FindTheBest is taking a stand and saying “screw you” to patent trolls.
The company is filing a civil RICO (Racketeer Influenced and Corrupt Organizations) suit against a patent troll, which sued it for patent infringement earlier this year.
Accusing a patent troll of racketeering is a novel strategy for a patent countersuit. But FindTheBest thinks it has a winning strategy.
“Patent trolling issue has been a growing problem and it will hit epidemic proportions here very shortly,” said Kevin O’Connor, FindTheBest‘s CEO and founder. O’Connor spoke with us from Washington, D.C., where he was meeting with members of the staff for Sen. Chuck Schumer (D-NY). In addition to filing a civil suit, O’Connor is making a tour of nine elected officials’ offices this week to push for patent reform.
“These evil geniuses have figured out that for very little work, they can extract a tax on our industry,” O’Connor said. “I’ve been in tech for 30 years and to have these guys come in steps over an ethical and moral line. I don’t like it and we figured we would fight it.”
O’Connor described patent trolls as the “parasites” of the tech industry. They are generally shell corporations that buy up patents, not to use them in business, but merely to file lawsuits against other companies that allegedly infringe upon them. The patents are often extremely vague and the suits “frivolous,” O’Connor said. However, defending a lawsuit in court is so expensive that companies will write settlement checks, regardless of the validity of the claims.
FindTheBest offers data-driven comparisons across hundreds of topics, products, and device categories. (Disclosure: VentureBeat has a business relationship with FindTheBest, which provides the content for our product comparison pages.)
Plaintiffs Eileen Shapiro and Steven Mintz, acting under Lumen View Technology LLC, sued FindTheBest in May 2013 for infringing on patent no. 8,069,073 — “system and method for facilitating bilateral and multilateral decision-making.”
The patent filing describes the patent as follows:
Techniques for facilitating evaluation, in connection with the procurement or delivery of products or services, in a context of at least one of (i) a financial transaction and (ii) operation of an enterprise, are disclosed. The techniques involve retrieving party and counterparty preference data from digital storage media; performing multilateral analyses of the combined preference data by computing a closeness-of-fit value; and delivering a list matching the at least one party and the at least one counterparty using the computed closeness-of-fit values.
O’Connor and FTB director of operations Danny Seigle said that FindTheBest doesn’t even violate this patent because its engine only takes one set of preferences into account
“This patent is for the process by which two parties’ sets of preferences are matched together using an algorithm,” Seigle said. “This could be anything, from a dating site to an applicant-to-employer recruiting system. It is a pretty fruitless patent, but you are basically guilty until proven innocent and have to defend yourself. It is legalized extortion.”
Patents are, in theory, meant to protect people from having their ideas and/or work wrongfully used. To get a patent, in theory, the requirements include “novelty” and “non-obviousness.” Alas, this is not the reality, and some pretty ridiculous patents are out there, such as those for human genes, online press releases, and hyperlinking.
“The patent office has been issuing garbage patents for the past 15 years,” O’Connor said. “When they are held up to scrutiny, they don’t pass. It is a broken system, but there are people with money on the other side that want to keep it that way. Most companies don’t want to take these suits to court, and they are screwed.”
As mentioned above, lawsuits are expensive, and the trolls set the settlement price just at the point where it is cheaper to settle, even when the claim is invalid. Their goal is settlement, and they bank on companies’ quiet acquiescence to cash in.
“Outright trolling is a big threat and a terrible problem — they are basically collecting fees for everyone who is trying to do legitimate business, like a wolf at the edge of a fox hole,” said Gil Silberman, an attorney and managing partner with Equity LLP. “It’s the cost of doing business, but almost no startup company, even a well-financed one, has enough money to fight a patent lawsuit all the way to the end, whether or not it is going to be victorious.”
Equity LLP has a unique model where it exchanges legal services for equity. Silberman works extensively with startups, often advising them on patent issues. He said that venture-funded companies (like FindTheBest) have a responsibility to their employees and shareholders and are put in a difficult position where fighting back can be a greater risk than settling.
However, the problem with “rolling over and settling” is that patent trolls realize you are an easy target and will hit you with suits again. Build.com is dealing with lawsuits from as many as five trolls.
‘Doing what’s right’
Before FindTheBest, O’Connor founded online advertising firm DoubleClick, which Google bought for $3.1 billion in 2007. So rather than use FindTheBest’s money for this lawsuit, O’Connor pledged $1 million of his own money to fight this battle in court.
“Business isn’t always about making money,” O’Connor said. “It’s also about doing what’s right, which is why I am using my own money. Most startups don’t have that luxury, but we are getting a ton of support. I am not sure if we are going to see a fix, but I don’t like this uncertainty. These court cases have doubled in the past few years, and they will double again. When does it end?”
Unsurprisingly, “doing what’s right” doesn’t go over so well with the patent trolls.
“When I called Eileen Shapiro to get more information and explain that we do not infringe on the patent, I used the term ‘patent troll’ in a voicemail,” O’Connor said. “She accused me of committing a hate crime.”
Her attorney called O’Connor’s attorney, and then FindTheBest received what O’Connor described as a “threatening” demand letter. The letter said that if FindTheBest didn’t do what they wanted, Lumen would be forced to “reevaluate and likely increase Plaintiff’s settlement demand,” meaning don’t fight back — or else.
The letter also said that “electronically stored information” on FindTheBest’s computer systems and other media and devices (including personal phones and digital assistants) would be subject to disclosure.
Neither Shapiro or Mintz answered their phones or responded to VentureBeat’s request for comment.
After all of this went down, O’Connor decided to take the issue a step further. Rather than just defending his company in court, he is filing a civil RICO suit against Lumen for engaging in mail fraud, wire fraud, and extortion, “attacking the defendant’s attempts to extort money out of the company based upon false, objectively unreasonable, and baseless claims of patent infringement.”
RICO was initially used to prosecute organized crime. Its use in patent litigation is virtually unprecedented. O’Connor said that RICO has only been used twice before on the patent side.
FindTheBest also names Dalton Sentry LLC, DecisionSorter LLC, and The Hillcrest Group as defendants. The three companies were formed by Shapiro and the patent’s co-inventor Steven Mintz “to hide involvement in racketeering activity,” the FTB lawsuit alleges.
“There are a lot of hurdles before a case can get near RICO, you have to show that the patent itself isn’t valid,” Silbermann said. “It can’t just be considered a frivolous action, but a corrupt one. The behavior needs to be pretty extreme. This is something that is very hard to win, but if the behavior is truly egregious, and someone has the money and fortitude to see it through, he will be a hero.”
Patent trolls cost the U.S. economy $29 billion each year. The Georgetown Law Journal said that in an estimated 90 percent of cases, the defendants settle before going to trial. However, software-patent holders win just 13 percent of their court cases, meaning if you go to trial, the odds are good.
The plague of patent trolls has been a hot button issue over the past year. Earlier this year, two members of the House of Representatives introduced the SHIELD Act to thwart patent trolls, and in early June President Barack Obama released five executive orders and seven legislative recommendations aimed at reforming the patent industry. One of the proposals said that if patent trolls lose in court, they would have to pay the attorney’s fees of the businesses they sue.
This would hopefully force patent trolls to think a little more carefully about the suits that they bring and encourage companies to be bolder about standing up against “egregious” disputes.
Around 20 companies been sued in past 18 months over patent no. 8,069,073.
Even if O’Connor acknowledges that taking on patent trolls with RICO is unorthodox, he’s optimistic about FindTheBest’s chances. If FindTheBest wins the suit, Lumen could appeal and the case could go on to a higher court and someday even create a legislative precedent. In the meantime, O’Connor just wants to hold the trolls accountable for “crushing innovation.”
“Companies don’t talk about this because they are afraid of sticking their necks out,” he said. “I want to shine a light on these trolls. If i was a patent troll, I wouldn’t want to tell my kids or mother that’s what I did. I would say I cooked meth instead.”