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Main article: Patent troll

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Microsoft gives 500 patents to startups

13:00 | 28 March

Microsoft today announced a major expansion of its Azure IP Advantage program, which provides its Azure users with protection against patent trolls. This program now also provides customers who are building IoT solutions that connect to Azure with access to 10,000 patents to defend themselves against intellectual property lawsuits.

What’s maybe most interesting here, though, is that Microsoft is also donating 500 patents to startups in the LOT Network. This organization, which counts companies like Amazon, Facebook, Google, Microsoft, Netflix, SAP, Epic Games, Ford, GM, Lyft and Uber among its well over 150 members, is designed to protect companies against patent trolls by giving them access to a wide library of patents from its member companies and other sources.

“The LOT Network is really committed to helping address the proliferation of intellectual property losses, especially ones that are brought by non-practicing entities, or so-called trolls,” Microsoft  CVP and Deputy General Counsel Erich Andersen told me. 

This new program goes well beyond basic protection from patent trolls, though. Qualified startups who join the LOT Network can acquire Microsoft patents as part of their free membership and as Andresen stressed, the startups will own them outright. The LOT network will be able to provide its startup members with up to three patents from this collection.

There’s one additional requirement here, though: to qualify for getting the patents, these startups also have to meet a $1,000 per month Azure spend. As Andersen told me, though, they don’t have to make any kind of forward pledge. The company will simply look at a startup’s last three monthly Azure bills.

“We want to help the LOT Network grow its network of startups,” Andersen said. “To provide an incentive, we are going to provide these patents to them.” He noted that startups are obviously interested in getting access to patents as a foundation of their companies, but also to raise capital and to defend themselves against trolls.

The patents we’re talking about here cover a wide range of technologies as well as geographies. Andersen noted that we’re talking about U.S. patents as well as European and Chinese patents, for example.

“The idea is that these startups come from a diverse set of industry sectors,” he said. “The hope we have is that when they approach LOT, they’ll find patents among those 500 that are going to be interesting to basically almost any company that might want a foundational set of patents for their business.”

As for the extended Azure IP Advantage program, it’s worth noting that every Azure customer who spends more than $1,000 per month over the past three months and hasn’t filed a patent infringement lawsuit against another Azure customers in the last two years can automatically pick one of the patents in the program’s portfolio to protect itself against frivolous patent lawsuits from trolls (and that’s a different library of patents from the one Microsoft is donating to the LOT Network as part of the startup program).

As Andresen noted, the team looked at how it could enhance the IP program by focusing on a number of specific areas. Microsoft is obviously investing a lot into IoT, so extending the program to this area makes sense. “What we’re basically saying is that if the customer is using IoT technology — regardless of whether it’s Microsoft technology or not — and it’s connected to Azure, then we’re going to provide this patent pick right to help customers defend themselves against patent suits,” Andersen said.

In addition, for those who do choose to use Microsoft IoT technology across the board, Microsoft will provide indemnification, too.

Patent trolls have lately started acquiring IoT patents, so chances are they are getting ready to making use of them and that we’ll see quite a bit of patent litigation in this space in the future. “The early signs we’re seeing indicate that this is something that customers are going to care about in the future,” said Andersen.



Microsoft joins the LOT Network to help fight patent trolls

17:00 | 4 October

The LOT Network has been around for a few years now. Its mission is to fight patent trolls and it does so by having all of its members commit to a pledge that ensures that whenever they sell a patent to a company that’s in the business of patent trolling, all of the members will automatically get a free license to the patent.

Current members include the likes of Google, Facebook, Amazon, Slack, GitHub, Cisco, Canon, Lenovo, Netflix, Alibaba, Crate & Barrel (yep) and most major car manufacturers, including Tesla. More than 300 organizations are now part of LOT and today, Microsoft is joining the fray.

“The way the organization works is that all of the members sign a license agreement that in essence says that they’re providing a license to each other, such that if they were ever to transfer a patent to another company, that if that company is in essentially the business of asserting patents — that’s basically what it does for business — then the rest of the members in the network would get a license for free automatically,” Microsoft’s Chief IP Counsel Erich Andersen told me. He noted that it’s a way to reduce the risk of patent assertion at a community scale.

Projects like LOT seem to have had an impact over the course of the last few years as the number of the kinds of patent lawsuits at least hasn’t increased in recent years.

Obviously, it took a while for Microsoft to join LOT. Andersen, though, noted that the company’s Azure IP Advantage already provided protection against intellectual property risks for Microsoft’s cloud customers. “One pillar of [Azure IP Advantage] was related to this,” he explained. “We basically said to our Azure customers: if we ever transfer a patent to one of these patent assertion companies, then you’ll automatically get a license from us for that patent, and you don’t need to worry about it.” Joining the LOT Network then is essentially the next step for Microsoft in that it provides similar protections not just to its own customers but anybody who signs up for the network and accepts its pledge (and startups can join for free, for example).

Andersen admits that the patent troll problem isn’t as acute today as it was only a few years ago, but he notes that it’s still a widespread issue.

By joining, Microsoft itself also gets the same kind of protections for itself. “Just as we’re giving a commitment to everybody in the LOT Network that they’ll get a license to our patents if we transfer them to a non-practicing entity [aka, a patent troll], we get the same commitment coming the other direction.”



What would a blockchain patent war look like?

00:00 | 12 September

Jed Grant Contributor
Jed Grant has more than 25 years of experience in technology, finance and security. He is the founder and CEO of Peer Mountain, a decentralized P2P ecosystem of trust, and the founder of KYC3, one of the original regtech companies in Luxembourg.

Blockchain is perhaps the most hyped technology of the past five years. The technology that allows us to create trustless immutable shared ledgers promises to bring transparency and honesty to commerce by disintermediating and decentralizing functions that rely on trusted third parties today. The promise and the potential are almost as big as the hype.

While still the early days, there are several applications that have already launched on blockchains — the first being the Bitcoin cryptocurrency payment protocol. Bitcoin is just a unit of account on blockchain. And more recently, with the implementation of smart contracts, code that is shared across the whole blockchain to execute conditionally with irrefutable results, we have the possibility to tokenize many new financial constructs on blockchains.

This has given rise to the ICO, a token-generation event whereby tokens are sold in order to raise financing for a blockchain project in which the tokens will serve some purpose. This innovation in finance changed the way startups raised funds in 2016, 2017 and 2018, with more than $18 billion dollars of funds pouring into blockchain startups in 2018 alone.

What has all this got to do with a patent war?

Everything. At the same time that the hype around blockchain has been growing, the number of patents filed has been growing, as well. What’s makes this technology different from past innovation explosions is that the startups are better funded than ever before.

Another very new factor is the ideology behind this innovation wave. A majority of these startups are founded on the basis of decentralization and open-source principals, meaning their code is open and they release it under the Apache 2.0 or similar open-source license. Philosophically, many project leaders are opposed to the very idea of intellectual property ownership such as patents.

This has several implications.

First, there are many technology startups working on cutting-edge innovations that are taking no precautions other than Apache Open Source licensing to protect their innovation. Many of these same startups have carried out ICOs and are now exceptionally well-funded with cash treasuries ranging from $10 million to $4 billion. There are several hundred young startup companies sitting on an average $25 million treasury that they are using to fund their development of open and freely accessible innovation.

Second, there is a small concentration of such well-funded startups that are patenting blockchain technology. That may be a precursor of future patent assertion entities (PAEs), commonly known as “patent trolls.”  Effectively, the modus operandi of some of these entities could be called “patent hoarding,” filing patents on any patentable aspect of blockchain that they can with the intent to become “patent trolls” in the future.

There has never been a case of so much free-floating cash being readily available in startups just waiting to be attacked.

Increasingly, large corporations are also patenting blockchain technology, although their patents tend to revolve around their core businesses; for example Visa, has filed patents on blockchain technologies related to payment services as they would relate to credit card usage, and UPS has filed patents for blockchain technology in shipping.

Finally, putting these together we have a very interesting patent battlefield shaping up.

There are large corporations that will defend their core business by asserting their patents against challengers who threaten their revenue streams. This is typical behavior and is often derided as the reason patents can hold back innovation.

The more interesting players are the new ones. On the one hand you have very well-funded startups that have taken little to no precaution to protect their innovation. On the other hand you have very clever and agile PAEs, patent trolls, that are also well-funded and will use these resources to attack any startup that could be remotely considered to be infringing on their patent portfolio.

There has never been a case of so much free-floating cash being readily available in startups just waiting to be attacked. This could become a boon for the PAEs, a slaughter for the idealistic and well-funded startups and result in a massive transfer of funds from startups to PAEs in the coming years. This would be a very sad outcome for innovation.

Everyone is, of course, entitled to their own views on the value of patents and whether their company should file for them. But regardless of your position, we, as a community, must acknowledge that there are others in this world who are obtaining blockchain patents purely for their own profit motives. For example, Erich Spangenberg of IPwe has stated publicly, “… It is a curious path how a collection of misfit trolls, geeks and wonks ended up here — but we are going to crush it and make a fortune…” You can read more about Erich’s intentions here.

Because of this, it is important to take intellectual property very seriously. Make an effort to identify and patent your innovations. To that end you can join LOT Network, a nonprofit founded to allow patent holders to jointly protect each other from the eventuality that their operating patents will fall into the hands of a PAE.  This will improve your protection and help protect fellow network members from PAEs. Think of it as your “patent troll flu shot.”

The more blockchain innovators join together to protect and nurture our innovation, the better for our ecosystem. We all agree that patents in the wrong hands will hurt our industry and the speed at which others embrace blockchain. We all must take responsibility and be good corporate citizens when it comes to IP. By removing the uncertainty that comes from PAEs, we can avoid the turmoil and costly litigation we saw play out in the smartphone and semiconductor industries. If we remove friction, we can accelerate the adoption of blockchain technology. This tide will raise all boats.

Whether you are an investor or an entrepreneur in blockchain projects, you should strongly consider the manner by which your projects handle their intellectual property and do careful diligence to ensure that your interests are not threatened by a potential patent battle.



A peace plan to end the wireless wars

03:30 | 11 April

Boris Teksler Contributor
Boris Teksler is the former licensing chief at Apple and current chief executive of the patent licensing company Conversant IP.
Joe Silino Contributor
Joseph Siino is the former intellectual property chief at Yahoo and the current president of Via Licensing .
Ira Blumberg Contributor
Ira Blumberg is the vice president of IP at Lenovo .
More posts by this contributor

No one would have predicted that the three of us would ever find ourselves on the same side of the corporate patent wars, let alone speak with one voice about how to end them.

We have come together because we see that patent owners and product makers have become trapped in an endless cycle of demands, counter-demands, and unproductive litigation. Unless we find a way out of this conflict, we will almost certainly see a repeat of yesterday’s costly and wasteful smartphone wars in tomorrow’s wireless connected car sector.

Product makers accuse patent owners of threatening lawsuits and using the expense of the legal process in order to demand extortionate royalties for their patent rights. For their part, patent owners say product makers refuse to pay fair compensation for the patented wireless, audio, and video features that give their products value as communication and entertainment devices.

The truth is, both sides have a point. That’s because patent owners and product makers are caught in a classic “prisoner’s dilemma,” in which the lack of transparency and fair ground rules in patent licensing lead companies on each side of a patent dispute to try to game the other. This only ensures that both sides suffer a negative outcome in outrageously-expensive litigation.

Unlike in the real property business, in intellectual property (IP) licensing there is little or no independent appraisal of the assets (i.e., patents) or transparency as to how prices are determined. And because most patent license agreements are confidential, there is little or no information or “comps” on what others have paid for similar patent rights. Nor are there any widely-accepted ground rules for what constitutes fair negotiating practices between buyers and sellers.

This is especially true in regards to standards-essential wireless patents, which are supposed to be licensed on fair, reasonable, and non-discriminatory (FRAND) terms. But what’s fair or reasonable about the fact that an impossibly-large number of LTE (4G) cellular patents — more than 60,000, in fact — have been declared “standards essential” without any independent evaluation of those patents whatsoever?

That’s right, those 60,000-plus patents have all been self-declared “standards-essential” by companies each seeking their own commercial advantage. What you’ve got is a wireless gold rush — with plenty of fool’s gold posing as real gold.

So the three of us, working with industry leaders on both sides of the patent owner vs. product maker divide, have developed a three-pronged plan for ending the wireless patent wars and creating a more productive and less litigious patent licensing sector.

First, whittle down this ridiculous mountain of self-interested wireless patent claims to the fewer than 2,000 patent families that most experts believe are truly essential to smartphone handset makers. We can do this by excluding duplicative patents, expired patents, patents not in force in major economic markets, and patents for base station, infrastructure, and other innovations not relevant to handset makers. Independent, neutral evaluators will then confirm each patent’s relevance to the LTE standard for handsets.

Second, base royalty prices not on the subjectively-argued value of each individual patent examined in a vacuum, but on the objective value of the entire stack of LTE patents in a phone. A recent court judgment valued that LTE stack at roughly $20 for a smartphone with an average selling price of $324, but with greater price transparency from both sides, the market itself will likely set a rational price for the LTE stack. Royalties can then be paid to patent owners roughly proportionate to each patent owner’s percentage share of the total LTE patent stack.

And third, ensure greater transparency by promoting collective licensing solutions such as patent pools that openly publish their pricing frameworks and offer consistent terms to all licensees. Given the “prisoner’s dilemma” dynamics in patent licensing today, it is unrealistic to expect any one patent owner to unilaterally forego potential business advantage by revealing its pricing strategies. But collective licensing approaches such as patent pools reduce the risks of transparency for everyone.

As the IP journal Intellectual Asset Management recently noted, “There’s a growing sense that a collective approach to licensing could help solve some of the problems of the industry which, in sectors like mobile, has been scarred by long-running and costly disputes between patent owners and potential licensees.”

Our “peace plan” would eliminate many of the incentives and opportunities for gamesmanship in wireless patent licensing. And most importantly, it would help patent owners and product makers avoid a repeat of yesterday’s costly smartphone wars in tomorrow’s connected car, autonomous vehicle, and Internet of Things (IoT) industries.

It’s time for a new realignment in the industry — one in which the conflict is no longer between product maker and patent owner, but between those who license patents on a fair and transparent basis, and those who do not.



Home decorating gets a new AR toolkit thanks to Intellectual Ventures’ new incubator

15:05 | 21 November

Taking another step toward shedding its reputation as the tech industry’s most notorious patent troll, Intellectual Ventures is launching the first company from its incubator.

The company’s ISF Incubator has licensed technology to LexSet —  a spinout launched by two bi-coastal serial entrepreneurs (and recovering architects) Leslie Karpas and Francis Bitonti — to roll out a suite of augmented reality tools for interior design and furniture assembly.

The multi-billion dollar home design industry is a massive global business. Everyone in the world, it seems, wants to keep up with the Joneses — or at least with the images they see on the Joneses’ Instagram and Pinterest accounts.

Just ask the investors in companies like Wayfair, which is now publicly traded with a market cap of nearly $5.8 billion; or Laurel and Wolf, which raised $20 million at a nearly $100 million valuation from none other than Benchmark Capital — one of Silicon Valley’s marquee investment firms.

In all venture investors have backed roughly 60 deals with some $1.4 billion in financing in the home decorating or interior design space, according to a search on Crunchbase. So it’s no surprise that a market that vast would be one of the first to attract the attention of entrepreneurs and the imagination of Intellectual Ventures’ newly minted ISF Incubator.

Seattle-based Intellectual Ventures has long been viewed with no small amount of contempt (and a large amount of fear) by Silicon Valley’s investment class, because of its reputation as a patent hole — a gaping maw in the Northwest corner of the U.S. where patents go to die and be reborn as fodder for litigation.

As an Economist profile put it in a 2015 article:

In its 10 year life, [Intellectual Ventures] has filed more than 3,000 patents for its own inventors’ work, and acquired 70,000 more, putting it ahead of the likes of Google, Toyota and Boeing. “What venture capital did for startups,” Myhrvold says, “we want to do for inventions.”

Critics would argue that Myhrvold’s high-minded talk is belied by his company’s predilection for litigation over innovation.

The same article sees Myhrvold responding to those Valley critics.

“Silicon Valley is a very aspirational place. Everyone’s aspiring for their Nirvana or heaven, which is to become super-fucking-rich and powerful very young. ‘Oh my God, I’ve got this god-given right to go out and take any idea I want and become a billionaire at age 30.’ Very few get that, but that doesn’t stop them idealising [sic] it. It’s kind of a secular religion, and what we do, rewarding people who originate ideas, is apostasy to them because it’s not their algorithm.”

And for the past several years the firm has been working hard on research to generate its own intellectual property and to use that trove of patents to build new companies rather than just suing existing ones.

LexSet is one of the early fruits of that labor.

Using a combination of machine learning and visualization tools culled from the IV portfolio along with the skills Karpas and Bitonti honed as architects and designers, LexSet has built a clutch of products for furniture makers and home design retailers to boost sales. The products let users scan their homes and furniture to come up with design and decoration suggestions.

  1. LexSemble

    LexSemble demo
  2. LexSight

    LexSight demo
  3. LexTile

 View Slideshow
Previous Next Exit

Right now it’s a recommendation engine for interior design and an instruction manual for building out furniture — if the company’s recommendations were generated by an incredibly sophisticated algorithm that was refined by two of the foremost designers operating at the intersection of technology and the arts.

Karpas, previously invented manufacturing processes for Turner Award-winning artist Anish Kapoor and developed new ways to print medical grade silicone as the founder of the medical device company, Metamason. Bitonti, founder of Studio Bitonti (and an old New York contact of mine) has designed 3D printed objects, one of which is included in the collection of the Smithsonian.

Karpas first heard about the ISF Incubator from a mentor who’d encouraged him to do a bit of digging through the intellectual property on offer.

He started working with ISF in June with Azam Khan, director of new ventures at ISF Incubator, on potential products and received formal approval to develop technology with the spinout later that summer.

The company’s products consist of four distinct tools:  LexSight, which combines image recognition tools that identify objects in a room and recommends other decorations or spatial configurations to compliment the existing objects; LexGuide, which offers a catalogue of offerings from different retailers; LexTile which can create different tiling patterns for surfaces; and finally, LexSemble, which provides instructions for making furniture in augmented reality.

“A lot of these things are hard to describe,” says Bitonti. “The leverage the work we’ve done in generative tooling.”

For Khan, the pairing was nothing short of serendipitous. “Les had the spark to build the suite on top of the inventions in our portfolio,” he said. “And he had validation from Fancis on the technical side.”

Bitonti and Karpas may have built the toolkit, but it’s the capital and intellectual property from Intellectual Ventures’ incubator that’s been the engine driving the initial business, according to Khan.

It’s important to note, that the LexSet business is the first to spin out from Intellectual Ventures’ newly formed incubator. The company has actually spun out 15 companies already, according to Khan, which have raised $700 million in venture funding.

“What you’re sowing now is an ability to rapidly do that,” Khan said.

Another critical component of the incubator program is that it applies only to patents that have been developed inside of Intellectual Ventures, according to Khan. For him, it’s about, “creating a program to unlock other parts of our portfolio.”

The Invention Science Fund is tapping the parent portfolio of things that have been invented exclusively inside of Intellectual Ventures. Khan said that it’s a prime subset of the IV patent portfolio.

Khan didn’t disclose the amount of capital that the parent company committed to the fund, but said that the incubator would be seeding companies to the tune of “the low hundreds of thousands of dollars.”

The central thesis, said Khan, is to give the spinouts control of the intellectual property upon spinout, and not charge a licensing fee for future applications of the technology.

In the case of LexSet, those goals are much larger than simply providing tips and tricks for design thinking in a built environment, according to Karpas.

“What Francis and I are doing is to give anybody, anywhere an ability to create anything with the tools that they have around them,” Karpas said.

Featured Image: Tom Sibley/Getty Images



Personal Audio loses its appeal for podcasting patent

20:01 | 7 August

A year after taking up the case, the US Court of Appeals for the Federal Circuit has ruled in favor of the Electronic Frontier Foundation in its challenge against podcasting patent troll, Personal Audio. The decision is a massive relief for the vibrant and ever-growing medium, which has been operated under the threat of lawsuit for a number of years. 

It’s also part of the EFF’s larger on-going fight against overly broad tech patents. And the organization doesn’t mince words. Daniel Nazer, who has been working closely on the case, is the EFF’s “Mark Cuban Chair to Eliminate Stupid Patents.” 

The case involves Personal Audio’s broad patent for a “System for Disseminating Media Content Representing Episodes in a Serialized Sequence,” which the company used to levy suits against a number of podcast providers, including Adam Corolla, HowStuffWorks, CBS, and NBC. The EFF filed a petition challenging the patent in 2013, urging the US Patent and Trademark Office to take another look at the broad ruling.

“In this particular case, podcasting is a technology that is used by a lot of non-traditional media outlets,” EFF staff Attorney Vera Ranieri told TechCrunch following today’s decision. “Here it was a technology that was allowing a lot of non-traditional players to let their values be known. We wanted to protect the way that people engage in communications and share idea.”

The EFF won the initial ruling in April 2015, thanks to two instances of prior art. The digital rights organization cited the CBC’s long standing science show Quirks & Quarks and CNN’s Internet Newsroom, as examples of the technology dating back before the patent’s 1996 date.

Personal Audio appealed the ruling roughy this time last year, but the today’s decision keeps things, thankfully, as is. The court cited both pieces of prior art in today’s ruling, “We have considered all of Personal Audio’s arguments,” the decision reads, “and affirm the PTAB’s conclusion that the challenged claims are anticipated by the Patrick/CBC reference, and alternatively that the claims are invalid as obvious in view of the Compton/CNN reference.”

As far as what this means to who’ve settled with Personal Audio, that’s entirely dependent on the wording of those agreements. Though Ranieri notes that those who agreed to running royalties rather than an upfront sum, may be in the clear, depending on the nature of their agreement.

If Personal Audio decides to keep fighting, the next stop is the Supreme Court. We’ve reached out to the company and its representation for comment.

Featured Image: Slaphead/iStock



This 32-year-old state senator is trying to get patent trolls out of Massachusetts

02:07 | 15 July

When the internet security company Cloudflare decided to engage in all-out war with what it calls a “dangerous new breed of patent troll,” it found a receptive audience with Eric Lesser, who became the youngest state senator in Massachusetts when elected to office in 2014.

Senator Lesser, now a 32-year-old in his second two-year-term, was in the same Harvard fraternity as Facebook CEO Mark Zuckerberg, but says he didn’t really think much about tech until after working on President Obama’s first presidential election campaign in 2007. “I was traveling around with him and carrying suitcases and handling logistics for his traveling team,” he explains.

When the campaign was over, he joined then-senior advisor David Axelrod at the White House as a special assistant; he also became involved with the Council of Economic Advisors and more specifically with the agency’s chairman at the time, economist Austan Goolsbee. “That’s really when I started to get exposure to a lot of tech policy and some of the issues,” he says.

Fast-forward and today, among the issues Senator Lesser has become most focused on — because he sees it as among the bigger threats to Massachusetts’s economy — is patent trolling. Indeed, while he’s not sure how much he can do to help Cloudflare, which has a Boston office, a bill that Senator Lesser helped craft will be heard in committee next Tuesday, and it would put a serious crimp in what he calls “shakedown operations” more broadly.

More from a conversation we had this morning, edited for length:

TC: You’re on the young side to be a state senator.

EL: I’d gone to Harvard, then Harvard Law School, and in my third year, I decided to jump into a race in the community where I grew up, and I won. It was a five-way primary, and very close. I think I won by 192 votes out of around 17,000. [Laughs.]

TC: When did you zero in on this patent problem?

EL: In Massachusetts, you serve two-year terms, and after I was reelected to my second term, a friend who I was friendly with in college was at HBS and he sort of said, “There’s this thing that’s starting to create real issues,” and it was patent trolling. I’d had a very atmospheric knowledge of it from law school and IP classes, but I began realizing this was a very big deal.

TC: How did you get started on your related work?

EL: My friend first connected me with Eric Paley of [the venture firm] Founder Collective, and his wife, Shirley, who’s an IP lawyer and so knows this stuff well. Turns out there was a bill in Massachusetts that had been hanging around a while, authored by Anthony Petruccelli, who was a state senator who has since taken a job in the private sector. So we picked it up last year and attached it to an economic development bill, and the response to it was overwhelming.

TC: But you didn’t get it through your state’s legislature.

EL: We didn’t. So we reached out to the tech and legal community to better understand the ins and outs of what we wanted to propose, and we crafted a new bill — the one that will be heard on Tuesday [by the Joint Committee on Consumer Protection and Professional Licensure].

It’s just the second or third inning of this process. The bills — and there are two other patent bills, as well — will be heard on Tuesday. After that, the committee will begin the process of analyzing them and providing recommendations. Then they’re off, potentially, to the floor of both the House and the Senate.

TC: When? In the fall? Early next year?

EL: It’s hard to tell when that would happen. But everyone is up for reelection in November 2018, so before then, because the whole process starts anew afterward, with a new Senate and House that comes in.

TC: Yikes. Is it good news or bad for you that there are two bills dealing with patent trolls?

EL: It’s good. It’s a level of the indication of interest and hopefully shows that a lot of members of legislature are involved in this. It also helps create buzz and momentum.

I think all of us understand that there is a need to strongly protect intellectual property and show zero tolerance for anyone copying IP. But what we’re seeing is a really vicious and cyclical process where, for profit, people are bullying and scaring young entrepreneurs. You hear about the three or four kids in a dorm room who are tinkering around with an idea, then suddenly, they get slammed with one of these completely vague cease-and-desist letters from a place they’ve never heard of, citing patents they didn’t know existed. The threat is: turn over everything you’re doing to us, or pay us $30,000.

TC: Cloudflare is particularly concerned with the growth of non-practicing entities that are started by former IP litigators, because they can buy up unused patents on the cheap, then, using their law degrees, easily and affordably put the screws to companies with those patents. Are you trying to outlaw these firms specifically?

EL: It’s a little further afield from where we are today, but not entirely. The way we’ve delineated it is, if you’re involved in R&D or manufacturing or you’re a hospital or a university or a business — basically, if you a real entity — then this bill is likely not going to apply to you.

We’re trying with some specificity to zero in on these non-practicing entities, so it would include the [Cloudflare] situation and other patent trolls that we’re observing more and more. These firms raise funding, as would a startup or venture firm, then they use that money to vacuum up a bunch of patents for the sole purpose of suing other companies. That’s bad for the economy, bad for innovation, and frankly, a loophole — a kink — that needs to be resolved.

TC: It looks like Anthony Petruccelli was a state senator for nine years. I guess you don’t have term limits in Massachusetts? Do you see yourself staying put for a while?

EL: Unlike in California [where you are], we have no term limits here. And yes, I’m [really dedicated to the issue].

The tech community hasn’t been engaged in public policy, and for a variety of reasons, you now see the entrepreneurship community and the VC community — especially at the state level — start to really step up and talk about why these protections are important. So we’re really focused on it.

There’s inaction on the federal level and complete dysfunction in Congress. Patents and IP have traditionally been the province of the federal government. But for states like California and Massachusetts, this is too important a part of our economy and job creation to wait for the government to get involved.

TC: Is there a state that you’ve used in creating your bill, one that you think is getting it right when it comes to patent trolls?

EL: There are 33 states with some version of this legislation, so it’s not a brand new idea. It’s been tested in lots of places, with varying degrees of strictness. Given how important startups and venture capital are to Massachusetts, it’s a little embarrassing that we don’t have similar legislation already.



The hunted becomes the hunter: How Cloudflare’s fight with a ‘patent troll’ could alter the game

19:17 | 11 July

Matthew Prince knew what was coming. The CEO of Cloudflare, an internet security company and content delivery network in San Francisco, was behind his desk when the emails began to trickle in, slowly at first, then in bursts. College classmates-turned-defense attorneys, including from the University of Chicago, where Prince had nabbed his law degree years earlier, were reaching out to say hello and to ask: did Prince perhaps need help to fight a lawsuit they’d seen filed against Cloudflare in Delaware?

The paperwork would itself arrive shortly after from a registered agent in a thick white envelope. The claim: patent infringement. The firm going after Cloudflare: Blackbird Technologies, a three-year-old, Boston- and Chicago-based firm founded by two former attorneys with white-shoe law firms who’d previously litigated intellectual property cases on behalf of some of the largest tech companies in the world.

Blackbird has since amassed a portfolio of roughly 37 broad-seeming patents that it has so far used to file more than 100 lawsuits, including against Asics, New Balance and Lululemon over a sports bra, and Amazon, PetSmart and Walmart over a bicycle pet carrier.

Blackbird’s specific lawsuit against Cloudflare accuses it of violating U.S. Patent No. 6,453,335, a patent filed 18 years ago by the owner of a Web hosting company in Augsburg, Germany that describes providing a “third party data channel” online and whose original owner, Oliver Kaufmann, doesn’t seem to have tried using it to create anything.

Kaufmann hasn’t responded to a request for comment for this story, but a patent record shows he sold the patent last October for $1 plus “other good and valuable consideration” to Blackbird, which is also using the patent to sue another startup called Fastly.

The Cloudflare suit is fairly typical. So-called non-practicing entities — or holders of a patent for a process or product that they don’t plan to develop — often use them to sue companies that would sooner settle rather than pay what can add up to $1 million by the time a case reaches a courtroom. Prince calls Blackbird uniquely dangerous because its founders’ law backgrounds make it even easier for the outfit to sue companies like Cloudflare; they needn’t pay an attorney to represent their interests.

Even more unusual, however, and potentially more meaningful for other companies, is Cloudflare’s response to the suit. Indeed, when Prince was handed that envelope on a sunny March afternoon, he saw it as a moment he’d been waiting for since co-founding Cloudflare seven years earlier. As far as he was concerned, this was war, and he was ready for it.

Rabbit redux

In many ways, what has transpired since resembles a battle that began brewing exactly 10 years ago, when the online computer and electronic retailer Newegg was hit with a lawsuit by Soverain Software, a non-practicing entity that has attacked major tech companies for more than a decade. (One of its most recent complaints was filed against Apple.)

Back in 2007, Soverain had alleged that Newegg was infringing on patents that included an online shopping cart. As Newegg’s former chief legal officer, Lee Cheng, recalls it, Soverain had begun with bigger companies like Amazon, which agreed to pay the company $40 million, then the Gap, which settled for an undisclosed sum, before working its way down to smaller retailers.

When it asked Newegg for $34 million in damages, it might have imagined extracting some amount of money from the company easily. But Newegg decided immediately not to settle. Not only might the amount have destroyed the company, which is now 16 years old, Newegg, which viewed Soverain as an extortionist, opted against settling for fear the decision would invite future patent suits.

Newegg began its fight against Soverain alongside seven other retailers that were sued using the same patent. Over time, each ultimately settled, except Newegg. It went to court and it argued that its shopping cart did not infringe on the patent of Soverain — which has itself never made a sale — and in the end, a jury determined that Newegg needed pay only $2.5 million in damages.

It might have left things well enough alone at that point. Instead, Newegg famously appealed that decision, and not only did it win — the award was vacated — but using prior art, which is evidence that an invention was already known to the public before a patent was awarded, Newegg convinced a three-judge panel to invalidate Soverain’s shopping cart patent claims, preventing Soverain from using them against potentially dozens of other e-tailers.

Rabbit at rest

Sitting in a Cloudflare conference room on a bright Friday afternoon recently, Prince seems to relish the battle that Blackbird has brought to Cloudflare. He admits readily that publicly taking on this “dangerous new breed of patent troll” — a fight that Cloudflare has blogged about extensively — is good for business. It’s also good for recruiting talent into the company, which has 250 employees at its headquarters and runs smaller offices in Boston and Champaign, Illinois, among other spots.

Prince also seems legitimately offended, horrified, even, by the small but growing number of Blackbirds in the world — meaning firms launched by attorneys who’ve been on the other side of the table, were presumably well paid by their prestigious firms, yet who left to pursue what can apparently be even more lucrative work, chasing after their old clients.

Soverain, for example, was also co-founded by an attorney, Katherine Wolanyk, formerly of Latham & Watkins. Several years ago, two other top patent-defense litigators, John Desmarais and Matt Powers, also left their law firms, Kirkland & Ellis and Weil Gotshal & Manges, respectively, to become what some critics have called patent trolls.

The trend represents a dangerous new twist in the patent wars. Because firms like Blackbird and their ilk can operate more cost-effectively than patent trolls that must pay for outside legal help — they need only invest their time in researching which patents to buy from brokers who deal in such things, then pay the roughly $1,000 it costs to file a lawsuit.

It’s for this reason that Prince sees Cloudflare’s primary mission as figuring out how to increase Blackbird’s costs. Explains Prince, “We thought, if it’s asymmetric,” because it’s so much cheaper for Blackbird to sue a company than for the company to defend itself, “how can we make it more symmetric? And every minute that they spend having to defend themselves somewhere else is a minute they aren’t suing us or someone else.”

Toward that end, Cloudflare has launched a multi-pronged attack, the likes of which Silicon Valley has never quite seen before but that other companies may well use as a model going forward if it has the intended effect.

Part of its campaign involves highlighting the backgrounds of Blackbird co-founder Wendy Verlander, who worked previously for Wilmer Hale, as well as her co-founder, Chris Freeman, formerly of Kirkland & Ellis, to “pro innovation” state legislators in both Massachusetts and Illinois, where Blackbird has offices.

Its argument to these individuals: that every lawyer must pass an ethics exam that states it’s a violation for an attorney to “acquire a cause of action,” then to go and sue someone over it. The same ethics exam precludes attorneys from splitting their fees with non-attorneys.

The argument has gained some traction, too. Representative Keith Wheeler of Illinois recently introduced a bill called the “Ethics in Patent Litigation Act” that would make it the public policy of the state that attorneys should not be able to buy patents themselves for the purpose of suing on them if they are not in the business of any other productive activity. In Massachusetts, where Verlander is based, Cloudflare has also found a receptive audience with State Senator Eric Lesser, who has specifically targeted patent trolls in a bill he introduced earlier this year.

Cloudflare is further fighting to have the case moved from Delaware — where Cloudflare is incorporated — to California. Prince notes that most of the discovery process for the case would need to take place in and around its headquarters, and that Cloudflare’s witnesses mostly reside in the Bay Area. (It would also increase Blackbird’s costs, as they aren’t licensed or practice in California.) Prince says he’s hopeful but acknowledges it’s “not a slam dunk,” even with a unanimous Supreme Court ruling in May that determined that companies can be sued for patent infringement only where they reside or where they have a regular and established place of business.

Cloudflare is also filing a complaint with the ethics committee of the Federal Bar Association and, perhaps most interestingly, crowdsourcing prior art to invalidate not only the patent that Blackbird is using to sue Cloudflare and Fastly, but with an eye toward invalidating all of Blackbird’s patents.

It could become the most powerful tool in its arsenal. Already, Cloudflare has created a $50,000 prior art bounty — one matched by an anonymous donor who has pitched in an additional $50,000 — that it will begin paying out in several weeks, says Prince. He suggests that Cloudflare has so far amassed prior art for half of Blackbird’s patents. Its next move is to begin sending requests for ex parte reexaminations to the United States Patent and Trademark Office. In other words, it will ask that Blackbird’s patents are reexamined. “Our goal is nothing short of invalidating every single one of them,” says Prince.

Rabbit, run

Neither Verlander nor Freeman responded to interview requests sent to Blackbird last week and yesterday, but Verlander recently told Fortune in May that Blackbird is not a law firm and that it doesn’t use contingency fee arrangements for the patents it buys, though it employs “a similar arrangement,” she said.

Talking with Crain’s Chicago Business more recently, she characterized Blackbird as a defender of small inventors, saying that the “mere fact that these folks don’t have a lot of money shouldn’t make their patents worthless.”

As part of the feature, the outlet published a photo of Freeman, standing with a bridge behind him in the distance.

Meanwhile, a final and powerful piece of Cloudflare’s strategy seems to involve talking with as many reporters as possible about the case, and no wonder; it’s the kind of public opinion campaign that’s been used with great success in the past.

In one example well-known to those in the world of intellectual property, a Chicago-based law firm had collected about $6 million from legal settlements in copyright-infringement lawsuits they had filed against people who allegedly downloaded pornographic movies online — films to which the attorneys had themselves purchased or filed copyrights. The attorneys were charged late last year for running an extortion fraud scheme. Two of the them have since been disbarred.

It’s an extreme comparison, but according to Lee Cheng, who today advises companies on their patent woes and is a student of the case, that Chicago firm made “millions of dollars before someone who they pursued someone [for damages] who said, ‘I’m coming after you and defending myself.’ Whether what [this firm] was doing was illegal was hard to say, but the press caught wind of it, and it so shocked everyone” that it set in motion the chain of events leading to the firm’s demise.

“[Is Blackbird] doing anything thing that is illegal or unethical?” continues Cheng. “For the most part, it’s unethical. But it’s probably not illegal.”

Now, to see if that’s enough.

Featured Image: yogysic/Getty Images



Patent trolls take it on the chin in new Supreme Court ruling

02:48 | 23 May

Sad! Patent trolls, who’ve benefited from a 30-year-old legal standard that made it possible for patent holders to sue companies in almost any U.S. jurisdiction — including a federal district in east Texas that’s notorious for serving as a favorable venue for patent holders — just lost their ability to bring infringement lawsuits in such plaintiff-friendly places.

In a unanimous ruling, the court ruled instead that companies can be sued for patent infringement only where they reside or where they have a regular and established place of business.

The ruling is a blow to companies that hold patents almost solely so they can sue companies into financial awards.

Law school academics now expect many cases to move to Delaware, where many companies are incorporated, as well as to tech hubs like California and Massachusetts.

There, not only will the companies being sued be better equipped to fight off trolls, owing to their home court advantage, but according to the WSJ, the cases may well take longer to process, too. This could prove especially true of Delaware, whose judges will undoubtedly be facing much heavier patent caseloads and don’t have the same machinery in place to churn through them as in Texas, which has reportedly been home to an astonishing 30 percent of patent cases in recent years.

Apple, Samsung, Microsoft and Google are frequently embroiled in such patent disputes, but today’s ruling had nothing to do with tech companies. Instead, the high court was ruling today on a legal battle between the beverage flavoring company TC Heartland LLC  and the food and beverage company Kraft Heinz Co.



Trolling the patent trolls

21:39 | 11 May

“Don’t feed the trolls,” the popular wisdom goes. But with a new project, Cloudflare is taking things a little farther — the company is trying to starve its trolls out by taking away their revenue.

Patent lawsuits against tech companies are fairly common, and most companies will simply settle with their opponents rather than fund an expensive, lengthy legal defense. Because companies are quick to settle, patent lawsuits have become a lucrative way for litigants to make money. Trolls can buy technology patents for as little as a dollar, then use the patents to extract settlements from well-funded companies.

But when a firm called Blackbird Technologies sued Cloudflare (and Fastly, a cloud platform) for patent infringement last month over a 1998 patent that involves proxy system error messages, Cloudflare decided to fight back. The content delivery network is launching Project Jengo, a bounty program that aims to invalidate all of the 70-plus patents Blackbird owns.

Project Jengo is offering a $50,000 bounty for research into “prior art,” or uses of the technology covered in the patents that show the technology was widely used before the patent was filed. Evidence of prior art can be used to undermine a patent infringement claim. $20,000 of the fund will go towards invalidating the patent at issue in the Cloudflare and Fastly lawsuits, while the other $30,000 will go towards invalidating Blackbird’s other patents.

“By filing 107 lawsuits against companies since September 2014, Blackbird has demonstrated that it is going to use its patents to sue productive companies,” Cloudflare CEO Matthew Prince wrote in a blog post. “And patent trolls often target newer and more innovative companies, so it is important to investigate and research to discover whether prior art existed on the Blackbird patents and to keep them from filing additional cases against us or against other companies.”

The research generated in the Project Jengo lawsuit could help Cloudflare triumph in its legal battle (and unlike other companies that have faced patent suits, Cloudflare isn’t settling).

“In the face of nuisance, companies settle. We do not intend to settle at any point,” Cloudflare general counsel Doug Kramer told TechCrunch. “By settling, we’re feeding a larger problem. Organizations need to stand up.”

In addition to launching Project Jengo and fighting the lawsuit, Cloudflare is going after the leadership of Blackbird. The firm was created by attorneys and doesn’t make any of its own technology; instead, it acquires patents and then files lawsuits over them. Cloudflare argues that this is unethical, and is filing complaints against the Blackbird attorneys.

TechCrunch reached out to Blackbird for comment and will update if the firm responds.


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