Non-practicing entities, also known as patent trolls, find midsize companies make ideal targets for infringement claims. Online retailer Ashford.com is fighting back.
Katz of theEmob provided InformationWeek with copies of a letter and corresponding term sheet that the law firm Capital Legal Group sent on behalf of Cronos Technologies. In court documents, Cronos Technologies lists a mailbox at a shipping store in Wilmington, Del., as its address. The letter recipient's name was redacted. (Zelman said that Cronos is not one of the NPEs that has pursued Ashford for patent infringement.) The letter, regarding U.S. patent 5,664,110, states: "CLG has determined that your company should be interested in discussing licensing opportunities related to the '110 patent based upon the features and services provided by your company via its online retail portal. Accordingly, CLG would like the opportunity to discuss the licensing opportunities that are presently available."
That opportunity: Pay a one-time, non-refundable licensing fee of $185,000.
In a TED talk about his fight against a patent-infringement claim, Fark.com founder Drew Curtis said: "You need to know that the average patent troll defense costs $2 million and takes 18 months when you win. That is your best case outcome when you get sued by a patent troll."
The '110 patent covers a "remote ordering system." The beginning of the patent's abstract reads: "A remote ordering system provides a user the ability to build and edit one or more order lists, resident in memory within a user device, and the further ability to review and manipulate a user interpretable display of the contents of such lists. A system comprising merchant stock databases, a data format/transfer computer (DFTC) and display/processor units (DPUs) (the user devices) enable creation and transmission of the order lists."
The rest of the abstract and patent documentation is full of similar language and related diagrams. Yet it appears much of it describes what would today be more commonly called e-commerce. The "Background of the Invention" section, for instance, begins: "Remote ordering systems have been proposed for providing homeowners and business-persons the ability to order staple items from one or more merchants without the need to travel to a merchant location. However, such prior art systems have failed to provide the user with adequate information necessary for tracking or editing orders made or lists compiled."
The '110 patent was assigned in 1994 to a company called Highpoint Systems. According to Olender, "most trolls acquire old patents that were never intended to apply to current technology." Among the other patents cited in the '110 documentation is patent 5,319,542, originally filed in 1990 for a "system for ordering items using an electronic catalogue" and assigned to IBM. That patent's background information describes the challenges mail-order retailers faced pre-Internet: "The entire process, from preparing the catalog to receipt of orders, often took several weeks, and possibly months." It also notes the limitations of commerce on early online services such as Prodigy.
The Cronos letter and term sheet were signed by Capital Legal Group's managing partner, Mel Barnes. In a phone interview, Barnes declined to comment on specific clients or cases, but he confirmed that Cronos Technologies is a non-practicing entity. Barnes said that all of Capital Legal Group's clients except for Cronos Technologies are operating companies that generate revenue from businesses other than owning and enforcing patents.
"We're a law firm that helps companies monetize patents through licensing or sales," Barnes said. Businesses pay fees not just to file patents but also to maintain their ownership over time. "Some companies get five -- some companies get 500 -- patents a year, and seven [to] 10 years later they don't know if those patents are valuable or not valuable. They tend to maintain them, and every three-and-a-half years there are maintenance fees. For some companies, that's millions of dollars a year in patent maintenance fees. Sometimes they let them go abandoned and lapse for a failure to pay the maintenance fees, and we try to help them figure out which of their patents are valuable and being perpetually infringed by the marketplace and which aren't. Sometimes clients like to sell those patents, sometimes they like to license them, and sometimes they like to enforce them on their own. We help companies generate revenues from patents they've developed or acquired that would basically be otherwise useless to them."
Barnes is also listed as the president of Cronos IP Solutions, "a global patent monetization firm specializing in contingency-based enforcement of patents," on that firm's website. The "Executives" link and corresponding Web page do not appear in the site's navigation, but the page is accessible via search or direct URL. The site's content regularly refers to the firm simply as "Cronos." Barnes said that Cronos Technologies and Cronos IP Solutions are separate, unrelated entities.
Asked about the term "patent troll," Barnes noted that it has been around for a while. "It's a little bit of eighth-grade name-calling from our perspective. Lots of billion-dollar companies that are operating companies, they develop patents and often don't have products covered by these patents. When they go to enforce these patents, they're generally not considered a troll simply because they sell other products," Barnes said. "But when you have a sole inventor who develops a patent but doesn't have the financial resources to commercialize it, companies revert to name-calling them. It doesn't really affect us one way or another. There doesn't seem to be a lot of logic or merit behind the term."
Building A Mobile Business MindsetAmong 688 respondents, 46% have deployed mobile apps, with an additional 24% planning to in the next year. Soon all apps will look like mobile apps – and it's past time for those with no plans to get cracking.
Join us for a roundup of the top stories on InformationWeek.com for the week of December 14, 2014. Be here for the show and for the incredible Friday Afternoon Conversation that runs beside the program.