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Patent Trolls: Make Them Pay!

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Rackspace has been subjected to yet another patent lawsuit by a patent troll looking for a settlement. In this case, the plaintiff is called PersonalWeb Technologies. This particular lawsuit is not much different than the others, except that it highlights why software patent litigation suppresses innovation, and why Congress and the courts need to improve the system. If it wasn’t such a serious issue we might want to laugh at the irony of it all.

To explain, this suit claims that Rackspace infringes the PersonalWeb patents “by its manufacture, use, sale, importation, and/or offer for sale of the following products and services within the PersonalWeb Patent Field: Rackspace Cloud Servers and GitHub Code Hosting Service.” It’s apparent that the people filing the suit don’t understand the technology or the products enough to realize that Rackspace Cloud Servers and GitHub are completely different products from different companies. By now, it’s widely known that GitHub is hosted at Rackspace, but beyond that, there is no other connection between the two.

In fact, GitHub is a perfect example of a company that is built to foster and enhance innovation. The GitHub repository service for software development projects has achieved legendary status among open source developers all over the world. GitHub has over 2.1 million users hosting over 3.7 million repositories. They are a paragon of innovation. Yet PersonalWeb has the audacity to file a lawsuit which alleges that “Rackspace Cloud Servers and GitHub Code Hosting Service” infringe some obscure patent from 1999 that has nothing to do with Rackspace and GitHub. Who is truly innovating here, PersonalWeb or Rackspace and GitHub? PersonalWeb is not the issue of course. They are just another patent troll attempting to take advantage of bad law. It is their nature. They look for opportunity, and patent litigation can be very profitable. The real problem is the law. According to a recent study by James Bessen and Michael Meurer of the Boston University School of Law, titled The Direct Costs from NPE Disputes,” patent trolls cost the American economy $29 billion in 2011. The authors found that patent troll litigation affected 5,842 defendants in 2011.

Fortunately, most members of Congress know that they need to fix the patent troll epidemic. Congress gave a strong effort when it passed the Leahy-Smith America Invents Act last year, but more work is needed.

The next legislative effort will likely center around what is known as the SHIELD Act, which has been introduced by Rep. Peter DeFazio (D-Oregon) and Representative Jason Chaffetz (R-Utah). This bill would require plaintiffs to pay defendants’ legal costs if the suit is unsuccessful. Under current law, the patent trolls don’t have any meaningful risk in bringing litigation. The defendants, on the other hand, are subjected to enormous legal expenses and discovery costs. The SHIELD Act is designed to level the playing field and take away the trolls’ unfair advantage. We encourage all of our customers, partners, open source collaborators and friends to support Reps. DeFazio and Chaffetz in their effort to discourage these abusive patent troll lawsuits.

About the Author

This is a post written and contributed by Alan Schoenbaum.

Alan Schoenbaum is Special Counsel for Rackspace.

Prior to joining Rackspace in 2005, he was a partner at Akin Gump Strauss Hauer & Feld LLP in San Antonio, Texas. Alan has more than 25 years of experience in corporate and securities law and mergers and acquisitions. Throughout his legal career he has represented public and private growth companies, venture capital funds and their portfolio companies. Alan received his B.A. in English and his law degree from the University of Texas at Austin.


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50 Comments

Screw Patent Trolls!

avatar Benjamin Kerensa on September 18, 2012 | Reply

So brave…

avatar Daniel James on September 18, 2012

level3 is no longer a friend of the industry they serve. How do we make sure this action hurts their bottom line more than any possible court victory?

avatar Chris Alfano on September 18, 2012 | Reply

Level3 is just a co-owner of the patents in question, they have nothing to do with the lawsuit itself.

avatar nerfguns on September 19, 2012

Where are the presidential candidates on this issue? I would love to see this fixed.

avatar Tim Gifford on September 18, 2012 | Reply

Simply blow the troll head off. Do not waste your time with ridiculous and bogus litigation.

avatar Daniel on September 19, 2012

It should hardly matter to the troll that GitHub is a different product from a different company, when the patents themselves are bogus. Rackspace will settle; you have little choice except to pay even more for a defense. The SHIELD act couldn’t make a dent since the plaintiff is a shell company that never need pay out anything–the plaintiff could pick companies at random and get money from every one of them. Congress won’t help, they get part of the proceeds as campaign contributions.

avatar Shelley Janiswicz on September 18, 2012 | Reply

You make it all sound so hopeless. Change has to start somewhere. I applaud any effort to get the laws re-written. The more companies stand up to these patent trolls the more likely we’ll see changed down the road.

avatar sherpasd on September 18, 2012

How do you know the patents are bogus? Have you read them and analyzed rackspace’s system? If they are so clearly bogus the case will fall apart – as it often does.

avatar pjk on September 18, 2012

Awesome. Please stand up to them!

avatar David Beyer on September 18, 2012 | Reply

Alan, start a Kickstarter campaign for legal fees needed to invalidate the patent. (This will be different than settling the case with a license agreement.) I will be happy to pitch in on Kickstarter. I think you could raise the millions of $ necessary to win. Don’t back down and they will regret suing you in the first place.

avatar Brian Long on September 18, 2012 | Reply

I live on very limited income but this is definitely something I would love to contribute towards for two reasons. First to help defend both RackSpace and GitHub who are worthy in their own right. Second, to drop the hammer on the patent trolls. Their lawsuits will continue until we, the people, let them know exactly what we believe, why, and that this will not stand. Our legislators obviously won’t do anything about it. [I’ve never been an activist before.]

avatar Brian Bartlett on September 18, 2012

How about including the patent number of the patent?

avatar Anon on September 18, 2012 | Reply

Per the complaint, U.S. Patent Nos. 5,978,791, 6,415,280, 6,928,442, 7,802,310, 7,945,539, 7,945,544, 7,949,662, 8,001,096 and 8,099,420

avatar Anon on September 19, 2012

The real intent of the SHIELD Act is to shield corporations from customers’ lawsuits. How could it help against a patent troll, when they can simply dissolve the shell if they lose?

avatar John Martin on September 18, 2012 | Reply

If the lose on validity the patent is dead. If the lose on infringement and are forced to pay under shield the assets are attached – going as far as the patents themselves. They have a legal debt – you can’t just “dissolve” a company to avoid your debts.

avatar pjk on September 18, 2012

What about patent suits by legitimate small inventors, rather than by trolls? Going before a jury is always somewhat of a crap shoot in a patent case, with a significant risk that the plaintiff will lose no matter how good their patent is. Wouldn’t the SHIELD Act in effect tell inventors in such a case to just roll over and let any large entity infringe at will?

Wouldn’t it be better to push for legislation that addresses the actual cause of patent trolls (namely patents being issued without adequate examination or chance for opposition)?

avatar tzs on September 18, 2012 | Reply

Yes – that is a feature not a bug – the law was written by Intel and MS. A similar law is in place in the UK and the entity bringing suit has to post a bond – which is where SHIELD will go. That makes it almost impossible for true small entities who get ripped off by big companies to bring suit. Which is OK if you are Intel or MS or don’t believe that ever happens.

avatar pjk on September 18, 2012

That would assume there are legitimate software patents. The software industry worked just fine for years and years without patents (and still does, in many parts of the world).

avatar well on September 19, 2012

The Shell company, which I assume must own the patent, should have to forfeit said patent if it is unable to pay for defense fees in cases they lose as plaintiffs… That would/could/should address the shell game. If it’s a shell, they risk losing the patent and that would end their ability to setup a new shell and sue with the same patent.

avatar Justin on September 18, 2012 | Reply

If they fail because the patent is invalid they have no ability to sue with a new shell company. If they lose because the patent is not infringed they still may have rights against other companies. Nobody moves patents from one shell to another because they lose.

avatar pjk on September 18, 2012

If they lose then that only has value if the patent isn’t invalidated. That’s why most patent trolls have only a single patent and as little money invested in the corporation as possible. As little possible loss surface as they can produce while carrying out the lawsuit.

avatar bjc on September 18, 2012

The Shield act does not go far enough. Effective legislation must do two things:
1) Abolish the “American rule” entirely. In other words, the losing party should pay the winning side’s reasonable attorney’s fees, in every suit.
2) This fee to be assessed jointly and severally on the losing party *and its counsel*

avatar anne mouse on September 18, 2012 | Reply

Justin, patents are plentiful, and relatively cheap: much cheaper than defending against a patent lawsuit. Microsoft files tens of thousands of patents every year, at a cost of maybe a thousand dollars each. A big patent defense can cost in the millions. So loss of patent isn’t going to scare a troll: they just buy another patent and attack again. You have to put them out of business by going after their ability to file lawsuits in the first place. One way is to hold their lawyers responsible when they lose; an even better way is simply to ban patents entirely.

avatar anne mouse on September 18, 2012 | Reply

The average cost of prosecuting a patent in the US is 15-20K. That is well established. Not a thousand dollars. Furthermore the cost of buying a patent that somebody may be infringing is much much much higher than the cost of prosecuting a patent – typically well north of $100K.

avatar pjk on September 19, 2012

How about they just change the patent system to be ‘use it or lose it’?

avatar Anonymous on September 18, 2012 | Reply

“The Shell company, which I assume must own the patent…”

I’m sure Congress will leave a legal loophole around this. Perhaps the parent company will “invest” the patent into the shell company, with the agreement that the parent company is the first in line to re-acquire the patent if things go south for the shell company. Kind of like how the bank who gives you a mortgage on your house is the first to acquire your house if you go bankrupt, even if you have other debts.

Even if the parent company lost the patent, it would still be profitable to extort companies with the patent until it is lost.

It doesn’t sound like SHIELD is a solution to this problem. Like John said, it’s probably intended to shield corporations from customers.

avatar Bob on September 18, 2012 | Reply

From the Wired article, http://www.wired.com/wiredenterprise/2012/09/pwersonalweb , “The lawsuits assert a grab-bag of patents covering everything from search to internet services to storage.” Conveniently, PersonalWeb has posted it’s patent portfolio on their site. http://www.personalweb.com/Technology.html

avatar nspears on September 18, 2012 | Reply

Dear Alan,
You have not shared too much about the complaint, but I’d infer they are pursuing this under a cooperative infringment theory. See, e.g., http://btlj.org/data/articles/26_1/Web%20PDFs/135-170_Dokhanchy_090811.pdf
If you are able, a little more information about the nature of the complaint that would be great. This is an extremely interesting area of developing law. Thanks for the post.

avatar John Young on September 19, 2012 | Reply

Hold Fast!

And I’d be happy if you could make these two points in your defense:
http://www.groklaw.net/pdf3/Explanation%20-%20PoIR.pdf — Software is math
http://www.groklaw.net/article.php?story=20120719130253497 — Putting software on a computer does not make a new machine.

avatar Seegras on September 19, 2012 | Reply

Software is not math. This is quite simply one of the dumbest ideas that I hear circulated around this entire topic. People start with the notion that any program can be represented by a unique number – punch it into the halting problem argument – and conclude that software is numbers. And numbers are math. Or they hear something about algorithms being computing – assume that all software is algorithms (please, show me the algorithm for MS word. I’ll wait) – and computing is math.

Software is not math.

avatar pjk on September 19, 2012

Seegras, Software is math. The Halting problem is a question about decidability and really does not apply here. As for your request regarding the Algorithm for MS Word, MS Word is made up of implementations of a multitude of algorithms from simple string search algorithms to more complex spreadsheet calculations to algorithms regarding process prioritization and control. This does not mean that I do not appreciate the difficulties regarding innovations in algorithms and software development and the whole patent-ability question regarding Software. But denying the truth does not help solve the problem.

avatar Dean Barnes on September 19, 2012

Then please – tell me exactly what math MS word is. I await insight.

The point in mentioning the halting problem is that – from my experience pressing people on why they believe software is math most have no response – of those that do about half remember something about the halting problem and mention that. I agree – it is irrelevant to the real issue here other than some people believe that it *is* relevant. I’m glad we agree on that.

We also agree that MS word – as an example of SW – is not an algorithm. So those who argue that algorithms are the basis for showing that SW is math are out of luck with the two of us. Which was also my point.

Thus far you’ve offered no rational for why SW is math while you’ve agreed with my attempt to shoot down the two most often cited reasons that I am aware of.

Just why do you believe that to be the case, other than your belief that it is “the truth”?

avatar pjk on September 19, 2012

Wasn’t going to butt in, but I had to stop this one here. A computer runs on the controlled distribution of voltage, and therefore the circulation of current. These are mapped out using numbers.

Working our way up from the hardware to the software, we go from one language to another, but all based on math. Not all of the implementations of the numbers are the same, but the algorithms that create them must be, otherwise nothing would be the slightest bit comprehensible.

When you work your way up to programs written in the highest level languages, such as MS word, they’re variable in specific value distribution, but not in algorithm planning and value construction.

Source: Me. I started my career as an electrical engineer, specifically designing computer hardware and coding for it. Today that’d be a “computer engineer”.

avatar Doubting Thomas on April 14, 2013

The SHIELD act is absolutely the incorrect response to this problem. It’s one thing to talk about two giant corporations suing each other, and for that it’s not such a bad idea. But in reality this law will effectively prevent individual inventors and small businesses from being able to protect their patents.

As an example, let’s say Bob Inventor has invented a neat new mobile device and patents it. Apple Inc. creates a nearly identical device and starts selling it. Should Bob Inventor take Apple to court, he will most likely have a single affordable attorney whereas Apple will send an entire team of attorneys racking up millions of dollars in fees over the course of the suit. In front of a jury, Apple’s attorneys will make minced meat of Bob and his small-time attorney and Bob will probably lose, ending up not only losing rights to his patented idea but being required to foot the enormous bill for Apple’s attorneys.

It sounds like a solution, but you’ll effectively give more power to those with the most money whether they are in the right or wrong.

avatar Brian on September 19, 2012 | Reply

“software patent litigation suppresses innovation” — it’s not software patents that are the problem, but patents in general. The entire purpose of patents are to protect companies from competition. All patents are inherently anti-free market, anti-property rights, anti-capitalism. It is frustrating to see people complain about “software” patents as if there is something especially bad about them, as if to say that regular patents are just fine, but software patents are bad. There is no principled reason whatsoever to single out software patents. We need to radically restrict all patent terms, get rid of injunctions, require a working/use requirement, etc.–or, better yet, repeal the entire patent system (and copyright, while you’re at it).

avatar Stephan Kinsella on September 19, 2012 | Reply

Stephan – this is the best comment in the thread. Bravo! There is nothing fundamentally different about SW patents and other patents. I happen to reach the opposite conclusion regarding the value of patents from you after reaching this common point. But I applaud your consistent reasoning.

avatar pjk on September 19, 2012

Seems to me that if knowing infringers have to pay trebel damages, then trolls^h^h^h^h^ plaintiffs that sue for patents found to be invalid, either during or after the trial, should have to pay trebel costs.

avatar Mark on September 19, 2012 | Reply

Infringers do not have to pay triple damages. People who *knowingly* infringe – otherwise known as intentional theft – have to pay triple damages. That is a high bar that is very rarely overcome.

avatar pjk on September 19, 2012

Nice to see that even though Rackspace is a big company, you guys can still blog about things like this without your legal team stopping you. Awesome post!

avatar Mike on September 19, 2012 | Reply
avatar Nicholas Johnson on September 19, 2012 | Reply

It really does look like a hash table – well, actually using a hash table as a hash table. Really remarkable stuff, you know. Next thing we’re going to see patents on using addition to add actual numbers.

avatar Jan on September 19, 2012

The short answer is no. If they tried to assert it that broadly it would be found invalid in about 10 minutes. And the patent cites hash tables so the PTO and inventors specifically thought about that technology during prosecution.

The longer answer is … not sure. Most of the claims derive from claim 1 which has “means for” language that narrows the claim. If the narrowing is to a new element then they may be free and clear. But some of the later method claims don’t appear to have such an escape hatch.

avatar pjk on September 19, 2012

Hey Mike.. the head of our legal team is the one who actually posted this! :^D

Go Get’em Alan!

I love this company. :)

Tweeks

avatar Tweeks on September 19, 2012 | Reply

As a former employee I love what Rackspace does for the community at large. I’m starting to believe that there should be some criminal implication for egregious litigation like this. We don’t need this, nor does Rackspace.

avatar Harry Richardson on September 19, 2012 | Reply

Please don’t settle this to avoid cost, do the right thing, not the easy thing. I am a Rackspace customer and will gladly pay more in order to take this to the limit.

avatar GregK8 on September 19, 2012 | Reply

“PersonalWeb is not the issue of course. They are just another patent troll attempting to take advantage of bad law. It is their nature. They look for opportunity, and patent litigation can be very profitable. The real problem is the law.”

The only reason the law needs to be fixed is that they, and others like them, *are* the issue. Without people and companies acting like parasites a lot of legislation would be unnecessary.

avatar Hg on September 20, 2012 | Reply

There is now a Stack Exchange site to help patent officers find prior art through submissions from the public.

http://blog.stackoverflow.com/2012/09/askpatents-com-a-stack-exchange-to-prevent-bad-patents/

avatar mike perez on September 20, 2012 | Reply

Patent trolls frustrate me to no end. While making money is good, I hate to see innovation get stifled just for profit.

avatar Jeff Moro on September 21, 2012 | Reply

I do not agree with the SHIELD Act as a solution. It is bad to limit litigation. It is better to fix patent law which is the real problem. Please do not support legislation that will further limit the rights of the people in defense of their innovations. Fix how the innovations are granted and put a limit on how long they are granted. The SHIELD Act may make it difficult for patent trolls but may actually inhibit litigation on real patent law violations if it is made cost prohibitive.

avatar HP on October 28, 2012 | Reply

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