Company Takes A Fair Shot At Facebook, LinkedIn, With Social Networking PatentsPublished on 15 January 2013 @ 9:17 pm
By William New, Intellectual Property Watch
A Virginia-based company in the midst of a multi-million dollar merger is asserting patents on fundamental aspects of social networking it says have been infringed by Facebook, LinkedIn and three other companies. But even if the patents have validity, they come at a time of what may be a backlash against such lawsuits.
Bascom Research, part of the Lexington Technology Group (LTG), holds several longstanding, broad-based patents that it says underlie basic social networking functions and that are being infringed. The patents were recently purchased by LTG, which might be considered a non-practising entity, or patent troll.
Deep-pocketed Facebook may seem like an increasingly common target for lawsuits, but there are a number of reasons not to take these lawsuits lightly.
For one, Lexington is taking a series of steps that show the seriousness of its intent, including hiring top experts at patent monetization and lawsuits, and the patents themselves are fundamental and predate the rise of social networking.
In general, Lexington has embarked on a more aggressive approach to licensing and patent assertion but seems to be taking care to distinguish itself from traditional patent trolls, which could help it in the courts. The company is organizing its patent portfolios for monetization, and has moved ahead with the five high-profile social media suits as a first step in its strategy.
LTG acquired the patent assets from Thomas Bascom, president of LinkSpace, which developed the patents. Bascom Research, the IP licensing company for Bascom and a wholly-owned subsidiary of Lexington Technology Group, Inc., filed patent infringement lawsuits against five social and business networking companies, including Facebook, LinkedIn, Jive Software, BroadVision, and Novell, in the United States District Court for the Eastern District of Virginia.
Analysts put the potential value of the cases at $1 billion, based on average licensing fees, the level of earnings of the target companies, and the length of time since the infringing activity began.
Bascom’s patents reach back to 2001, well before the creation of Facebook and the other social networking sites, and they have been referenced in a variety of other patent applications, including by major firms like IBM. The Bascom patents are valid until 2021 or later, the company said.
The patents cover “the manner in which users and application developers on the Facebook platform make connections between ‘objects’ such as photos, people, events and pages – which is the very essence of Facebook’s business,” LTG said in a release.
The suits were initially filed in the United States District Court for the Eastern District of Virginia, which is sometimes called the “rocket docket” for being the fastest district courts for taking a lawsuit from filing to trial. But in December, the Virginia court transferred the case to the District Court of the Northern District of California.
Company officials had played up the advantage of filing in Virginia but had also said a shift in venue should not make a significant difference in the case, which it hopes will go to trial by the late in the year. The Northern California District Court is the typical venue for high-tech cases, but it is not discernible whether they would be expected to favour a large Silicon Valley company in a patent lawsuit.
“We believe that Tom Bascom’s patented technology laid the groundwork for social networking years before the advent of Facebook or LinkedIn, and the transfer to California may affect the timing, but not the substance of the case,” Lexington Chief Operating Officer Peter Hardigan said in a release. “We will pursue our investment in Bascom vigorously in any jurisdiction.”
The four Bascom patents that are the subject of the lawsuit are:
- U.S. Patent No. 7,111,232 (“the ‘232 Patent”), entitled METHOD AND SYSTEM FOR MAKING DOCUMENT OBJECTS AVAILABLE TO USERS OF A NETWORK
- U.S. Patent No. 7,139,974 (“the ‘974 Patent”), entitled FRAMEWORK FOR MANAGING DOCUMENT OBJECTS STORED ON A NETWOR
- U.S. Patent No. 7,389,241 (“the ‘241 Patent”), entitled METHOD FOR USERS OF A NETWORK TO PROVIDE OTHER USERS WITH ACCESS TO LINK RELATIONSHIPS BETWEEN DOCUMENTS
- U.S. Patent No. 7,158,971 (“the ‘971 Patent”), entitled METHOD FOR SEARCHING DOCUMENT OBJECTS ON A NETWORK
The filed summons for each defendant are:
The Bascom patents are rather broadly worded and would face a test in court of whether they are valid, representing a true innovation at the time. The general view is that courts in the United States have begun swinging toward “innovation-friendly” decisions, somewhat less inclined to support every patent they see. Public opinion of “trolls” is lower than ever, and members of Congress have begun introducing legislation to curb activities of patent trolls. That said, clearly a well-made argument would still be expected to prevail in any legitimate court.
The Bascom patents have not been licensed, according to company officials.
The LTG litigation and licensing team includes law firm Kramer Levin Naftalis & Frankel, one of the top patent litigation firms nationally.
Kramer Levin is on board in the LTG case on a contingency basis, which should provide impetus for it to get results, as it will have to invest resources to litigate the case but does not get paid unless they win.
LTG may be smaller than its adversaries in the patent cases, but it has the financial resources carry it through the potentially expensive lawsuit against big companies like Facebook and LinkedIn, LTG managers told investors in a recent conference call. “We’re in it for the long haul,” said one official, noting that the funds for the lawsuit are already in place. Most cases settle before the launch of the court proceedings.
LTG said that it views litigation as the least favourable option (because of time and expense) but proceeding in that direction is necessary in order to get to a deal.
Facebook Well-Armed but Not Infallible
Facebook is increasingly becoming engaged in the patent wars, both on defense and on offense. In the past year, it filed and bought hundreds of patents in order to arm itself against lawsuits, and demonstrated its aggressive stance in using its newly acquired patents to countersue Yahoo! early last year.
Yahoo! launched a war in March 2012 when it sued Facebook for patent infringement, alleging that “Facebook’s entire social network model, which allows users to create profiles for and connect with, among other things, persons and businesses, is based on Yahoo!’s patented social networking technology.”
Facebook vowed to fight the case and – also in March – acquired 750 patents from IBM. Facebook’s patent portfolio had only consisted of 56 issued patents and 503 applications at the end of 2011, according to a report on a filing with the Securities and Exchange Commission.
Facebook then paid $550 million dollars to Microsoft in April 2012 for 650 patents and patent applications and license to an additional 275 patents and applications. Yahoo! and Facebook settled the case in July.
The AOL auction included technology rights from AOL’s current and former businesses, ranging from Web browser Netscape and instant messaging service ICQ to MapQuest and early online service CompuServe, according to news reports. Some of the patents date back to 2004. The patents Microsoft collected cover a broad range of technology, including mobile services, mobile phone handsets, advertising and e-commerce. It is unclear which specific patents transferred to Facebook might relate to the LTG case.
There are other recent patent infringement lawsuits against Facebook. In one case, Facebook came out on top against Leader Technologies case brought against it, and a number of Leader’s patents were ruled invalid. Perhaps a sign, Kramer Levin tried to bring the case to the Supreme Court, but case was declined on January 7th. Officers and lawyers from Leader indicated they will continue trying via other tacks, according to reports.
But Facebook also has lost or settled a number of recent cases, with settlements in the tens of millions of dollars. Some involve treatment of users’ information or privacy. In a September decision. Facebook was ordered to pay millions in compensation to a group of users for disclosure of confidential information, according to a report. Other big losses involved users’ ability to control Facebook’s use of their data. This includes a finding last March by the German government that it had violated user privacy by using their emails to solicit new users.
And the company paid $65 million to the twin brothers who had claimed the Facebook founder Mark Zuckerberg stole their idea back in college.
In another recently filed case, Texas-based Eolas Technologies Inc., which was set up to assert patents on behalf of the University of California, filed a complaint against Facebook in the Eastern District of Texas in September. It involves patent No. 5,838,906, which covers a “distributed hypermedia method for automatically invoking an external application providing interaction and display of embedded objects within a hypermedia document,” as well as patents No. 7,599,985; No. 8,082,293; and No. 8,086,662 – all of which pertain to a “distributed hypermedia method and system for automatically invoking an external application providing interaction and display of embedded objects within a hypermedia document.”
According to one news report, the university argued that the patents were intended for public use and anyone using them for commercial purposes should pay licensing fees. But two of the cited patents were previously declared invalid by a Texas jury in a separate case against Amazon, Google and Yahoo!. Facebook vowed to fight the case, the report said. Eolas has been the target of criticism for functioning as a patent troll, which juries may look upon unfavourably.
Another patent infringement case against Facebook was also filed in March 2012, by Canadian unified communications solutions company Mitel Networks. Two patents were cited, and the company was seeking damages, according to a report. The patents are:
- U.S. Patent No. 5940834 — “ Automatic web page generator”
- U.S. Patent No. 7292685 — “ Pro-active features for telephony”
According to reports, Facebook used its former AOL patents to countersue Mitel in August.
The other companies named in the LTG suits are likely not as well equipped, but none should be strangers to patent battles.
LTG’s Team of IP Experts
On October 2nd, at the same time as the patent lawsuits were announced, Lexington and Document Security Systems (NYSE MKT: DSS) announced a merger, bringing together DSS’ operations in anti-counterfeiting, authentication, and mass-serialization technologies, with the financial and IP expertise of Lexington. DSS has major clients worldwide and plans to continue developing new technologies. Under the merger, awaiting shareholder approval this spring, Lexington will take over management of the newly formed company. DSS has a high-stakes patent infringement lawsuit pending with Coupons.com, the online coupon giant.
LTG has hired IP Navigation Group (IPNav), a patent monetization firm that is on the lookout for opportunities for the company, and brought on several IPNav executives. IPNav has over 700 settlements and brought in over $600 million for its clients in recent years.
The companies made senior management shifts and further boosted their IP expertise with a team of highly experienced experts who have successfully led significant patent cases in the past. The team includes newly named CEO Jeff Ronaldi, a veteran of 25 years of growing companies including Turtle Bay, where as CEO he drove the company’s investment of some $50 million in various patent portfolios. Ronaldi has realized more than $160 million in return for $12 million in patent investments over the past two decades, LTG said in a release. In 2012 , LTG said, he was behind Shelbyzyme’s $50 million verdict against Genzyme, and a $20 million willful infringement verdict against Citrix Systems. At a previous venture capital company he managed patent infringement litigation against Microsoft that resulted in a $62 million verdict.
Ronaldi, whose history includes managing startups and fast-growth companies (e.g., he helped UUNET – now Verizon – to go public) said he joined because he was attracted by the quality of the patent portfolio. He also said the move brings together his expertise in technology development and IP monetization.
Rinaldi is not a patent attorney but rather a finance specialist, but his track record stands. “I have never had a losing patent investment,” he told a recent call with investors, adding that he expects this one to continue that record.
The team also includes Will Rosselini, former CEO of medical device developer MicroTransponder, and a scientific advisor for IPNav, which specializes in monetizing patents. Rosselini moves from CEO of Lexington to an advisor at LTG’s Bascom Research subsidiary. Peter Hardigan, the chief operating officer at LTG and former CFO and head of investment management at IPNav, becomes the chief investment officer of DSS. Board member Warren Hurwitz is a co-founder of Altitude Capital Partners, an intellectual property private equity partnership that has won awards from the likes of Research in Motion, eBay, and Nokia, according to a report. Meanwhile, Thomas Bascom is now chief technology officer of both Bascom Research and LTG.
In sum, Lexington has reason to be hopeful that its strategy will prevail in the patent cases it has brought, and to bring rewards for years to come. It has methodically taken the contemporary steps necessary to put up a solid front, holding potentially solid patents and subjecting them under tough scrutiny beforehand, building top-flight patent management and legal teams, lining up substantial backing, and maintaining an operational side of the business for balance and future growth.
“We believe that 2012 is the start of the patent age,” a Lexington official said. And this company is becoming well-positioned for the ride.
William New may be reached at email@example.com.