The best offense...is a good defense.

I recently shared dinner with a few other GCs of local technology companies. It was a nice evening in which we were able to relax and share insights (and commiserate) about topics of common interest. During the course of our meal while we were discussing rising legal costs, one of my table mates made a statement that I found somewhat bothersome. He said that when faced with patent "troll" litigation, he knows he is going to pay something to get rid of the lawsuit and so he economizes on the use of defense counsel. After all, the thinking goes, if your intent is to settle a case, why spend money on a strong defense?

His view is completely contrary to how we think about this problem at Sun. It's also symptomatic of the way many companies view this issue as a quarterly "cost of doing business" without considering the long term consequences of settlement both for individual companies and our industry.

Before going further, let me state that we respect the intellectual rights of third parties. When a third party claim has been clear and the terms reasonable, we have entered into licenses. However, those situations are easily distinguished from the cases that make up almost all of our present docket of patent litigation. These lawsuits have usually been filed with no advance notice, by plaintiffs that don't commercialize their patents (i.e. create and sell products) and in venues considered favorable to them. It's also almost always the case that these plaintiffs have done little or no investigation to ascertain whether our products infringe prior to filing their lawsuit.

Let me provide an example. Last year, I described a patent litigation brought against Sun by a company named Exponential Solutions LLC. I use the term "company" in the broadest sense as Exponential Solutions does not appear to make any products or offer any services. It is purely a patent holding company consisting of two individuals: Raymond Ratcliff (inventor) and Frank Benevento (investor and decision maker for Exponential).

Exponential filed its complaint against Sun in the Southern District of Florida. The case alleged that the Sun Grid service infringed two patents: 6,996,548 ("Method and apparatus for providing a reward for the use of a processor in a parallel processing environment") and 7,127,437 ("Method and apparatus for receiving a reward for use of a processor in a parallel processing environment"). These patents describe the use of distributed computing and payment to people for use of their home computers connected to a network.

The first we were aware of this suit was after it had been filed. Several months later, we had our first real communication with Exponential when they proposed that Sun pay them an amount with many, many zeros or a large ongoing royalty on our products and services. We declined. While it would have been easy to make the safe decision and pay a license fee to avoid the cost of litigation, we chose to invest in defending ourselves. Invest not just in showing that we did not infringe - we were confident that we did not - but also in identifying prior art to demonstrate that these patents should be invalidated. Our investment yielded results.

Specifically, we found a great deal of prior art that appeared to anticipate Exponential's patents including, a book co-edited by Exponential's own technical expert. More interestingly, we found evidence that suggested another piece of prior art relating to the SETI@home project had been known by Exponential's attorneys, but not produced to the U.S. Patent and Trademark Office when the application was made. In November 2007, the court allowed us to amend our complaint to include an inequitable conduct claim based on these facts.

We had further success when, in December 2007, the court entered a Markman ruling supporting Sun's view that key claims in the patents should be construed narrowly. We were also successful in getting the Court to order Exponential's expert to testify and produce documents that we believed would support our view that the patents were invalid. The court went even further and ordered that all communications between the expert and plaintiff's attorneys be produced. Perhaps, it was the combination of these events that made Exponential begin to rethink the merits of its case.

As we headed for a February trial date, Exponential's demands got smaller and smaller until, ultimately, they agreed to a dismissal with prejudice - meaning they can't bring the case against Sun again,or against our customers, partners and vendors. And, Sun didn't pay a dime in settlement. In fact, the biggest impediment to a final settlement was not our unwillingness to pay, but rather our demand that terms of the settlement NOT be confidential. Why? Because as much as companies would like to have our legislators solve this problem, we also need to consider what we can do. This includes not only investing in a defense when facing these types of plaintiffs, but also by openly sharing information about these cases.

I encourage other in-house legal departments to do the same.

Comments:

Hi Mike, Thanks a lot for laying out the issues and fighting the case all the way in order to share the final terms of settlement. I just hope other companies will follow Sun's example here. Like you said before, patent troll is a tax on innovations.

Posted by Kempton on February 06, 2008 at 05:50 PM PST #

[Trackback] Ford truck with RFID tool tracker - good and bad (see post & comments) The best offense…is a good defense. - a good piece about Patent Troll Buffett Sees ‘Poetic Justice’ in Banks’ Woes - Love this quote quote: “What has happened...

Posted by ideas Revolutionary on February 07, 2008 at 04:39 AM PST #

Sharing information about patent trolls sounds like a good plan.

Unfortunately, the patent trolls don't seem to see it that way.

Witness the Chicago Tribune's story about Chicago patent attorney Raymond P. Niro, who has advertised a $10,000 bounty on an anonymous blogger. The blogger has had the utter temerity to report about Mr. Niro's activities. And Mr. Niro is retaliating.

"Patent licencers raising some ire"
http://www.chicagotribune.com/business/chi-tue_law_notebook22jan22,1,7926739.story

"Partner Offers $10K Bounty for Blogger’s Identity"
http://www.abajournal.com/news/partner_offers_10k_bounty_for_bloggers_identity/

Posted by anon on February 11, 2008 at 08:06 AM PST #

It never ceases to amaze me how corporations scream and yell about patent litigation, except when they are the plaintiff!

Can someone really show how innovation is "stifled" when a patent claim is made by a non-producing entity? I really want to know. More importantly, what is the difference between a non-producing entity and a technology company purchasing its products from the Far East from some ODM and pushing it through its distribution system to customers. Did the tech company innovate that product?

Rather than screaming and yelling, why not just take licenses where appropriate and respect the Patent Laws. Its certainly ok when you guys sue someone in Texas, no? Interesting that the Reform Act allows forum shopping by companies but not non-producing entities. Explain that one! I see that you actually brought at least two suits in Texas! Maybe you like the smart judges and the docket when you are the aggrieved party!

I just am so tired of listening to your PR about Trolls. Show us one license you've entered into with a non-producing entity without forcing them to litigate first (even if to avoid a DJ by you to establish jurisdiction in a slow jurisdiction).

Respect the US Patent laws instead of arguing that you are above them.

Posted by Anon on February 20, 2008 at 03:56 AM PST #

Hi Mike.
I really didn't get the connection between whether someone currently sells goods and services, and how you should treat them when they have a patent complaint.

I read the outline of your defense strategy, and it sounds exactly like the strategy people take when SUN tries to go after people. So yeah, it makes sense and should be encouraged.

It's all about one's point of view when you're involved in patent stuff.

You may be offended by a "troll" in one case, but in other cases you're the troll.

So maybe you weren't infringing in this case. Great.
The system worked then. Are you saying the system shouldn't be in place as is? Why or why not? Is the system too expensive..well yeah you lawyers get paid way to much for no work, so work for less.

And implying "SUN deserves to succeed more than others" isn't really a good argument.

If the problem is that you're unable to defend your point of view on a budget, well then, get better at that. Geez.
Check out how hard most people in the US have to work just to put food on the table. Follow suit.

And if you're being all high and mighty about SUN's patent portfolio, let's see some detail about how many of them are in shipping products customers use. Most of SUN's patents are crap, for stuff that has no use to society, and is never built/shipped. Or trivial.

You want to call me on that statement? Have a weekly column that dissects new SUN patents and explains in simple terms why it's so great and what product it ships in. You won't because SUN creates b.s. patents just like everyone else.

Posted by DontGetIt on February 20, 2008 at 02:52 PM PST #

Yeah Mike, please explain. What exactly is it that you guys are shipping that is based on your valuable IP that is so innovative?

Amazing how all the tech companies have so much to say to help their case in avoiding IP infringement claims of small companies who really do innovate. Maybe the whole Reform Act PR is just another way to cheapen the value of the companies that you need to acquire in order to remain competitive!

But then again, a hired gun lawyer acting as GC would never really understand this stuff anyway. You're being used to help perpetuate the myth. I bet you'd be singing a completely different tune if you were employee number 3 or 4 at a tech start-up!

Posted by anon on February 21, 2008 at 11:13 AM PST #

Anon & DontGetIT: My understanding - being neither a lawyer or an American, though - of how these non practising entities work is that they don't market their IP at all for licensing, except through litigation. Consequently, they generate no utility, just friction. Clearly not the original intent with the patent system.

I seem to recall some numbers from Troll Tracker about pending patent litigation: Almost all of this non-productive non-practising friction happens in software. In pharmaceuticals and other patent-dependent industries the patents are used as intended; to protect inventors from copycats.

Posted by Claus Dahl on February 26, 2008 at 12:58 AM PST #

You didn't pay a dime? It sounds like you lost to me.

You should have refused to settle, gone to trial, and sought some sort of punitive damages for a fake claim. Or at least threaten to do so during settlement talks to get them to pony up some portion of your legal and research fees.

Posted by Mark on February 26, 2008 at 02:22 AM PST #

Mr. Dahl: Your information is incorrect. You've been listening to the PR for too long. No one wants to pay lawyers to litigate. Believe me. In almost all cases, notice letters and invitations to license are circulated.

The problem is that companies ALWAYS say "we don't need a license, thanks very much". In some cases, that response is followed with a declaratory judgment lawsuit in the home jurisdiction of the infringer. In the "old days", such lawsuits required a notice with implied or express assertion that the recipient is infringing.

Since 2007, companies no longer need to be told they infringe before they can bring a declaratory judgment against a patent holder, so some non-practicing entities and product companies don't take the risk of a lawsuit by sending a notice letter.

Posted by anon on February 27, 2008 at 12:27 AM PST #

Hi, you have a good post here, thanks for the good read

Posted by 505 on March 06, 2008 at 05:39 AM PST #

[Trackback] A couple of months ago I came across Mike Dillon’s blog – The Legal Thing – covering all things legal from the perspective of General Counsel at Sun.  As GC for Sun, Mike’s daily routine must e...

Posted by PHOSITA on March 17, 2008 at 12:34 PM PDT #

[Trackback] A couple of months ago I came across Mike Dillon’s blog – The Legal Thing – covering all things legal from the perspective of General Counsel at Sun.  As GC for Sun, Mike’s daily routine must e...

Posted by PHOSITA on March 17, 2008 at 12:36 PM PDT #

[Trackback] A couple of months ago I came across Mike Dillon’s blog – The Legal Thing – covering all things legal from the perspective of General Counsel at Sun.  As GC for Sun, Mike’s daily routine must e...

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Posted by Sunger Bob Oyunlari on April 05, 2011 at 09:40 AM PDT #

You didn't pay a dime? It sounds like you lost to me.

You should have refused to settle, gone to trial, and sought some sort of punitive damages for a fake claim. Or at least threaten to do so during settlement talks to get them to pony up some portion of your legal and research fees.

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You didn't pay a dime? It sounds like you lost to me.

You should have refused to settle, gone to trial, and sought some sort of punitive damages for a fake claim. Or at least threaten to do so during settlement talks to get them to pony up some portion of your legal and research fees.

Posted by Savas Oyunlari on April 05, 2011 at 09:42 AM PDT #

You should have refused to settle, gone to trial, and sought some sort of punitive damages for a fake claim. Or at least threaten to do so during settlement talks to get them to pony up some portion of your legal and research fees.

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You should have refused to settle, gone to trial, and sought some sort of punitive damages for a fake claim. Or at least threaten to do so during settlement talks to get them to pony up some portion of your legal and research fees.

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You should have refused to settle, gone to trial, and sought some sort of punitive damages for a fake claim. Or at least threaten to do so during settlement talks to get them to pony up some portion of your legal and research fees.

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You should have refused to settle, gone to trial, and sought some sort of punitive damages for a fake claim. Or at least threaten to do so during settlement talks to get them to pony up some portion of your legal and research fees.

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You should have refused to settle, gone to trial, and sought some sort of punitive damages for a fake claim. Or at least threaten to do so during settlement talks to get them to pony up some portion of your legal and research fees.

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You should have refused to settle, gone to trial, and sought some sort of punitive damages for a fake claim. Or at least threaten to do so during settlement talks to get them to pony up some portion of your legal and research fees.

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