The nation's patent trolls, perhaps sensing increasing outrage about their parasitic practices, have grown more aggressive. They've increased (successful) lobbying efforts. Moreover, they've begun to resort to preemptive litigation — not just suing people for infringement, but suing people for contesting their trollish business model. This year saw one patent troll suing the Federal Trade Commission in an effort to halt its investigations, asserting that the troll's shakedown letters are protected by the First Amendment. The FTC's motion to dismiss is pending.
Thanks to tipster Jenny, I learned of another stunning example of patent troll aggression in Texas.
Patent trolls usually make money by extorting small companies; it costs too much to litigate with the big companies, and big companies aren't so easily cowed by the threat of a lawsuit. But big companies are still interested in the activities of patent trolls, and have begun to fight back against them. For instance, behemoth eBay noted Landmark Technologies' activities and surmised, correctly, that its existence was threatened by a company claiming to hold a patent on online credit card payments. eBay used the legal methods available to them: they filed with the U.S. Patent and Trademark Office ("USPTO") a request for reevaluation of Landmark Technologies' patents. USTPO evaluated eBay's application and determined that they raised "substantial new question of patentability affecting any claim of the patent," triggering a re-examination of three Landmark patents. Ultimately USPTO rejected eBay's arguments as to two of Landmark's patents, but accepted 16 out of 25 of eBay's arguments about a third patent.
Patent trolls rely upon vague, ambiguous, overbroad patents and patents that were foolishly granted despite the ideas in them being previously public. That's why this reexamination system is essential.
A patent troll like Landmark could not allow such challenges to be used without cost; that interferes with its business model. So Landmark has sued eBay — and the lawyer who represented eBay before the USPTO — in United States District Court for the Eastern District of Texas. EDTX is very popular with patent trolls and many make their on-paper headquarters there; for trolls it's a wonderland where the roads are paved with bacon, blowjobs, and troll-friendly rules. Landmark's complaint against eBay asserts that by taking advantage of the USPTO's statutory reexamination process, eBay and its lawyer engaged in abuse of process, malicious prosecution, tortious interference with business, and negligence, and demands more than $5 million.
The lawsuit represents a logical extension of the patent troll business model, which takes advantage of our broken legal system. Patent trolls like Landmark shake down small businesses; the businesses know that even if they win the lawsuits the fight will be ruinously expensive and all-consuming. Therefore they pay the toll to the troll. Now Landmark wants to leverage the broken system further. They want lawyers to believe that if they represent companies in challenges to troll patents before the USPTO, they will be subjected to lengthy, stressful, expensive lawsuits. They want the lawyers to conclude that they should decline such representations, because they will be more trouble than they are worth. And they want companies to be deterred from questioning their patents.
eBay has come back with a very strong motion to dismiss Landmark's lawsuit under Texas' relatively new anti-SLAPP statute. eBay's arguments are persuasive: they establish that a reexamination request with the USPTO is protected by Texas' litigation privilege, which broadly insulates litigation conduct from retributive lawsuits. The litigation privilege, generally speaking, is what prevents people from suing you for what you said at your deposition or in your civil complaint against them. eBay also relies on the Noerr-Pennington doctrine, which protects petitioning activities. (The name comes from cases establishing that antitrust law can't be used to punish you for petitioning the government.) In its brief, eBay also points out a fundamental flaw in Landmark's claims — the USPTO necessarily found that eBay's petition had enough merit to raise a "substantial question" when it agreed to reexamine the patents, and in fact agreed with eBay as to one of the patents, thus establishing that eBay's petition had merit.
eBay also points out that Landmark has tried this approach before, and lost. In 2009 Landmark's principal, Larry Lockwood, sued megafirm Sheppard Mullin1 and some of its lawyers on the same theories, asserting that they improperly sought reexamination of patents on behalf of Lockwood's targets. In fact, in a clear tell of frivolousness and general lunacy, Lockwood asserted a RICO claim against the firm, saying that it was racketeering for them to use the USPTO's statutory reexamination process. The court dismissed the complaint, agreeing that among other things the RICO claim did not show criminal activity, that some of the claims were barred by the litigation privilege, and that the USPTO's enabling statutes preempted the state claims. In other words, Landmark previously tried the same schtick and got its ass handed to it.
I'm concerned about whether or not a patent troll victim can get a fair hearing in EDTX, frankly. But eBay' anti-SLAPP motion is very well crafted, and if it works, Landmark may wind up paying substantial attorney fees. However, the fact that patent trolls are willing to abuse the system like this — and lawyers are willing to help them — demonstrates the need for substantial patent reform.
- For the record I worked for Sheppard Mullin in the early 2000s as a Special Counsel, which is like an associate only more rugged. ▲
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