhead for accounting for and making the payments.

But whatever you do, read the next example and consider what lessons you can learn.

IP Bully No. 2: Righthaven
Offense: Not allowing bloggers and aggregators to blatantly copy whole portions of copyrighted news articles

Righthaven has launched an aggressive copyright assertion campaign against a slew of individuals, advertisers, media organizations and political activists (more detail on Righthaven Lawsuits here).  There was an enourmous amount of outrage directed at this enforcement effort, which I previously described:

How outraged? Ars Technica called it a “sordid operation.”  Boing boing referred to it as an “extortion racket.”  Joe Mulllin calls the outfit “controversial.”  That’s hardly an indictment in itself, but he did specifically mention in his latest article that “Righthaven has sued charities, impoverished hobby bloggers, reporters, and the newspaper’s own sources.”  These are all true facts, to be sure.  But with 260 lawsuits, they can’t all fit into these categories, can they?

Read more at Righthaven Business Model Exposed – End Of An Era, Or Spawning Of A New IP Licensing Industry?

While many defendants have chosen to settle with Righthaven, some are taking an aggressive stance.  Lawyers for Democratic Underground are simultaneously waging battle in the courts and in the press, with a misdirection campaign that has journalists convinced that Righthaven’s copyright assignments are invalid. In reality, these legal arguments rest on a creative spin placed on form documents produced by Righthaven, and victory is far from certain.

Now it is being reported that one Righthaven defendant has filed a class-action lawsuit against the content monetization outfit, claiming abuse of process and bad faith litigation.  Class actions are a particularly expensive form of litigation, and the claims being raised lack merit if (1) Righthaven’s claim of copyright ownership is correct (or at least defensible, which it certainly is) and (2) Righthaven’s content is used without prior authorization.  The class-action suit claims that failure to consider whether potential defendants have a viable “fair use” defense amounts to bad faith, but “fair use” is normally very fact intensive. Reasonable people can disagree about whether one person’s use of another’s content is fair under the circumstances.

Yes, it’s true that one judge already ruled that copying an entire article still amounted to fair use as a matter of law, but I personally think that ruling has a strong chance of being overturned on appeal.  Again, this will be an expensive process (for both parties).  The point here is that the iOS software developers should observe carefully what is happening in the Righthaven cases and decide whether it’s a path they want to pursue.  If your goal is to make your lawyers wealthy (or famous), then it’s a good choice.  If you’re looking for a fast, non-disruptive, and certain outcome, aggressive litigation is a very bad choice.

IP Bully No. 3: Facebook
Offense: Refusing to let other businesses borrow credibility from their brand

The last example comes from the trademark category.  In one prominent example of accused trademark bullying, Facebook sued Teachbook LLC.  Lending credibility to the notion that Facebook believes it owns rights to marks like “Face____” and “____book”, Facebook also sued Faceporn.  Dicussing Facebook’s claims against Teachbook, my friend Mark Malek commented:

From a purely legal perspective, Facebook may have a point.  With that in mind though, I do not think that their fame in the “Facebook” mark automatically entitles them to the exclusive rights to the words.  Is the intent here to remove these words from the dictionary for anyone else to use?

Facebook isn’t backing down, either. After having its lawsuit in California shut down, the social network site has refiled its claims in Illinois (Teachbook’s hometown).  So what gives?  Are the words “face” and “book” forever striken from vocabulary for business, product and service offering names?

Of course not, but take a look at Teachbook’s website.  The company claims to offer a “professional, online community” for teachers.  In other words, a social network? Consider also that the term “Teachbook” is an extremely awkward phrase.  Teachbook claims that it had no intent to trade on Facebook’s mark when it adopted its name in 2009!  I would entertain a reasonable argument that Facebook has no rights to exclude others from using the term “Teachbook”, or that there is no likelihood of confusion between the two terms.  However, the suggestion that Teachbook’s founders picked such an odd name wholly oblivious to the fact that some might hear/read it and (at least for a brief moment) think about the ubiquitous social networking giant is completely laughable.  At minimum, even if there’s no actual confusion, consumers are likely to see the name and understand that the product being pitched is likely a social network related to education.  (A short-cut to name recognition, if you will).

As with all of these examples, dealing with aggressive IP enforcement can be frustrating, particularly if you feel justified in your current business operations.  However, IP owners with superior rights (or superior resources) can overwhelm your operations to the point that you get distracted from your true mission.  If you pick a company or product name, even in part, because you see an “instant” name recognition benefit, don’t be surprised when the brand you’re borrowing from comes knocking.

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Discussion

3 thoughts on “Top 3 IP ‘Bullies’ And How To Handle Them

  1. The Lodsys leter sent to devs says it “reserves the right to change its royalty rates at any time”. 0.575% today, 20% tomorrow? Also, Lodsys and Intellectual Vultures share the same mailing address: a UPS box in Seattle. Lodsys is just a shell for IV and Paul Allen.

    Posted by dg | May 20, 2011, 1:07 am
    • DG,

      Thanks for adding that detail on the Lodsys letter.

      The relationship between IV and Lodsys has been explored on other blogs, and while it is entirely likely that IV will benefit financially from any success Lodsys has, there’s no evidence that anyone at IV is calling the shots.

      Quite frankly, the amount of money Lodsys is seeking is just too small to get anyone up there interested.

      Paul Allen is an investor in IV (through one of his various funds), but the main guys at the top are actually Nathan Myhrvold (another former Microsoft guy) and Peter Detkin (formerly Intel).

      Posted by Patrick | May 20, 2011, 7:37 am

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  1. Pingback: Survival Of The ‘Micro-Entity’ IP Licensing Model « Gametime IP - October 19, 2011

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