When Patents Attack ... Part Two!
This story from Planet Money's Alex Blumberg and NPR's Laura Sydell aired this weekend on This American Life. A shorter version of the piece is also airing today on All Things Considered. Here's the story.
Two years ago we brought you the story of Nathan Myhrvold and his company Intellectual Ventures. Myhrvold, a former chief technology officer at Microsoft, called the business "a company that invests in invention," but in Silicon Valley it has a different reputation. The influential blog Techdirt regularly refers to Intellectual Ventures as a patent troll. Techdirt and other technology blogs have written about how Intellectual Ventures uses its large patent portfolio to demand license fees from technology companies.
Intellectual Ventures told us if we wanted to understand what the company was all about, we should talk to this inventor it had helped out, a patent holder named Chris Crawford.
When we tried to contact Crawford, he didn't return any phone calls. He didn't return emails. His patents are now in the hands of a company called Oasis Research, and the patents were being used to sue more than a dozen different tech businesses.
Oasis Research has no researchers and no employees of any kind that we could find. Its only place of business seemed to be an empty office in a corridor of empty offices in a small town in Texas.
We had a lot of questions about Chris Crawford and Oasis Research, but because of the secretive nature of these lawsuits, there were basic questions we could not answer. Now, two years later, the litigation is over, and it has given us a rare look inside this world. Here's what we've learned:
Originally, there were 18 tech companies that Oasis claimed were infringing on Chris Crawford's patents. But that pool got smaller and smaller as companies decided to just cut a deal with Oasis and pay a licensing fee.
At a certain point, an online backup company called Carbonite was one of just two companies remaining in the case. The other company was EMC. (Full disclosure: Carbonite is an underwriter of NPR news programs.)
Carbonite CEO David Friend says it was tough to be one of the last men standing, especially when the company's lawyers kept encouraging Friend to settle.
Defending a patent case is really difficult because explaining technology and patents to a jury is a big challenge, so lawyers for Carbonite and EMC pursued a second strategy as well. If they could demonstrate that the inventor wasn't telling the truth when he filled out the patent application, the patent could be invalidated. So the lawyers for Carbonite and EMC started to dig into Crawford's past looking for evidence of this.
One of the first places they went looking was the company where Crawford was working at the time he claimed to have come up with his ideas. They found Crawford's old boss, Chuck Campos. Campos told them he was around when the ideas in the patents were developed, and that they weren't only Crawford's ideas.
Campos told the lawyers that the ideas mainly came from two other guys, Jack Byrd and Don Atwood. Byrd and Atwood were developing software together in 1990, and they wanted to come up with a secure way to back up their work. The only way to do that at the time was to download the work to floppy disk drives, but Byrd and Atwood thought there had to be a better way. They started a company to use phone modems to back up data remotely. They hired Campos and Crawford to help them.
The four men agreed to split ownership four ways, and Byrd named the new company PC Oasis. The "oasis" part of that name was an acronym — short for Offsite Archival Software and Information Server.
They met on Saturdays to discuss setting up the business, but they couldn't figure out a way to get it up and running using the technology available in the early '90s — phone lines and modems. So, they disbanded the company and went their separate ways.
It was the end of Oasis for Bryd, Atwood and Campos, but not for Crawford. Crawford had kept detailed notes of those Saturday meetings, and a couple of years later, he filed patents based on those notes.
Carbonite's chief counsel Danielle Sheer says Crawford then sold those patents to a company called Kwon Holdings for $12 million and a percentage of royalties that the next owner collects.
Sheer says that Byrd, Atwood and Campos knew "nothing about what Chris Crawford is doing. Nothing at all."
A decade later, those patents ended up the property of another company with Oasis in the name, Oasis Research, a company that pays Crawford a portion of the money it collects from the patents.
If Crawford's three former business partners had also developed the ideas, they should have been, at the very least, listed as co-inventors on Crawford's original patent applications. This was the smoking gun the lawyers had been looking for, but they weren't sure it would be enough to convince a jury. At the trial, it would still be just the word of Byrd, Atwood and Campos against Crawford's.
The lawyers wanted proof. They found it in the form of one sentence among thousands of pages that Crawford submitted to the patent office. The sentence was this:
"This proposal it is in response to Jack Byrd's idea to provide automated offsite backup services for PC users."
The lawyers for Carbonite and EMC argued that was conclusive evidence that Crawford's patents were based on Byrd's idea. At a videotaped deposition Crawford gave as part of the Oasis trial, he offered up a surprising defense. He argued that the sentence didn't actually mean the idea was Byrd's, because he, Crawford, had used the apostrophe "s" incorrectly.
"I'm asking you, though — you certainly know what the use of an apostrophe 's' means, do you not?"
"As I've written documents over the years, there are times when I use an apostrophe 's,' and it seems like I'm supposed to use an apostrophe 's.' But I have to say that my grammar is not strong enough to tell you right now with clarity when an apostrophe 's' is used."
His explanation apparently did not convince the jury, which concluded that the patents were indeed invalid for failing to name the correct co-inventors. Carbonite won, and yet its lawyers say the victory just shows how difficult it is for a company to defend itself against a patent infringement claim.
The jury concluded that Byrd should have been listed as a co-inventor, but not Campos and Atwood, the other men who testified under oath that they too had been involved in developing the ideas. Only Byrd's name had been on that document, so only Byrd got credit from the jury as a co-inventor. Lawyers for Carbonite believe that if not for that document mentioning Byrd, the jury might not have invalidated Crawford's patent, and Carbonite might have ended up paying damages.
For the 16 companies that did settle with Oasis, the verdict may not change anything. In most cases these licensing agreements have language that makes them nearly impossible to get out of — no matter what happens with the patent.
A spokesman for one of the companies that settled sent us an email saying:
"We were hit hard by this lawsuit. Infringement on our part seemed completely bogus, but we could not afford to fight it. Even with the settlement, we were forced to lay off employees. We are STILL paying out on the settlement agreement. We were unaware that the patent had been invalidated. We will be contacting our attorney to see what recourse we may have."
It's unknown how much money Oasis received from those licensing arrangements. We do know how much it wanted from Carbonite. Danielle Sheer said Oasis proposed a $20 million license fee plus a portion of revenue going forward.
Tom Ewing, an intellectual property lawyer who studies patent infringement cases, says, assuming Oasis was asking for settlements in rough proportion to the size of the company being targeted, a pretty good estimate of its total take "might be in excess of $100 million."
Who gets that money?
Because of documents filed with the court, we now know that Intellectual Ventures, owned by Nathan Myhrvold, gets 90 percent of Oasis Research's net profit. Intellectual Ventures sold Crawford's patents to Oasis on this condition.
And Crawford didn't make out too badly, either. The documents say he gets 17 1/2 percent of the money that Intellectual Ventures makes.
This kind of money makes the business of suing based on patents a very lucrative one, and it's getting easier. Every year more patents are issued than the year before. According to a Yale study, it's a hundred software patents a day.
"It took 121 years for us to get the first million patents," says Ewing. "Now it takes, more or less, six years to get another million patents."
On Tuesday morning, the Obama administration announced it would be taking action against what it termed "abusive" patent lawsuits. You can read more about that in our post detailing what the administration is proposing.
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