Patent Troll Landmark Technology Sues eBay For Challenging Its Patents; EBay Responds With Anti-SLAPP Motion

The nation's patent trolls, perhaps sensing increasing outrage about their parasitic practices, have grown more aggressive. They've increased (successful) lobbying efforts. Moreover, they've begun to resort to preemptive litigation — not just suing people for infringement, but suing people for contesting their trollish business model. This year saw one patent troll suing the Federal Trade Commission in an effort to halt its investigations, asserting that the troll's shakedown letters are protected by the First Amendment. The FTC's motion to dismiss is pending.

Thanks to tipster Jenny, I learned of another stunning example of patent troll aggression in Texas.

Landmark Technologies has been widely described as a patent troll based on its model of demanding payments from businesses that accept credit cards online.

Patent trolls usually make money by extorting small companies; it costs too much to litigate with the big companies, and big companies aren't so easily cowed by the threat of a lawsuit. But big companies are still interested in the activities of patent trolls, and have begun to fight back against them. For instance, behemoth eBay noted Landmark Technologies' activities and surmised, correctly, that its existence was threatened by a company claiming to hold a patent on online credit card payments. eBay used the legal methods available to them: they filed with the U.S. Patent and Trademark Office ("USPTO") a request for reevaluation of Landmark Technologies' patents. USTPO evaluated eBay's application and determined that they raised "substantial new question of patentability affecting any claim of the patent," triggering a re-examination of three Landmark patents. Ultimately USPTO rejected eBay's arguments as to two of Landmark's patents, but accepted 16 out of 25 of eBay's arguments about a third patent.

Patent trolls rely upon vague, ambiguous, overbroad patents and patents that were foolishly granted despite the ideas in them being previously public. That's why this reexamination system is essential.

A patent troll like Landmark could not allow such challenges to be used without cost; that interferes with its business model. So Landmark has sued eBay — and the lawyer who represented eBay before the USPTO — in United States District Court for the Eastern District of Texas. EDTX is very popular with patent trolls and many make their on-paper headquarters there; for trolls it's a wonderland where the roads are paved with bacon, blowjobs, and troll-friendly rules. Landmark's complaint against eBay asserts that by taking advantage of the USPTO's statutory reexamination process, eBay and its lawyer engaged in abuse of process, malicious prosecution, tortious interference with business, and negligence, and demands more than $5 million.

The lawsuit represents a logical extension of the patent troll business model, which takes advantage of our broken legal system. Patent trolls like Landmark shake down small businesses; the businesses know that even if they win the lawsuits the fight will be ruinously expensive and all-consuming. Therefore they pay the toll to the troll. Now Landmark wants to leverage the broken system further. They want lawyers to believe that if they represent companies in challenges to troll patents before the USPTO, they will be subjected to lengthy, stressful, expensive lawsuits. They want the lawyers to conclude that they should decline such representations, because they will be more trouble than they are worth. And they want companies to be deterred from questioning their patents.

eBay has come back with a very strong motion to dismiss Landmark's lawsuit under Texas' relatively new anti-SLAPP statute. eBay's arguments are persuasive: they establish that a reexamination request with the USPTO is protected by Texas' litigation privilege, which broadly insulates litigation conduct from retributive lawsuits. The litigation privilege, generally speaking, is what prevents people from suing you for what you said at your deposition or in your civil complaint against them. eBay also relies on the Noerr-Pennington doctrine, which protects petitioning activities. (The name comes from cases establishing that antitrust law can't be used to punish you for petitioning the government.) In its brief, eBay also points out a fundamental flaw in Landmark's claims — the USPTO necessarily found that eBay's petition had enough merit to raise a "substantial question" when it agreed to reexamine the patents, and in fact agreed with eBay as to one of the patents, thus establishing that eBay's petition had merit.

eBay also points out that Landmark has tried this approach before, and lost. In 2009 Landmark's principal, Larry Lockwood, sued megafirm Sheppard Mullin1 and some of its lawyers on the same theories, asserting that they improperly sought reexamination of patents on behalf of Lockwood's targets. In fact, in a clear tell of frivolousness and general lunacy, Lockwood asserted a RICO claim against the firm, saying that it was racketeering for them to use the USPTO's statutory reexamination process. The court dismissed the complaint, agreeing that among other things the RICO claim did not show criminal activity, that some of the claims were barred by the litigation privilege, and that the USPTO's enabling statutes preempted the state claims. In other words, Landmark previously tried the same schtick and got its ass handed to it.

I'm concerned about whether or not a patent troll victim can get a fair hearing in EDTX, frankly. But eBay' anti-SLAPP motion is very well crafted, and if it works, Landmark may wind up paying substantial attorney fees. However, the fact that patent trolls are willing to abuse the system like this — and lawyers are willing to help them — demonstrates the need for substantial patent reform.

  1. For the record I worked for Sheppard Mullin in the early 2000s as a Special Counsel, which is like an associate only more rugged.  

Last 5 posts by Ken White

Comments

  1. Matthew Cline says

    For the sake of the argument, assume that Landmark's current lawsuit is serious (that is, that they actually believe what they're saying). In that case, shouldn't they be suing the USPTO instead of the people who petition the USPTO?

  2. says

    Is there any hope in existing patent law that someone can demand a change of venue on the grounds that they will be unable to get a fair hearing there? I have seen this come up sometimes in highly-charged criminal cases, but can it apply to patent cases?

  3. says

    INAL.

    So, the crux of the SLAPP motion is that suing eBay is an infringement on eBay's right to petition the government? Because that seems a pretty strong defense to my ears.

  4. says

    So how many anti-SLAPP motions would Landmark/Lockwood have to lose to be found to be a vexatious litigant (like Brett Kimberlin, soon, hopefully)?

    The fact that some of their patents did survive reexamination might be a complicating factor, but still: if a plaintiff repeatedly makes the same argument that has previously been rejected…

  5. says

    Lizard,

    Odds are probably against change of venue as a rule, but apparently it's become a bit easier in recent years to get cases transferred out of the EDTex., at least compared to the situation pre-2008.

    I don't know about "on the grounds that they will be unable to get a fair hearing there" — that would seem like the district court admitting that the court has a pro-plaintiff bias, and I can't see a district judge being open to that, and most appellate court judges probably don't want to say that either. With "highly-charged criminal cases," as you put it, the major concern, I gather, is contamination of the jury pool; I do not readily see a comparable factor in this case.

  6. says

    Lizard: yes, eBay and the lawyers also filed a motion to dismiss on personal jurisdiction and venue grounds. I didn't discuss it because SQUIRREL

    xbradtc: Yes. When you file an anti-SLAPP you have the initial burden of showing that the complaint attacks speech protected by the anti-SLAPP statute. If you make that showing, the burden shifts to the plaintiff to show their case has actual merit. By showing that the complaint attacks petitioning activity and activity protected by the litigation privilege, eBay carried its initial burden.

  7. JonCB says

    The irony threatens to overwhelm me. A patent troll… accusing another company of racketeering. It's just too much.

  8. Lokiwi says

    I was under the impression that EDTex was the preferred venue for plaintiffs because juries there had proved willing to grant enormous sums for damages. Have the judges been so pro-plaintiff that you are concerned about their ability to rule on a motion like this?

  9. Kevin says

    I predict their next step will be to sue Congress for not enacting laws that would better suit their "business" model. After that, they'll sue the American public for not voting for the right legislators. If that fails, perhaps they'll sue God for creating a world which doesn't work the way they think it should.

  10. jackn says

    "I'm concerned about whether or not a patent troll victim can get a fair hearing in EDTX."

    I don't get this. Well, I get it, but what is the cause and solution? Is the cause corruption? Are the judges on the take here? I don't quite understand why EDTX is the preferred venue for trolls. All I can reckon is corruption, and if that is the case, should it not be easy to eliminate.

  11. Rick says

    The irony threatens to overwhelm me. A patent troll… accusing another company of racketeering. It's just too much.

    It's even richer. It's lawyers going after lawyers. It reminded me of the story of the country lawyer who eked out a living until another lawyer moved there..and then they both got rich.

  12. says

    Any problems in the ED Tex are remedied by the fact that the Texas Citizens Participation Act provides a right of appeal of the denial of anti-SLAPP motions, and even from failure to rule on such a motion, and the Fifth Circuit has already decided to allow such appeals under the collateral order doctrine.

  13. jackn says

    @CJK

    Other than than who appointed whom, I am not familiar enough with judges to take anything away from the list.

    The article suggests local rules

    http://www.txed.uscourts.gov/page1.shtml?location=rules

    and "an aging jury pool interested in protecting property rights"

    are behind the higher numbers.

    I imagine all east Texas citizens are very keen on intellectual property rights and intelligent design.

  14. albert says

    Based on some research I did while groklaw.net (RIP) was active:
    .
    1. EDTX record for patent cases is ~88% vs the national aveage of 68% (wiki), for whatever reasons. It's certainly not due to any patent expertise in the court.
    .
    2. CAFC (United States Court of Appeals for the Federal Circuit (Federal Circuit)) is where patent case appeals go. Several of those judges DO have some expertise. Some were IP lawyers, some actually have technical degrees in IT or other areas. They are generally pro-patent, i.e., they believe bad patents have been weeded out by the USPTO.
    .
    3. The main problem is the USPTO. Software wasn't always patentable. It started with the granting of patents for compression algorithms and encryption systems, which are both math, and should not be patentable. Now, most software patents are business methods using a computer. All are bogus.
    .
    Lots of folks wonder why the USPTO grants bogus patents. It's not because they're stupid. The USPTO is a cash cow for the Gov't. The last I checked, they brought over $700M for the year, into the coffers. IRRC, it used to cost ~$38K for a patent reexamination. Bad patents mean more fees for them.
    .
    The system is broken. Even the large corporations know this. The millions they spend on litigation could be used productively. Patent trolls would go out of business without bogus patents. Patent litigation costs US businesses billions a year, and it's all for nothing.
    .
    I understand that the bogus patent problem has affected ALL types of patents, not just software.
    .
    I gotta go…

  15. CJK Fossman says

    @Albert

    There is no way a former IP lawyer is going to be objective about patents. After all, they were his bread and butter for a time and he has to preserve them for the next generation.

    Groklaw RIP: so sad.

  16. Chuck says

    Maybe I'm missing something, but how on earth do you get personal jurisdiction over an individual California-based lawyer in EDTX? They say the conduct at issue arose in Texas, but that's plainly not true as to the lawyer sitting in his office in California corresponding with the PTO.

  17. a Michael says

    For a good laugh, check out Landmark's website. It's like they hired someone who writes phishing emails sent from princes in Nigeria to put it together.

  18. Matt says

    @albert

    It started with the granting of patents for compression algorithms and encryption systems, which are both math, and should not be patentable.

    Serious question – are those not patentable (or not supposed to be patentable) by USPTO rules? As an example, in my computing classes, we were taught basic compression algorithms. We had to code up the basics, and then as part of an assignment, we were supposed to come up with some clever additions of our own that would improve upon the basic algorithms to produce additional compression (for the record, while whatever I did could get it more compressed, I failed it making it uncompressible – maybe it shouldn't surprise that I *don't* write code for a living :p). So, if WinZIP, or 7zip, or Microsoft's native zip, etc., have their own specific "tweaks" to the basic set of algorithms, would there be some (rules-based) reason they couldn't patent it? (In practice, they generally seem to avoid proprietary tweaks, so that a zip file from Windows can be read in WinZIP, in WinRAR, in 7zip, etc, and vice versa.)

    If it helps, instead of thinking of different flavors of ZIP, think of ZIP vs RAR vs gzip etc.

    ETA: Oh, meant to also ask: Is this instead a case where *copyright* should apply instead of patent? (Although that can be its own can of wormholes to dive into…)

  19. albert says

    @Matt
    Compression algorithms are math and only math. Mathematics has never been patentable, for obvious reasons. Somehow, someone convinced the USPTO that such algorithms are 'methods' or 'recipes', which are (mostly) patentable.
    If you had implemented your algorithm in hardware, you could patent the hardware, but realistically, not the algorithm.

    In the old days, we would trade our clever bits of code and not care who used them. This is why computer science progressed so quickly. Imagine if every little code snippet had been patent-encombered back then. Where would the science be today? One or two giants controlling everything. Hardly a climate for innovation.

    Abuse of the patent system is primarily the result of the insatiable thirst for monopoly by the BSPs (Blood-Sucking Parasites). Bean counters prefer monopoly; it's cheaper than innovation., and who cares about consumers when they _have_ to buy from you?

    Regarding copyright, yes, all source code is copyrighted. It's written in the header templates of of every company, and individual developers. In most cases, that and $5 will get you a cup of coffee, unless you can _prove_ your competitor used your source code.

    Sorry for rambling on, but it is a complicated issue, especially when dealing with the copyrighting of APIs.

    Perhaps The Fossman can explain those issues in a more up to date manner than I.

    I gotta go…

    P.S. There's plenty of work for good coders (check out some of the disastrous web pages out there), not only those who can optimize compression algorithms:) There are so many folks 'writing' Java Script, and Java who couldn't code there way out of a paper bag, so to speak.

  20. anne mouse says

    You know, in theory I don't have a huge problem with a really innovative algorithm being patentable. In theory, patents reward innovation, and a great compression algorithm (for example) is a prime example of a world-changing innovation. Furthermore it requires long study and deep insight, i.e., significant up-front investment, but is easily copied by others once the hard work is done. This is exactly the problem that patents are supposed to solve.
    Of course, the theory is completely wrong, but let's leave that aside for now.
    The practice has nothing to do with the theory. Software patents rarely disclose any software at all, never mind an algorithm. They simply recite a result (e.g., a playlist for MP3s or other media files), and some nondescriptive "method" for achieving it ("use a computer attached to a network", "analyze the results"). (Note that there is no requirement to actually build the system described.) These are totally, ludicrously stupid patents, useful only for extortion, and they are granted by the thousands.

    Given the choice of patents or copyright, copyright is the lesser evil. The main difference being, your copyright covers what you wrote, and no more. That makes it difficult to use copyrights for trolling against people who didn't actually copy your work. Sure, you can do it by resorting to Prenda-style villainy, but that will (eventually) get you disbarred and then locked up. In patent law, there's no punishment for extortion.

  21. CJK Fossman says

    A great compression algorithm is mathematics. Patenting math can only lead to a mess as our current system demonstrates.

    Copyright can be abused also. Witness Oracle's villainous argument in Oracle v. Google.

  22. albert says

    @anne mouse

    "… Furthermore it requires long study and deep insight, i.e., significant up-front investment,…"
    .
    This is irrelevant. Algorithms are mathematics. Math is not patentable.
    .
    The purpose of patents is to grant a temporary monopoly to the holder, so that he may be unencumbered by competition while he reaps the fruits of his labor. When the patent expires, it becomes public domain, so that everyone may use it.
    .
    The solution to the software patent problem is to eliminate software patents. Barring that, reducing s/w patent terms to 1 or 2 years would help tremendously.
    .
    It is ironic that the largest patent holders (excluding trolls) have the power to correct this situation. It's like everyone is stabbing themselves with knives, only the big guys don't bleed as much as the little guys do. It's insane what greed will do.

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