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IP, Patent

Frivolous Patent Lawsuit Illustrates High Cost Of Litigation

Most reports complaining of frivolous patent lawsuits claim that patent owners carelessly assert patents without a viable infringement theory, or, more commonly, baselessly claim that asserted patents are invalid (despite lack of support for such claims). For example, Gene Quinn was considerably distressed last year about a patent lawsuit filed by Microsoft that, according to Gene, amounted to a “ridiculous federal complaint …[the type that] one would normally see being filed by a patent troll that is trying to hold up one of the tech companies for ransom.”

So, I wonder what Gene would think about a patent lawsuit where the plaintiff admits to having done no infringement analysis whatsoever? What if the plaintiff admitted in the complaint itself that it had no knowledge of what (if any) products were believed to be infringing? Moreover, what if the plaintiff admitted to not even knowing what patent is at issue, much less what the asserted claims were?  The lawsuit, easily the most reckless in recent memory, admits to not even knowing the identity or location of the defendant!

So who filed a federal lawsuit against this “mystery defendant” involving unknown patents, unknown products and unknown infringement allegations?  Courtesy of Kyle Jensen (proprietor of PriorSmart, a fantastic source of patent news) and his daily litigation alerts, I learned of this monstrosity filed by Renaissance Learning, a multi-million dollar provider of computer-based testing methods.  But this is no ordinary lawsuit.  Rather, this is the “declaratory judgment” variety, with Renaissance claiming an “actual controversy” with respect to unknown patents allegedly owned by an unknown entity that may (or may  not) accuse products of Renaissance.

In framing this dispute, Renaissance claims:

Renaissance Learning is not aware, and has no reason to believe, that its STAR assessment programs, or any other of its online testing and evaluation products, are infringing on any claims of any valid patents.

So why file a lawsuit when you’re “not aware” of your products infringing any valid patents?

Renaissance Learning received a letter from IP Nav dated February 22, 2011 and entitled “Proposal to Negotiate Patent License.”

The letter states that IP Nav has been engaged by the Defendant, an unnamed holder of “valuable patents and related intellectual property directed to the fields of online testing and evaluation.”

So why is the patent owner so shy?  Well, recall the Webvention lawsuits filed last year.  A patent owner knows that:

any company it approaches may take matters into its own hands … imposing costs onto both parties.

As that same post noted, the litigation risk to patent owners imposes potential costs on the licensing process:

Balancing all of these risks, [the patent owner] comes to the realization that litigation is a “default” negotiation platform and comes with specific expenses (primarily in the form of lawyers).

Thus, a licensing agent was employed to contact Renaissance and seek agreement to specifically avoid litigation so that the parties could have constructive discussions. As admitted by Renaissance:

The letter demands that Renaissance Learning enter into discussions with IP Nav regarding a license agreement with the Defendant. As a condition precedent to disclosing the identity of “specific patents,” the “basis for the infringement claims,” and the Defendant’s “basic licensing structure,” the letter states that Renaissance Learning must sign the attached “Confidentiality and Forbearance Agreement” (hereinafter “the Agreement”).

[T]he Agreement requires that the information disclosed during the confidential discussions would not form the basis for legal proceedings …

So what’s so wrong with this arrangement? According to Renaissance:

… there is no provision preventing the Agreement from bringing an action for infringement against Renaissance Learning during the term of the Agreement or otherwise. Nevertheless, the Agreement would purport to require Renaissance Learning to waive its right to bring a declaratory judgment claim against the Defendant and/or IP Nav.

Surprisingly, Renaissance’s complaint doesn’t say whether they called IP Nav to see if a simple change to the agreement would be entertained. I don’t know what the answer would have been, but neither do they … and their the ones who filed a federal lawsuit, not me!

For their part, it seems that the patent owner here was correct to assume that a simple letter would result in it immediately being hauled into court (in what may be a distant jurisdiction).  As long as patent owners have to legitimately fear being sued simply for proposing a conversation with another party, the transactional cost for licensing patents will remain high (in some cases artificially increasing license rates), and patent owners will be forced to seek the deep pockets of venture capitalists, contingent fee lawyers and monetization advisors in order to get compensation for use of their inventions.

The full complaint is embedded below, but it is apparent that Renaissance has taken an extremely aggressive approach in responding to a letter from a licensing agent.

View this document on Scribd

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Discussion

17 thoughts on “Frivolous Patent Lawsuit Illustrates High Cost Of Litigation

  1. This is really an interesting case to watch. I can’t for the life of me see how a DJ can be filed without knowing what the patents are. It almost seems to me that this is some kind of petition for discovery. In NH there was some vague historical precedent under state law for a petition for discovery when you needed the information in order to file a lawsuit. The firm I worked at once upon a time used it successfully in a case. That seems to be what this is about.

    It is a clever trick to try and get the other party to sign the agreement so they cannot bring a DJ. I understand why they are upset about this, but don’t see how a DJ could be brought.

    Posted by Gene Quinn | March 19, 2011, 10:40 am
    • I agree, but more importantly, the patent owner clearly expressed a desire to avoid litigation. The Plaintiff might be upset, but they’re still involved in a lawsuit.

      Perhaps lesser of two evils by being at home, but a stick -in-the-eye is still a Stick-in-the-eye, no?

      Posted by Patrick | March 19, 2011, 11:02 pm
  2. I think plaintiff clearly has standing to sue the Doe patent owner.

    Plaintiff provided a factual basis to support its allegations that the Doe patent owner conducted an analysis of plaintiff’s products and concluded that plaintiff infringed one or more of Doe’s patents. Through its agent, Doe conveyed to plaintiff the results of that infringement analysis and demanded that plaintiff engage in licensing discussions. Doe’s conduct more than suffices to trigger plaintiff’s declaratory relief standing. The fact that the patent owner is acting anonymously through an agent is, I think, irrelevant.

    A good, recent case is Hewlett-Packard Co. v. Acceerlon at http://goo.gl/dDN2r

    Posted by Dan Ballard | March 19, 2011, 7:41 pm
    • Dan,

      I suppose we can agree to disagree.

      However, if these facts properly give standing for a DJ, then patent owners are powerless to approach potential infringers without risking a lawsuit.

      Also, just because you can do something, it doesn’t follow that you should. Since most lawsuits end in settlement, doesn’t it make logical sense to try to resolve it before litigation, it you can?

      Regardless of whether this sticks, I do not believe the plaintiff received good advice from its lawyers

      Posted by Patrick | March 19, 2011, 11:12 pm
  3. Dan-

    How can you have a DJ, which asks for a declaration that the patent claims are invalid or not infringed without identifying the patent? I just don’t see it. I completely understand what they are trying to do, and I don’t like what the patent owner is doing, but a DJ without citing a patent? The case you cite seems to have cited a patent. Am I missing something?

    -Gene

    Posted by Gene Quinn | March 19, 2011, 11:08 pm
    • “I don’t like what the patent owner is doing”

      Gene- what would you have the patent owner do? If he/she/it is serious about resolving infringement issues without the expense of litigation, what would you have them do?

      Posted by Patrick | March 19, 2011, 11:16 pm
      • The thing that rubbed me the wrong way is that they wanted the defendant to agree not to file a DJ without even knowing what the patent is but wouldn’t agree to a similar provision that would prevent them from filing a lawsuit during negotiations. Like you, I think this DJ action is bogus, but I would still rather not have the one-sided agreement to have to defend as justified.

        I agree this is a very creative way to proceed. Having said that, if there is a real desire to have home court advantage I think I might recommend filing the lawsuit first and just not serving it. You have 120 days to serve. See if you can get any negotiations going quickly, otherwise serve the complaint, which will be first filed and that way you don’t have to face a DJ elsewhere.

        Posted by Gene Quinn | March 19, 2011, 11:21 pm
        • “but wouldn’t agree to a similar provision that would prevent them from filing a lawsuit during negotiations”

          Well, we don’t actually know that. Suppose the plaintiff called the licensing agent and said, “I’m really uncomfortable with this unless the forbearance is mutual. Can we make that modification and proceed?”

          Maybe the answer is yes, maybe the answer is no. If its no, maybe there’s a really logical explanation for it.

          Am I speculating? Absolutely! But I don’t see how you lose anything by making a simple phone call … And if the answer is “no,” then you have some additional facts to throw in the complaint to claim bad faith.

          Also, even though you don’t have to serve, once you file a complaint, it becomes a public record immediately, and the “stigma” associated with litigation attaches immediately.

          Posted by Patrick | March 19, 2011, 11:31 pm
  4. Gene,

    I don’t see the necessity for the DJ plaintiff to identify a particular patent owned by a license-demanding patent owner to establish standing for a DJ action. While the CAFC’s “reasonable-apprehension-of-suit test” to satisfy DJ standing did not survive Medimmune, a DJ plaintiff does have standing if the conduct by the patent owner, directed at the DJ plaintiff, “can be reasonably inferred as demonstrating intent to enforce a patent … .” By demanding a license from a particular target company, the Doe patent owner has created a definite, concrete and particularized controversy between those parties. That’s all that’s needed.

    Even in cases where the DJ plaintiff is told the particular patents that it must license, it is very often not told the particular claims that its products allegedly infringe. In those situations, the DJ plaintiff simply, and properly, asks the court to declare that the plaintiff does not infringe ANY of those claims – and must plead this broadly because it does not know which claims the patent owner asserts have been infringed. That amorphous pleading directed at UNKNOWN claims in a known patent is no different than a plaintiff asking the court to declare that the plaintiff does not infringe any of the UNKNOWN claims in an unknown patent which the patent owner asserts have been infringed.

    As for patent owner’s risking a DJ action when they demand, through an agent, a license to practice their invention, why is that a bad thing? If the Doe patent owner demanded a license directly, that would provide the DJ plaintiff with standing. Why should the existence of an agent intermediary change that conclusion? The agent is a simply tool wielded by the patent owner.

    Patent owners can, of course, directly contact their potential licensees without providing the factual bases to support a DJ action. See Hewlett-Packard Co. v. Acceleron, 587 F. 3d 1358 [“Thus, a communication from a patent owner to another party, merely identifying its patent and the other party’s product line, without more, cannot establish adverse legal interests between the parties, let alone the existence of a ‘definite and concrete’ dispute. More is required to establish declaratory judgment jurisdiction. …”].

    Another approach I haven’t thought through is being tried by Round Rock Research LLC. It buys patents, enforces them against some industry players, and, through an intermediary, auctions off “covenants not to sue.” See http://goo.gl/Kh6dj . Round Rock is not engaging in any conduct, via the auction, that demonstrates an intent to enforce a patent. I don’t condone this approach because I haven’t thought it through but it is a much more insulated approach than simply using an agent to demand a license.

    Posted by Dan Ballard | March 20, 2011, 3:49 pm
  5. A patent is referred to a set of rights granted to an individual or business by the state that gives them

    public disclosure of a new invention for a specific amount of time. This grant does not actually give the

    holder the exclusive right to practice the invention, but simply the right to preclude other outside

    parties from using or imitating it. Patent Litigation is

    a controversy or disagreement between two independent parties regarding a dispute of intellectual or

    physical property.

    Posted by Jared | March 22, 2011, 11:50 am

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