litigation finance – Techdirt (original) (raw)

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

from the this-is-fine dept

Techdirt first wrote about corporate sovereignty four years ago — although we only came up with that name about a year later. Since then, a hitherto obscure aspect of trade deals has become one of the most contentious issues in international relations. Indeed, the investor-state dispute settlement (ISDS) measures in both TPP and TTIP played an important part in galvanizing resistance to these so-called “trade” deals, and thus in their defeat, at least for the moment (never say “never“.)

Corporate sovereignty may be a tough sell in new trade deals, but it is still lurking in plenty of existing agreements. For example, a post on the Sierra Club blog points out that two countries, Colombia and Romania, are being sued using ISDS clauses because of their refusal to issue mining permits:

Both mines would require huge quantities of cyanide and threaten watersheds used by millions of people for drinking water. One would damage a unique, legally protected ecosystem and the other would destroy an ancient, UNESCO-nominated settlement. Both have been opposed by scientific bodies, protested by tens of thousands of people, and restricted by domestic courts.

The use of corporate sovereignty to trump health and environmental concerns is nothing new. What is noteworthy here is the following:

Both ISDS claims are being funded by the same Wall Street hedge fund — Tenor Capital Management. Tenor helps cover the companies’ legal costs in exchange for a cut of any award. These speculative ISDS bets have already paid off for Tenor. The hedge fund won big in April 2016 when it secured 35 percent of a 1.4billionISDSrulingagainstVenezuela,areturnofover1,000percentonthe1.4 billion ISDS ruling against Venezuela, a return of over 1,000 percent on the 1.4billionISDSrulingagainstVenezuela,areturnofover1,000percentonthe36 million that Tenor had provided for the legal costs of the company that brought the case.

That is, the rewards of winning a corporate sovereignty case are so great that hedge funds are starting to fund them speculatively with no direct connection to the ISDS dispute other than providing money to initiate and pursue the claim. As the Sierra Club points out:

The risks of such arrangements, known as “third-party funding,” are clear: When Wall Street speculates on the outcome of ISDS cases, it inflates the number of corporate suits against governments, leading to higher costs for taxpayers and higher risks for policymakers that challenge harmful investments.

Doubtless, defenders of the corporate sovereignty system will claim that the hedge fund’s willingness to invest money is actually a good thing, since it means that even impecunious companies can enjoy their “right” to sue a government. But the new interest of Wall Street in ISDS underlines the unfair asymmetry of the system:

Because only corporations, not governments, can launch ISDS cases, governments have no equivalent funding sources, as they have no potential winnings to leverage. In Costa Rica — which is also on the receiving end of a third-party-funded ISDS case relating to an environmentally destructive gold mine — the Attorney General’s office has an annual budget of only 17million.InBolivia—oneofthepoorestcountriesintheWesternHemisphere,whichfacesathird−party−fundedISDScaserelatingtoasilvermine—theAttorneyGeneral’sofficehasabudgetof17 million. In Bolivia — one of the poorest countries in the Western Hemisphere, which faces a third-party-funded ISDS case relating to a silver mine — the Attorney General’s office has a budget of 17million.InBolivia—oneofthepoorestcountriesintheWesternHemisphere,whichfacesathird−party−fundedISDScaserelatingtoasilvermine—theAttorneyGeneral’sofficehasabudgetof12 million.

This is a crucially-important point about corporate sovereignty: governments never win ISDS cases; at best, they just don’t lose them. All the upside is with the corporates that bring the claim, and all the downside with nations that are defending their actions and regulations. The new wave of third-party funding will accentuate that skewed nature, and make corporate sovereignty even more of a scourge than it is today, regardless of whether it is ever included again in any new deal.

Follow me @glynmoody on Twitter or identi.ca, and +glynmoody on Google+

Filed Under: corporate sovereignty, isds, litigation finance, nafta, wall street