If it Quacks like a Duck…

Note: This blog is cross-posted from Mike Dillon’s personal blog.

http://blogs.adobe.com/conversations/files/2014/05/shutterstock_145351684.jpeg

As I discussed recently, the modus operandi for patent trolls is to blanket an industry or market with threats of litigation (or actual lawsuits), while doing little research to determine if the cases have merit. Patent trolls know that some portion of companies will pay quickly to get rid of a case rather than go through the distraction and expense of fighting a lawsuit. A couple of recent successful cases where Adobe did not settle, are illustrative of how patent trolls operate.

The first case involved a patent troll known as TQP. TQP is headquartered in Texas and appears to have two employees. One is the inventor of U.S. Patent 5,412,730 (granted in 1995), which TQP claims to apply to certain encryption algorithms used by most current internet browsers. The other employee is an attorney.

Quick question – does anyone else think that something’s amiss when 50% of a company’s employees are attorneys?

Since 2008, TQP has filed patent lawsuits against more than 200 hundred companies ranging from financial institutions to airlines, mobile phone companies, insurance companies, drug stores, grocery stores, energy companies and tech companies asserting that these companies infringe Patent No. 5,412,730.

Given the number of companies that TQP has sued, it wasn’t a surprise to Adobe when we were also named as a defendant. What was surprising, however, was that the law firm representing TQP was Russ, August & Kabat.

Let me see, where have I heard that name before? Oh, yeah, now I remember. This is the same firm that has represented Adobe in a variety of patent related work since 2006. This work included reviewing Adobe’s technology and providing opinions that Adobe did not infringe various patents in cases brought by patent trolls.

In the legal world that’s what we refer to as a “conflict of interest.” A big one.

As a result, we asked the court to disqualify Russ, August & Kabat from representing TQP in the case against Adobe. The court agreed and given that, among other factors, TQP did not want to bear the cost or complexity of hiring another firm to represent them, especially against someone willing to fight, they dismissed Adobe from the case. The right outcome for Adobe, but not without cost. We spent $300,000 in legal fees to defend the case. We have since instituted a state court action against the law firm asking for the return of some of those fees.

It’s worth noting that the first time we learned that they weren’t our counsel anymore was when the law firm sued us on behalf of TQP. That’s not how law firms are supposed to behave. But as Glenn Frey would say, “the lure of easy money, it’s got a very strong appeal.”

In another case, a different strategy achieved a similar result for Adobe.

Ingeniador is a company with its principal place of business in San Juan, Puerto Rico. I can find nothing that indicates that Ingeniador actually makes any products. Instead on its website it claims to be “a worldwide team of scientists, engineers and entrepreneurs pioneering leading-edge research in mobile, e-commerce and healthcare technologies. Ingeniador is proof positive of the globalization of innovation.”

Perhaps some of that is true, but if it walks like a duck, and quacks like a duck…

In 2011, Ingeniador filed lawsuits in Puerto Rico against 16 companies including Oracle, Microsoft and HP alleging that they infringed on U.S. Patent No. 6,990,629 through use of LDAP, a widely used industry standard protocol for maintaining and accessing directory information over the internet. These cases were all settled or dismissed.

In December, 2012, Ingeniador filed another round of lawsuits against nine companies, including GE Healthcare, Nuance Communications, McKesson Corp. and Adobe based on the same patent. These lawsuits were filed in Texas. Within 6 months of filing all the defendants, except Adobe, had either settled or been dismissed from the lawsuit.

Adobe chose to keep fighting the case (rejecting several offers to settle) and filed a request to change venue so that a trial would take place in Northern California. We thought this made more sense. After all, if Ingeniador is headquartered in Puerto Rico and Adobe is headquartered in California, doesn’t it make more sense to have a trial in one of those two locations rather than Texas?

The Texas trial judge agreed with us and granted our request. And, no surprise, within 2 months of the judge’s ruling, Ingeniador decided it had lost interest in pursuing Adobe and agreed to dismiss the case against us.

Again, a good result for Adobe, but this time one which cost the company $700,000 in legal fees.

Two Supreme Court decisions last week may help to reduce the asymmetry that creates an incentive for patent trolls to threaten or sue whomever they wish wherever they wish, regardless of the merit of the case. But, in the end Congressional action is what is needed.