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Why Rackspace Is Suing The Most Notorious Patent Troll In America

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Today we drove a stake into the ground in our dogged fight against patent trolls – we sued one of the most notorious patent trolls in America.

Last week, a patent assertion entity (PAE) called Parallel Iron sued Rackspace and 11 other defendants in Delaware for allegedly infringing on a trio of patents that Parallel Iron says cover the use of the open source Hadoop Distributed File System (HDFS). This is the newest in a series of 23 similar suits Parallel Iron has filed in Delaware since last June, which is when Parallel Iron was forced to dismiss an earlier set of lawsuits on another patent it could not enforce. Parallel Iron is the latest in a string of shell companies created to do nothing more than assert patent-infringement claims as part of a typical patent troll scheme of pressuring companies to pay up or else face crippling litigation costs . At least that is what it looks like on the surface.

In actuality, it is a bit more complicated. Our dealings with this particular troll reach back to December 2010 when IP Navigation Group (IP Nav), as agent for a supposedly secret patent owner, now known as Parallel Iron, accused Rackspace of patent infringement. IP Nav told us that they could not divulge the details of their infringement claims – not even the patent numbers or the patent owner – unless we entered into a “forbearance agreement” – basically, an agreement that we would not sue them. IP Nav was worried that as soon as we found out what their patents and claims actually were, Rackspace would sue to invalidate their patents or for a declaration that Rackspace does not infringe. We were unwilling to enter into such a one-sided agreement, so we negotiated a mutual forbearance agreement that required either party to give 30 days’ notice before bringing suit.

IP Nav has used this trick before. Sending a letter like the one IP Nav sent Rackspace – and trying to pressure the target into a forbearance agreement – got IP Nav into hot water with a Wisconsin federal court in late 2011. The court decision, as reported by Techdirt, describes the tactics that IP Nav deploys, and uses literary references to Shakespeare and Chekov to excoriate IP Nav. It even cited the “Duck Test” – if it quacks like a troll, it probably is a troll. Search online for “IP Navigation Group.” You will find that this group’s only business is acquiring patents and suing companies.

Once again, the Duck Test holds true: walking, swimming, quacking, everything. True to form, Parallel Iron sued Rackspace in Delaware without providing any notice, breaking the agreement they insisted upon.

We aren’t going to take it. We have sued IP Nav and Parallel Iron in federal court in San Antonio, Texas, where our headquarters is located (see the complaint here). We are asking the court to award Rackspace damages for breach of contract, and to enter a declaratory judgment that Rackspace does not infringe Parallel Iron’s patents.

Meanwhile, IP Nav wears its designation as a patent assertion entity, or patent troll, as a badge of honor. It makes the laughable claim to be a “white hat” patent troll created to “give the little guy a chance.” This is tragic comedy at best. There are few trolls more notorious than IP Nav, and there is no such thing as a patent troll that has the best interests of small businesses in mind. Instead, IP Nav and Parallel Iron are acting in their own selfish interests and suffocating innovation, while stripping capital away from businesses both large and small. Everybody knows they are a duck – or should we say, a troll.

Patent trolls like IP Nav are a serious threat to business and to innovation. Patent trolls brazenly use questionable tactics to force settlements from legitimate businesses that are merely using computers and software as they are intended. These defendants, including most of America’s most innovative companies, are not copying patents or stealing from the patent holders. They often have no knowledge of these patents until they are served with a lawsuit. This is unjust.

At Rackspace, we have seen a 500 percent spike since 2010 in our legal spend combating patent trolls – we recently fought one and emerged victorious. To put the scope of the problem into perspective, a Boston University study of patent trolls, conducted last year, found that they cost the U.S. economy about $29 billion in 2011, up from $7 billion in 2005.

Until Congress reforms the patent laws, companies of all sizes and industries could – and likely will – find themselves in the crosshairs of a greedy patent troll looking for a quick cash-grab. No company is immune, and, sadly, small companies can’t afford to fight. If they don’t succumb to the troll’s demands by settling, they face certain ruin.

Our goal with this lawsuit is to highlight the tactics that IP Nav uses to divert hard-earned profits and precious capital from American businesses. This time, the patent troll should pay us.

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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  • http://www.fastdeploy.com boethius

    All I can say is GO RACKSPACE! Though I like to imagine I’m not utterly intransigent and belligerent about it I have a fundamental disagreement with effectively all IP patents and believe they basically should be banned. Tech companies like Rackspace should innovate and out-innovative, let the best technology win and the basic mechanics of Capitalism win out. Attempting to patent ideas and vague design concepts (yea, I’m talking about you, Apple), which are plentiful and a dime-a-dozen, is fundamentally an absurd product of the creative imagination of our vaunted legal profession.

    Anyway, that’s my rant. Keep at it Rackspace!

    • Richard

      Well said, and I would go further and say that it’s time to abolish the patent system entirely. The situation is no better outside of IT. The fundamental premise of patents is flawed, and even if patents ever once served a useful purpose, which I doubt, then they no longer do.

  • Asif

    Thank you for doing this!
    Patent trolls are a curse and a drag on the startup ecosystem, and large companies like Rackspace (and the Apples/Googles/Facebooks/Microsofts…) of the world need to use their resources to crush them to oblivion.

  • sordid chimera

    I hope you destroy the trolls for your benefit and for every software engineer in the industry.

  • http://mentalized.net Jakob S

    I tip my proverbial hat to you, sirs. Keep fighting the good fight.

  • WQ

    Many thanks to you and for all that Rackers are doing to carry the torch against this ugly injustice. Danger — Don’t feed the ducks !

  • http://iptrolltracker2.wordpress.com Steph Kennedy

    You’ve been Spangenberged.

    I went after these guys (IP Nav) just today for their “black hatted-ness”.

    They have a good PR machine, that’s for sure. Good luck with the case, keep fighting the good fight!

    Just sayin’,

    IPTT

  • http://projects.nathanalden.com Nathan Alden, Sr.

    Rackspace, you may have just won my business instead of Amazon. Keep up the good work!

  • John

    Nice one rackspace. Hope you kick the [crap] out of them. We’ve had one bogus claim, refuted it by email and it went away. But it was scary as defending it legally would have been costly and a distraction.

  • Anonymous Coward

    Reading this makes me very proud to be a Rackspace customer.

  • http://www.pcrecruiter.net martin snyder

    I am an exec at a small software firm sued by a giant company that we never competed with (ironically until they sued us) on an absurd joke of a patent from the ’90′s. Now that their name and ours are appearing in Google searches, I’m getting RFP’s from their would-be customers, so I guess that’s something. I’m also getting letters from their lawyers saying I’m not allowed to say anything about them on social media, most especially not calling them trolls for behaving like trolls. Hey Kenexa- Quack Quack baby.

    Nice work here Rackspace- Congress MUST do something about this unjust system. One thing would be a simple rule that says trolls pay the legal costs of both sides if their patents are found obvious, anticipated, or invalid as a matter of law…a little skin in the game as they say which should bother legit IP owners not at all…..

  • http://blog.aparicio.org Sam Aparicio

    GO RACKSPACE!!!! You guys are fighting the good fight. We (the startup community) need tech giants like you to do the heavy lifting!

  • http://Bsp-software.com Peter

    Thank you! You did the right thing that will help all of us.

  • subfuzion

    Go Rackspace!

  • westy

    Absolutely awesome – anything that stifles innovation should be interrupted. Companies like these trolls must be stopped dead in their tracks! Thanks to all at Rackspace we salute you.

  • YL

    As far as a systemic solution, one possibility is to reform the US judicial system and have the looser pay the winner’s legal cost like in Canada. This is deterrent for many frivolous law suits. Add judicial discretion to ask litigants for an advance deposit in case of obvious prima facie swimming and quacking and soon the hunting season will be over for lack of pray.
    In the meantime, go Rackspace, hunt!

  • Frisian

    Looking at U.S. patent trolls from abroad, it seems, that the patent system itself isn’t so much broken as being taken to the extreme. The USPTO grants patents for things that clearly shouldn’t be patentable in the first place. Add a medieval judiciary system to that with weird instruments like the mentioned forbearance agreement and you get an environment, in which patent trolls thrive.

  • http://bendustries.co hifloor

    Nice. The more I hear about Rackspace, the more I like it. Should I ever need services such as Rackspace provides, I’m there. I’m more than happy to spend my money with a company that apparently has a handle on not being brain-dead profiteering idiots (and are fighting against the very same.)

  • DZMO

    What a funny world we live in, talking of trolls and ducks in a business context.

  • http://www.technologically.net Walter

    Go Rackspace! Keep fighting the patent trolls…

  • grey cape rider

    If you have been to court with these guys before (or some of these guys) you must know their:
    - company details, physical addresses, phone numbers
    - their legal department’s contact details,
    - and more importantly a couple of real names and phone numbers, the details of the company founders.
    … Leak it! Do it openly or secretly, your choice but expose it good! Let’s see how they hold up against the internet.

  • KBart

    I hope you will crush them, such “companies” do tremendous amount of damage to the industry and discourages new/small companies. The patent system is outdated and while it reformed (hopefully) I see the only solution – create a non profit organization which helps real companies, that can not afford or are not experienced in courts, to fight against trolls.

  • http://justmigrate.com Siddharth Menon

    For now it is very safe if you incorporate your company in India.

    IP laws are little weak and innovation can thrive.
    If somebody wants to copy paste it can happen anywhere.

    • kinkfisher

      > copy paste

      > innovation

      LOL.

  • pacu

    Thanks for fighting trolls

  • http://www.kristuttle.com Kris Tuttle

    God Speed RAX!

    This merry go round has to stop. The government should step in with some tort reform measures. Legitimate challenges should be allowed but these “buy and extort” models should be hit with punitive judgements. The risk of losing all your money (and possibly having personal liability) would stop that wasteful activity dead in the tracks.

    Longer term I also think we need a law that stipulates that if you own a patent but have not spend any money, time or energy on developing it for many years, it should enter into a status where the patent can be purchased or licensed but not used in litigation if these options are refused. There’s far too much “patent sitting” which isn’t good for the world. Use it, sell it, license it or lose it!

  • BTM

    Great news! In addition to the direct economic costs Mr. Schoenbaum cites, the recent proliferation of the patent troll business model has had an incalculable chilling effect on innovation, especially that of individual developers and small startups. Keep fighting the good fight, Rackspace.

  • Konrad

    Please don’t call them “trolls”. As I’ve mentioned elsewhere [1] this just downplays the fact that these people are dangerous criminals rather than harmless pranksters. Others (e.g. Joel Spolsky) have described them as racketeers, and that’s exactly what they are: people who knowingly and wilfully blackmail businesses into paying protection money.

    Good on Rackspace for tackling these criminals head-on.

    [1]: https://twitter.com/klmr/status/319579438956302336

    • Morbid

      Here Here! I completely agree with you Konrad. This is organized crime to the fullest and should be called what it is.

  • Amer

    Thank you!

  • kinkfisher

    Tell me honestly that you wouldn’t have filed for Declaratory Judgement the moment you learned the patent numbers. Honestly, now. If you want to blame anything for these licensing tactics, blame the Medimmune and Sandisk judgements.

    For anybody unfamiliar with these rulings and how they enabled alleged infringers to play hardball and forced patent licensors to do the same, look at [1].

    Anyone wonder why the proportion of NPE lawsuits have gone up since 2007 [2]? Well, guess which landmark rulings happened in 2007.

    [1.] Michael Donovan, “The Impact of MedImmune, Inc. v. Genentech, Inc.and Its Progeny on Technology Licensing,” http://digitalcommons.pepperdine.edu/cgi/viewcontent.cgi?article=1038&context=jbel

    [2.] Sara Jeruss, Robin Feldman, Joshua H. Walker, “The America Invents Act 500: Effects of Patent Monetization Entities on US Litigation,” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2158455

    • Pej

      Thanks for those articles.

      I am an inventor and though big company “G” is an infringer I CAN’T talk to them or they will turn around and destroy me with a DJ action. I would love to negotiate a fair settlement but thanks to Congress’s gift to corporate America and the Medimmune precident, I have no other recourse but to SELL TO A TROLL. Stop listening to the corporate whining – trust me, they hold ALL the cards and then boohoo that people like me go to the trolls. Stop blaming us inventors and start placing the blame on congress and the JD and unfair corporate practices!

      I spent time and money on my invention but I ran smack into the dot-com bust so I could not develop it. Now I can’t do anything with it unless I SUE…and it takes deep pockets to sue.

      You guys who haven’t yet been here should beware – one day you might have some else steal your best idea ever, and you will find yourself on the receiving end of killer corporate legal tactics. You will RUN to the trolls and be sooooo glad to have them. They are the last refuge of the individual inventor even though they screw us too.

  • Dave

    Keep up the good fight!

  • John Q.

    Please, PLEASE keep fighting the good fight on this.

    http://joelonsoftware.com/items/2013/04/02.html

    Republicans and Democrats alike should able to agree on, and enact, some kind of temporary legislative relief while the PTO and the courts get their collective sh*t together.

  • Hachya

    I love how the “the most notorious” in the title becomes “one of the most notorious” in the actual article. Please, stop doing this.

    Apple would be THE most notorious, in my opinion. That is, at least in the tech industry.

  • Engineer

    Patents do not stifle innovation. Even patent “trolls” don’t stifle it. The court system stifles innovation by failing to provide quick and cost-effective resolution of these kinds of disputes. Despite taking in hundreds of billions of dollars over the years, the federal courts are inefficient and slow.

    If this weren’t the case, these issues would be settled quickly and cheaply, and the patent would be upheld or invalidated years before patent holders get around to suing companies like rack space.

    This whole “patents are evil” thing came about as a result of Microsoft copying the Mac OS. When they did that, Apple took them to court, and lost on copyright grounds. So, apple made sure to patent their inventions. When google wanted to steal the iPhone, they started the “patents are evil” campaign.

    When I see rackspace say that patents “stifle innovation” that tells me that Rackspace is NOT an innovative company. For if you were ,you’d have sufficient IP of your own.

    The only people who think patents stifle innovation are the people who never would innovate in the first place… and are just unhappy that they can’t simply steal their competitors inventions in order to profit from them without the cost of actually being innovative.

    • Doubting Thomas

      What kind of Engineer are you, praytell? I’ve been doing this for some time, and never met any true “innovator”, as you foolishly reveal yourself not to be by use of this overused word that true engineers and scientists detest using. I was skeptical of Rackspace’s claims at first, but your response has led me to believe that perhaps this “patent troll” company really IS employing deceptive PR and legal tactics. As someone with IP to protect of my own, I would not want to be sued by a parasitic racketeer who cares as much for the progression of America as the Wall Street bankers who crashed our economy a few years back, or the creative accountants at Enron, to name a few.

      Your argument is flawed at best, and fraudulent at worst. Rackspace never claimed that “patents are evil”, that the idea IP itself was flawed, or anything of the sort. They claimed that a nonpracticing entity should not be allowed to sue small companies, or end users as such companies have been known to do in the past, in hopes of extracting a settlement, rather than going to court. In court these lawsuits never win. Judges know about them, and unless you pay them off first, you can’t win.

      As what you would call an “innovator”, I can say you’ve lost ground in your war of stealth against American democracy and technological progress. Grow up and stop holding us back. Otherwise, one could make the argument that you’re really no better than the Taliban.

    • Oh I’ve Been Sued For Patent Infringement

      I was sued for patent infringement by a competitor. The document that explains how my product infringed their patent (called a claim chart) was not provided until after 9 months when the suite was filed. Let me explain something: every month we burned between $25K and $40K answering questions and providing documents; we spent well over $400K _before_ we were told why we infringed. Remember, the patent owner is legally protected – he has nothing to hide (which is of course not the point) The claim chart itself was an oddly concocted, illogical piece of legal fiction which included products which we no longer sold and which are customers could no longer use. I submitted over 150 documents and patents that proved that the patent in question was not actually original, and every legal person I talked to said the same thing “You got a great case, but its cheaper to settle.” The average patent case in California is $1.2M to litigate. I could settle for $500K. So, let’s see: Be right, pay $1.2M, or finish this and pay $500K. Stifle innovation? Oh hell yeah. Patents provide a weapon for the owner, not protection for an inventor. In software, how is it that someone can patent a user interface or set of actions that are all created by one of the same 4 development environments (Visual Studio, Java, XCode or Apache). You submit patents to an organization that has no idea about software technology? Engineer, you are dead wrong. Patents shut down innovation. The US needs to follow suite with Europe and Japan and ban software patents (actually they made them un-enforceable). You can copyright and trademark, but not patent. Sounds fair to me.

  • Patrick

    Thank you. I own several small businesses, and have had several run-ins with this issue. I appreciate what you are doing.

  • http://www.successfulsoftware.net Andy Brice

    Kudos to Rackspace for standing up to the trolls. If enough people stand up to them, they might just go back under their bridge.

  • Tweeks

    Heh.. reminds me of Tolkin’s “The Hobbit”. When you expose the trolls tot he light of day, they freeze and die. :)

    Alan.. we’ll have to start calling you Alan “Bilbo” Schoenbaum! ;)

    Tweeks

  • http://www.MarkBult.com Mark Bult

    Keep it up guys. This is work you’ll be able to look back at in 20 years and still be monumentally proud of.

  • John Wayne

    Well this is part of what happens when big business came in and started messing arround with the patent expiration. namely DISNEY!

    Then you had all sorts of crabs come out of the woodwork to patent all sorts of nonsensical items.

    The U.S. patent office is well a government agency and as soon as we say the magic word we run into all sorts of red tape. It’s the reason why some lawyers get into patent law to fight and know the law of the land so that the company they work for doesn’t violate an obscure patent.

    In technology this is where the lines start to blurr because it’s oh so difficult to defend your patent or in a lot of cases there is 100 ways to skin a cat. This is why these patent trolls are out there, almost as bad as Mr. Wheel chair dude who spends his waking day filling handicap lawsuits because there are no ramps for him to access a store.

    Good Luck and I hope you burry them in red tape.

    • FrostBite2112

      So, let me get this straight. All I hear on this blog is basically how no one should be held accountable for the violation of a patent or having to pay a royalty to a company who holds the patent. Well then, what the hell is the point of filing, or having patent to begin with. Isn’t it to protect your intellectual investment in your product or process?? What exactly am I missing here.

      I own part of a company that has a patent that is as far everyone is concerned is being violated by numerous companies, which until your “well run” patent office got involved was doing quite alright. Some half wit with not a clue about what our patent covers decided that they new more than the experts did and decided to negate some of our claims. Well run american government agency, if that isn’t the most blantant oxymoron ever stated I don’t know what is, barely anything in the states is well run any more. Your entire economy is on brink of disaster and your patent board is a complete joke.

      What bloody good is a patent if you can’t enforce it. If some patent troll can help me enforce my patent, then have at er. I hear enough jokes everyday i don’t need to deal with the american legal system on top of it, I’ll let one of your own deal with you.

      Good luck to the company in the right and not to the one violating the patent. LOL, this all falls up there with your right to free speech, just don’t exercise it or you get to suffer the rath of the american intellect, another oxymoron.

  • ihaveamac

    I don’t host with you, but I hope you succeed. :D

  • Beth Sherfy

    Way to go, Rackspace! You’re the best! Add fanatical justice to your legendary Fanatical Support —-
    You can do it!

  • Tony

    I used Rackspace briefly as a stop-gap during Ike. I was pleased with their service and even have the “Morning, Noon, and Night” T-Shirt. With this move by Rackspace against IP Trolls / extortionists, I will wear it proudly! God Speed…

  • mbosarge

    Hats off to Rackspace! Awesome company, awesome service! Thank you for not backing down. God is with you…May you see increased prosperity in manifold ways to reward your efforts.

  • Mario

    Did you read this?

    http://wallstcheatsheet.com/stocks/blackberry-google-and-red-hat-down-with-patent-trolls.html

    Perhaps you could join this group too? I guess more is better here.

  • James Bertrand

    Success to Rackspace down with trolls and greed!

  • http://yountlabs.com Marshall Yount

    THANK YOU for standing up to this troll.

  • http://charisestevens.com Charise

    Keep it up!! Bring them down!

  • Doubting Thomas

    I’ve used Rackspace in the past, and will continue to do so proudly in the future. Good luck and Godspeed, friends!

    -Doubting Thomas

  • http://travelingepic.com Joel Oleson

    Way to go Rackspace!!!

    I think you need Troll Hunter t-shirts at your next event. Great work! It would be a great Rackspace meme.

    Joel

  • ricky

    Far out most of these IP “inventions” aren’t even. Stupid system where a kid can make a patent of a digilitised idea. If someone codes/creates something by himself and infringes, OBVIOUSLY the patent is not an really an invention

  • Joe Sanino

    For this article and they way you bring these litigious companies that contribute nothing to society, I will be giving Rackspace the rest of my business. I am a new customer and have a bunch of other servers with a different hosting provider. Those servers need to be replaced soon, and this article just confirmed that you will be getting all of my business now. Thanks Joel..

  • Mark Holland

    Great job; keep up the great work. Those sleeze bad patent troll attorneys are lower than whale dung.

  • http://www.cleartext.com David Banes
  • Matthew Eric

    We were sued to a different patent troll Mar 2013…apparently they sued a bunch of companies…same MO.

    https://www.google.com/search?q=quxuz+llc+lawsuit&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a

    The patent troll was: Quxuz LLC

  • Daniel

    sign this petition to support the SHIELD ACT
    http://wh.gov/zwvq

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