ip edge – Techdirt (original) (raw)

Judge’s Investigation Into Patent Troll Results In Criminal Referrals

from the patent-trolling-is-a-crime dept

In 2022, three companies with strange names and no clear business purpose beyond patent litigation filed dozens of lawsuits in Delaware federal court, accusing businesses of all sizes of patent infringement. Some of these complaints claimed patent rights over basic aspects of modern life; one, for example, involved a patent that pertains to the process of clocking in to work through an app.

These companies – named Mellaconic IP, Backertop Licensing, and Nimitz Technologies – seemed to be typical examples of “patent trolls,” companies whose primary business is suing others over patents or demanding licensing fees rather than providing actual products or services.

However, the cases soon took an unusual turn. The Delaware federal judge overseeing the cases, U.S. District Judge Colm Connolly, sought more information about the patents and their ownership. One of the alleged owners was a food-truck operator who had been promised “passive income,” but was entitled to only a small portion of any revenue generated from the lawsuits. Another owner was the spouse of an attorney at IP Edge, the patent-assertion company linked to all three LLCs.

Following an extensive investigation, the judge determined that attorneys associated with these shell companies had violated legal ethics rules. He pointed out that the attorneys may have misled Hau Bui, the food-truck owner, about his potential liability in the case. Judge Connolly wrote:

[T]he disparity in legal sophistication between Mr. Bui and the IP Edge and Mavexar actors who dealt with him underscore that counsel’s failures to comply with the Model Rules of Professional Conduct while representing Mr. Bui and his LLC in the Mellaconic cases are not merely technical or academic.

Judge Connolly also concluded that IP Edge, the patent-assertion company behind hundreds of patent lawsuits and linked to the three LLCs, was the “de facto owner” of the patents asserted in his court, but that it attempted to hide its involvement. He wrote, “IP Edge, however, has gone to great lengths to hide the ‘we’ from the world,” with “we” referring to IP Edge. Connolly further noted, “IP Edge arranged for the patents to be assigned to LLCs it formed under the names of relatively unsophisticated individuals recruited by [IP Edge office manager] Linh Deitz.”

The judge referred three IP Edge attorneys to the Supreme Court of Texas’ Unauthorized Practice of Law Committee for engaging in “unauthorized practices of law in Texas.” Judge Connolly also sent a letter to the Department of Justice, suggesting an investigation into “individuals associated with IP Edge LLC and its affiliate Maxevar LLC.”

Patent Trolls Tried To Shut Down This Investigation

The attorneys involved in this wild patent trolling scheme challenged Judge Connolly’s authority to proceed with his investigation. However, because transparency in federal courts is essential and applicable to all parties, including patent assertion entities, EFF and two other patent reform groups filed a brief in support of the judge’s investigation. The brief argued that “[t]he public has a right—and need—to know who is controlling and benefiting from litigation in publicly-funded courts.” Companies targeted by the patent trolls, as well as the Chamber of Commerce, filed their own briefs supporting the investigation.

The appeals court sided with us, upholding Judge Connolly’s authority to proceed, which led to the referral of the involved attorneys to the disciplinary counsel of their respective bar associations.

After this damning ruling, one of the patent troll companies and its alleged owner made a final effort at appealing this outcome. In July of this year, the U.S. Court of Appeals for the Federal Circuit ruled that investigating Backertop Licensing LLC and ordering its alleged owner to testify was “an appropriate means to investigate potential misconduct involving Backertop.”

In EFF’s view, these types of investigations into the murky world of patent trolling are not only appropriate but should happen more often. Now that the appeals court has ruled, let’s take a look at what we learned about the patent trolls in this case.

Patent Troll Entities Linked To French Government

One of the patent trolling entities, Nimitz Technologies LLC, asserted a single patent, U.S. Patent No. 7,848,328, against 11 companies. When the judge required Nimitz’s supposed owner, a man named Mark Hall, to testify in court, Hall could not describe anything about the patent or explain how Nimitz acquired it. He didn’t even know the name of the patent (“Broadcast Content Encapsulation”). When asked what technology was covered by the patent, he said, “I haven’t reviewed it enough to know,” and when asked how he paid for the patent, Hall replied, “no money exchanged hands.”

The exchange between Hall and Judge Connolly went as follows:

Q. So how do you come to own something if you never paid for it with money?

A. I wouldn’t be able to explain it very well. That would be a better question for Mavexar.

Q. Well, you’re the owner?

A. Correct.

Q. How do you know you’re the owner if you didn’t pay anything for the patent?

A. Because I have the paperwork that says I’m the owner.

(Nov. 27, 2023 Opinion, pages 8-9.)

The Nimitz patent originated from the Finnish cell phone company Nokia, which later assigned it and several other patents to France Brevets, a French sovereign investment fund, in 2013. France Brevets, in turn, assigned the patent to a US company called Burley Licensing LLC, an entity linked to IP Edge, in 2021. Hau Bui (the food truck owner) signed on behalf of Burley, and Didier Patry, then the CEO of France Brevets, signed on behalf of the French fund.

France Brevets was an investment fund formed in 2009 with €100 million in seed money from the French government to manage intellectual property. France Brevets was set to receive 35% of any revenue related to “monetizing and enforcement” of the patent, with Burley agreeing to file at least one patent infringement lawsuit within a year, and collect a “total minimum Gross Revenue of US $100,000” within 24 months, or the patent rights would be given back to France Brevets.

Burley Licensing LLC, run by IP Edge personnel, then created Nimitz Technologies LLC— a company with no assets except for the single patent. They obtained a mailing address for it from a Staples in Frisco, Texas, and assigned the patent to the LLC in August 2021, while the obligations to France Brevets remained unchanged until the fund shut down in 2022.

The Bigger Picture

It’s troubling that patent lawsuits are often funded by entities with no genuine interest in innovation, such as private equity firms. However, it’s even more concerning when foreign government-backed organizations like France Brevets manipulate the US patent system for profit. In this case, a Finnish company sold its patents to a French government fund, which used US-based IP lawyers to file baseless lawsuits against American companies, including well-known establishments like Reddit and Bloomberg, as well as smaller ones like Tastemade and Skillshare.

Judges should enforce rules requiring transparency about third-party funding in patent lawsuits. When ownership is unclear, it’s appropriate to insist that the real owners show up and testify—before dragging dozens of companies into court over dubious software patents.

Reposted from the EFF’s Deeplinks blog.

Filed Under: cafc, colm connolly, patent trolling, patents, scams, shakedowns
Companies: backertop licensing, ip edge, lamplight licensing, mellaconic ip, nimitz technologies

Stupid Patent Of The Month: Clocking In To Work—On An App

from the are-the-owners-of-this-patent-clocking-in? dept

What if we told you the Stupid Patent of the Month has a sponsor, but we don’t know who it is? That would seem shady, wouldn’t it?

This month’s stupid patent, U.S. Patent No. 9,986,435, was brought to you—to all of us, really—from the murky depths of the litigation finance industry. Originally assigned to a shell company linked to giant patent troll Intellectual Ventures, this patent was sold off and is now in the hands of Mellaconic IP LLC, a recently-created Texas shell company. Mellaconic has sued more than 40 companies over claims that a vast array of HR software infringes their patent.

Here is Mellaconic’s key patent claim:

1. A method to perform an action, comprising:

receiving, by a first device located at a first geographical location, one or more messages that indicate geographical location information of a second device located at a second geographical location, and

include a request for a first action to be performed by the first device, wherein the one or more messages are received from the second device, and wherein the geographical location information of the second device acts as authentication to allow the first action to be performed by the first device; and

autonomously performing, based at least on the received one or more messages, by the first device, the authenticated first action.

In other words: A device receives a request from a second device to take action. That action may or may not be performed, depending on the location of the second device.

Mellaconic’s lawyers say this applies to something hourly workers do every week: clock in and clock out of their jobs. Even though their patent doesn’t even discuss clocking in—and despite the fact that clocking in has happened since, well, clocks—they’ve sued a huge swathe of U.S.-based companies that market human resources and payroll software.

For instance, they sued Paychex, saying that the Paychex server is the first device, and the second device is a mobile user with the Paychex Flex app, which, like many HR apps, allows for clocking in and out of a job. Same thing for Hi Bob, a smaller HR company that Mellaconic sued in August. They’ve repeated this allegation—that clocking in (but with an app!) equals infringement of their patent, which means the companies owe money to the people behind Mellaconic.

Who’s Making Money From This Patent?

Mellaconic, like so many patent trolls, has been able to hide its true beneficiaries. Most of the 40 companies that Mellaconic sued have likely paid to settle, because their cases ended within a few months, before any significant hearings. That suggests many defendants settled for less than the hundreds of thousands (potentially even millions) of dollars that it would have cost to fight off this stupid patent.

Unusually in this case, a Delaware federal judge overseeing some of Mellaconic’s cases has insisted that the supposed owner come to testify in court. That’s what led Hau Bui, a Texas restaurateur and food-truck owner who says he owns Mellaconic, to travel to Delaware in November and testify under oath in federal court.

But Hau Bui has now said under oath (see transcript p. 87) that he hasn’t paid anything for Mellaconic’s patent, nor the other patents it hasn’t yet sued over. He hasn’t paid anything to Mellaconic’s lawyers (p. 96), or any other litigation expenses. And Bui said he only collects 5 percent of Mellaconic’s settlement money (p. 91), which has amounted to about $11,000 (p. 98).

Bui was promised this “passive income” stream by Linh Dietz, a person whose name has come up at every stage of the Delaware investigation, and is linked to IP Edge, a large-scale patent troll. Every supposed “owner” of the patent troll entities who have testified in Delaware acquired their patents, for free, by talking to Dietz and signing paperwork she provided.

Patent Trolls Have A Growing Network of Secret Funders

IP Edge is far from the only player in the vast world of patent trolling, which continues to account for the great majority of patent lawsuits against tech companies—more than 88% in 2022. Why do these lawsuits keep coming even while overall patent litigation is going down?

In part, it’s because there is nothing stopping aggressive litigation finance from paying out money to fund patent lawsuits, in the hopes that “investing” in a broad campaign of patent lawsuits will pay off a big return. Unified Patents, a company that sells patent defense services, recently estimated that about 30% of all patent lawsuits are now backed by third-party financing.

That’s one reason why EFF, along with other public interest groups, filed a brief stating that the Delaware investigation must be allowed to continue. The lawyers working for Mellaconic and related shell companies are doing everything they can to shut it down. They appealed to the Federal Circuit, twice, and were rejected both times.

The public deserves to know more about patent trolls that are using our public courts to seek rents for innovations they had nothing to do with. That’s especially true as litigation finance helps spread lawsuits over patented “inventions” like clocking in on an app.

Reposted from the EFF’s Stupid Patent of the Month series.

Filed Under: hau bui, linh dietz, litigation finance, patent finance, patent trolls, patents, secrecy, shakedown, transparency
Companies: hi bob, ip edge, mellaconic, paychex