FindTheBest.com, a company that runs a comparison-shopping website, found itself on the receiving end of a complaint (PDF) filed earlier this year by Lumen View Technology, a company that files lawsuits against other companies. Lumen claimed violation of a patent it had licensed and offered the shopping site a choice: Do battle in court or agree to pay a fee.
The lawsuit was just one of at least 20 Lumen has filed, according to court documents. Since lawyering up is generally more expensive than the proposed licensing fee, most startups facing patent litigation opt to buy their way out. But FindTheBest’s founder, Kevin O’Connor, remains flush from selling his previous startup to Google (GOOG) for $3.1 billion and decided to make a financially irrational and emotionally satisfying decision to fight back against a patent troll. “If this were a business decision, we would have settled and written a check,” says FindTheBest’s Danny Seigle, the employee tasked with leading the effort against Lumen’s suit.
The company is not just playing defense, either. On Monday, FindTheBest filed its own suit (PDF) claiming that the people behind Lumen have violated the Racketeer Influenced and Corrupt Organizations Act, better known as RICO. Yes, this countersuit is going after a patent litigant with the federal law famous for helping to bust the mafia. The series of shell companies Lumen’s executives have set up to pursue patent claims amounts to an illegal conspiracy, according to FindTheBest’s argument, and from there it’s just a classic shakedown.
Eileen Shapiro and Steven Mintz, the two people named as Lumen executives in the countersuit, couldn’t be reached for comment. But the legal documents filed in the case offer a rare window into workings of a litigious patent holder—widely known as trolls by critics—and the intimidating impact on startups facing the prospect of massive legal costs.
The Lumen-controlled patent in question relates to collecting user preferences and matching users through that data. FindTheBest denies violating the patent and argues that Lumen’s executives don’t seem to care either way. Instead, according to a court filing, Lumen insisted that FindTheBest offer its own account of just how the shopping website violates the patent in question and makes money from those infractions. The language in Lumen’s court filing is nearly identical to similar claims lodged against other companies, as FindTheBest argues in its own complaint:
This is often enough to get companies to fold, according to Julie Samuels, a lawyer focused on patent issues for the Electronic Frontier Foundation who isn’t directly involved in the case. Settlements or license fees demanded are in the tens of thousands of dollars, while prospective court costs can quickly hit seven digits. FindTheBest projected that its legal fees will reach about $1 million. And when the startup didn’t agree to an immediate settlement, Lumen threatened to raise the amount of money it would seek in court, according to a letter sent from Lumen to FindTheBest (PDF):
Lumen’s letter also demanded that FindTheBest prepare for intense scrutiny of its business practices, saying that the company should be ready to hand over pretty much every piece of information it generates as a business, as well as personal communications of employees that have no direct connection to the case:
Making unbelievably broad demands for information is a common tactic among patent trolls, Samuels notes, since the discovery process that goes along with a legal battle is scary and potentially expensive. One thing such sweeping discovery doesn’t seem intended to do is build a stronger court case. Despite bluster about preparing for “full-scale litigation,” Lumen appeared uninterested in taking the patent dispute to court, according to FindTheBest’s complaint. As it seemed more likely that such a day might come, Lumen found itself in more of a bargaining mood:
This starts to seem like a good deal to a company in FindTheBest’s situation. The prospect of a protracted lawsuit will distract from the the struggle to stay afloat, a big enough task for a startup. But Lumen and a string of other connected companies used to pursue patent litigation in this case, have very little to lose—a disparity FindTheBest emphasized in its own complaint:
If FindTheBest is successful, Samuels warns that it could slow the rush of patent lawsuits by intimidating those who file them and by giving targets a proven tool. Other technology companies have attempted to use RICO to combat patent litigation, but none have triumphed so far.
In addition to lawsuits, increasing energy is coming from federal lawmakers to upend the status quo in the patent world. Six different bills currently in congress would address patent lawsuits by forcing the loser of litigation to pay for the winner’s legal fees, limiting the amount of discovery, and increasing the amount of transparency surrounding patent lawsuits. Of course, waiting for Congress to act is not the best-paved route to satisfaction. In the meantime, there’s a lot to gain by filing a patent lawsuit and not much to gain by contesting one.
“Even if you win defending yourself, you often won’t see any of that money back,” says Samuels. “You’ll get a piece of paper which says you won, which is great, but you see why many companies shy away.”