Patent litigation through crowd funding: want to sponsor a battle against trolls?

Shirts come in three sizes

The roll of the troll in shaping US patent legislation, and the dividing line between true and the faux troll, are matters that can provide endless hours of argument both in the United States and beyond. The following guest post from Katfriend Bertrand Sautier reflects the fine line that separates different species of plaintiff in patent infringement litigation -- where the impact of litigation is felt in much the same way by the defendant, regardless of the plaintiff's credentials. It illustrates the prospect of crowd-funded defence to infringement actions in terms of real dollars and cents. Writes Bertrand:

Crowd funding has been known for years as a good way to raise money for those who cannot access the traditional lending system. Originally used mostly in the music industry, this model has evolved to something much more sophisticated. Today, many types of projects have been financed by crowd funding such as movies, start-up, civic or educational projects, and even a “cat café” in London. Besides some IP issues due to the specificity of this service (see here for a Kat report about the Kickstarter Lawsuit), the crowd funding system was not known for being used in legal battles -- until now. 

 I recently came across the story of the Ditto Company. Besides being a traditional online eyewear vendor, Ditto has created a web service that allows you to “try on” a pair of glasses after taking multiple pictures of you. Thus you might know if the shape of specific sunglasses is right for your face. The company is now being sued for patent infringement in two different lawsuits in the US. In order to raise money to litigate, they made a statement that can be found on their indiegogo page. Here are the most IP-related snippets, followed by my own comments:

“Our Story  

… recently, two separate “patent trolls” have sued us for patent infringement, and the enormous cost of defending ourselves in court is threatening to put us out of business. (Patent trolls are groups who buy patents to sue others who have independently developed inventions.) As opposed to reinvesting capital in growing our business and hiring people, we have to spend all of our money on these lawsuits.  It’s devastating.” [It is true that the action of patent monetization entities can be a real threat to small companies in the US (PME is the term being used by Stefano Barazza in its posts about non-practising entities/patent trolls on the IPKat. See part one, two and three for this excellent overview)]. 

 Additional Details about the Lawsuits 

The first case is a patent infringement complaint filed by Lennon Image Technologies (Case 2:13-cv-00236). Lennon is a non-practicing entity based in the Eastern District of Texas – the most plaintiff friendly county in the country. They are a classic patent troll because they don’t create anything themselves but instead exist solely to buy patents and use them offensively.  Trolls knows it costs literally millions of dollars to defend a patent lawsuit, so they use the threat of litigation as a weapon to force companies into cutting them checks to go away. But unlike most of the large businesses, we simply can’t afford to do this!” [Lennon Image Technologies could be described as the typical patent troll: a small company, created with a simple corporate structure (the Texas Limited Liability Company), that does not produce any goods or services, is not part of any inventive activity, and has purchased a patent in order to enforce it before a pro patentee court. 

So far, Lennon Image Technologies has been conducting seven different lawsuits, all filed on 27 March 2013 in Marshall, Eastern District of Texas (qualified as a “renegade jurisdiction” by Justice Scalia during the oral argument in eBay Inc. v MercExchange). These demands are all based on the same patent entitled "Customer image capture and use thereof in a retailing system" n° 6,624,843. This patent was granted in 2003 by the USPTO and has been under an ex-parte examination for several months. 

This follows a preceding series of complaints filed before the U.S. District Court for Delaware. Standing on purely economic grounds, since the company cannot afford to pay for the “checks” asked by the troll, Ditto should probably try to raise money in order to pay not for litigation costs but for a license agreement, as it would probably be cheaper. But I guess that the related lobbying for legislative change implies to keep on legal fighting].  

“The second case is a patent infringement complaint filed by a competitor who is using a recently purchased patent to seek an injunction on our 3D virtual try-on technology for eyewear. The upsetting part about this case is that Jonathan Coon, cofounder and CEO of 1-800-Contacts, used DITTO's virtual fitting technology soon after our launch in April 2012 and then afterwards, in May 2012, moved to acquire rights to a patent, which they are now using to sue us.  While they are a practicing entity, the fact that they bought a patent to impose egregious litigation costs on us when we independently developed our technology makes them a “corporate troll” in our books. We don't think the patent they bought infringes but it will cost us a lot to prove that in courts.”  

There is the tricky part. Ditto claims to be sued by two patent trolls but it appears that only one them could be subject to that infamous qualification. Whether 1-800-Contacts acts as a “corporate trolls” remains a different question.  Here is an operating company that acquired a patent and is now enforcing it against a competitor. This is the way the patent market has been working for many years. The value of the second patent or the strategy of 1-800-Contacts might be discussed, but not through the lens of patent trolls. It seems more realistic to consider that Ditto is a company that may not have considered the importance of IP in the US, whether it is to protect your services against infringers or from frivolous demands from third parties. 

Ditto is seeking for $30,000 in order to hire attorneys and pay for all the litigation costs. So far the campaign has raised almost $10,000 and still has 33 days to go. 

Since the Crowd Funding system differs from the simple sponsorship, everyone who invests $30 will receive a printed t-shirt whit the slogan “I beat Trolls”.
 This particular case reflects the current debate being held before Congress for a few years now. It is not the amount of patents on the market or their quality that is being discussed; rather, it is the cost to defend yourself before a patent court. The Shield Act (stands for Saving High-Tech Innovators from Egregious Legal Disputes) claims to be a solution to this. The major change contained in this text is the introduction of a “loser pays” rule. This is a quite common rule in Europe (for example codified in Article 700 of the French civil procedure code: English version here) that gives a chance to the winning party to recover some of the expenses that have been made during the trial. The study of this highly criticized Act should probably take much longer than this post as it may concern more players than just PMEs.

 Ditto shows strong support for the Shield Act and is asking for everyone to “send a message to your congressmen asking them to support this bill”. Thus, when crowd funding meets lobbying and trolls, it becomes hard to get a bird’s-eye view of litigation.