sham – Techdirt (original) (raw)

Judge Takes On Patent Troll With 'Sham Employee'; Forces Troll To Defend Practice Before A Jury

from the go-get-'em dept

One of the best “scenes” in This American Life’s awesome “When Patents Attack” episode from a couple of years ago, was when the reporters went to a building in East Texas that was “home” to a bunch of patent trolls, and tried knocking on doors, noting that there appeared to be no lights on in any “office” nor any indication that anyone ever actually came to those offices. It would appear that at least one judge is recognizing that setting up sham companies to shake others down via patents may have some legal issues. Judge William Alsup is no stranger to getting a detailed understanding of what’s really going on in intellectual property cases. After all he’s the same judge who has experience writing code who handled the massive Oracle v. Google patent and copyright case, in which he showed a thorough understanding of the underlying issues.

So it’s not surprising to find out that he’s taking on a patent trolling operation, in part calling attention to their “sham” operation and “sham” employee. Alsup was clearly influenced by the NY Times op-ed that the chief judge of the Court of Appeals for the Federal Circuit (CAFC), Randall Rader co-wrote a few months ago, arguing that district court judges should look for patent trolls that are abusing the system. Judge Alsup quotes that op-ed at length, and then digs in to show exactly how the patent trolling operation Network Protection Sciences works, along with various related patent troll shell companies set up by “Innovation Management Sciences LLC.” These were all put together (like so many patent trolling firms) by some patent lawyers who realized it was more lucrative to become patent trolls themselves. In this case, the lawyers are California-based Rakesh Ramde and Wilfred Lam. As Alsup notes, they’ve filed at least a dozen lawsuits against at least 40 companies.

The whole ruling is well worth reading (it’s only 14 pages), as it details the basic sham setup of one of those “empty offices” in east Texas. In this case, the legal issue concerns the timing of the transfer of the patent being used in this case (against security firm Fortinet) between different trolling entities (all under the IMS banner). And one of the things that comes out is that the “single employee” of NPS is listed as Gregory Cuke, who is described as the “director of business development.” Back in reality, Alsup points out that in Cuke’s deposition, he admits that he’s not actually the director of business development, but is actually a real estate broker for various office buildings — and is the landlord for the nearly empty one-room “office” that NPS claims is its home base. But, every so often, he’s asked to sign various legal documents and he does so.

NPS has repeatedly represented to the Court that it has a single employee, Gregory Cuke, its “director of business development” (see, Dkt. No. 65 at 1). The record, however, shows that this individual has no actual involvement with NPS day-to-day business, even assuming that any such business takes place. Although Cuke agrees he has performed a few token hours of work for NPS, he denies being its “director of business development,” denies having any knowledge of what NPS’s day-to-day business is, and denies being an NPS employee (Cuke Dep. 11, 20-21, 38, 56-57). Aside from his alleged employment, Cuke is simply NPS’s landlord: Cuke is a real estate broker for commercial properties in east Texas and nuns a company that subleases a one-room office to NPS (Cuke Dep. 31).

NPS has repeatedly represented that it is ”headquartered” in Suite 302 at 3301 West Marshall Avenue in Longview, Texas. According to Cuke, however, this “headquarters” office is a tiny, windowless, file-cabinet room, without a phone or even chairs (Cuke Dep. 62, 66). There are no on-site employees. The rent for the office space is 325permonth;NPSsubleasesthespacefor325 per month; NPS subleases the space for 325permonth;NPSsubleasesthespacefor100 per month from another entity owned by Ramde and Lam that appears to share the same address (id. at 64; Ramde Decl. Exh. 2). The office contains a single computer which Cuke has never seen turned on (Cuke Dep. at 62).

While Alsup agrees to hold a trial concerning the key issue of whether or not NPS actually owned the patent at the date of the lawsuit (because Cuke hadn’t yet signed the sale-and-assignment agreement finalizing the deal at the time of the filing), he does start to ask some significant questions about NPS and what Ramde and Lam are up to, exploring whether or not NPS is engaged in litigation misconduct. First, Alsup dings NPS (and specifically Ramde and Lam) for “stonewalling and obfuscation” in basically trying to do everything possible to avoid handing over the sale-and-assignment agreement which was signed too late. Alsup details numerous steps that were taken to avoid revealing what happened and concludes “NPS, Ramde and Lam engaged in an extensive cover-up.”

Then we get to the problem of the sham company:

Second, this order finds that NPS manufactured venue in Texas via a sham. Ramde and Lam rented a windowless file-cabinet room with no employees in Texas and held it out as an ongoing business concern to the Texas judge. They also held out Cuke as its “director of business development” but this too was a sham, a contrivance to manufacture venue in the Eastern District of Texas.

To create the impression that NPS is something other than a patent troll, NPS and its principals have repeatedly made misleading statements to Fortinet and to the Court. For example, in an (unsworn) declaration filed while the action was still in Texas, Ramde stated that “[i]n the business judgment of Network Protection Sciences . . . its relationship with Greg Cuke [is an] important asset[] of the company . . . [that is] facilitated by its presence in Texas” (Dkt. No. 65-36 1] 10). Yet alleged director Cuke later admitted in his deposition that he was only NPS’s “director of business development” for litigation purposes and had no knowledge of the day-to-day activities of the entity (Cuke Dep. 38-39, 56-5 7). No such “important asset” ever existed. It was a sham.

But, then he goes further in noting that it appeared that Ramde and Lam were abusing the court system with their trolling:

Third, two prior orders herein have already found that NPS has engaged in unreasonable and improper litigation behavior. One found that NPS asserted an unreasonable number of patent claims with the effect of multiplying the burden of litigation. It held that asserting more than fifty patent claims against Fortinet was “an unreasonable burden for NPS to place on its adversary” (Dkt. No.197 at 3). Despite this admonition, this behavior by NPS has continued in the form of sandbagging with newly-produced documents and infringement contentions that attack over 70 Fortinet products without supplying claim charts. The other order found that NPS’s counsel have played fast and loose with the rules for being admitted to practice pro hac vice in this district. It held that an attorney for NPS had violated our local rules 11-1 and 11-3 by appearing i11 three depositions prior to filing his pro hac vice application and denied his application (Dkt. No. 211).

Alsup notes that dismissing a case for litigation misconduct is a “severe sanction” which he’s not yet ready to take, even though “this is a close case.” However, he notes that “attorney’s fees caused by and traceable to the misconduct are likely to be imposed but that remedy will be held in abeyance to see how well both sides behave from here on out.” In other words, the lawyers are on very thin ice. Alsup then hints at letting the jury hear about the “sham venue, shame employees, and the cover-up” as the case goes to trial. However, as noted at the link above, at the hearing, Alsup made it quite clear that since this case is going to trial, NPS is going to have to show how their actions were a legitimate business practice — something they may have difficulty doing.

In other words, while you might consider it a “victory” for NPS that the case wasn’t dismissed outright by Judge Alsup, it would appear that he’s actually just handing NPS a pretty long rope with which to hang itself, and making it clear that they better be straight with the court (i.e., start making that noose) or he’ll make them pay attorney’s fees (which may need to be paid anyway). It would appear that Ramde and Lam are between a rock and a hard place, where, as of right now they’re going to need to defend the whole sham setup and the coverup to a jury and try to make it sound like a legitimate practice.

THE COURT: You’re on the verge of losing this entire motion, and going to the Federal Circuit, with a lot of money against you. So if you want this to live to fight another day, you ought to listen to me for a moment. The best you can hope for is that the jury’s going to decide this; but for the jury to decide the sham nature of this closet in Texas, they’re going to have to understand why somebody would want to do this. So an expert is somebody you need to have explain it. This is going to be part of your case.

[COUNSEL]: No, Your Honor, it’s not.

THE COURT: Well, then, it will be part of their case.

[COUNSEL]: Why is that relevant to the issue of patent infringement?

THE COURT: If we’re going to try ownership here, and all of these issues about whether or not this guy was a sham, or not, the jury’s got to understand the background of why it was or was not a sham.

[COUNSEL]: Well, Your Honor —

THE COURT: You’re not going to be able to skate by, with — beat this motion, and then get it somehow excluded at trial. For goodness’ sakes.

[COUNSEL]: Well, how is it relevant to the issues that are at trial?

THE COURT: You’ve got to prove ownership. It’s your burden.

[COUNSEL]: And you prove ownership by an assignment; not by — not by showing —

THE COURT: It may not be valid, Counsel.

[COUNSEL]: But that will be resolved.

THE COURT: No, it’s not going to be resolved. You’re asking that it be resolved by the jury. I heard you say it a moment ago.

[COUNSEL]: No, Your Honor. I’m sorry.

THE COURT: Well, maybe now you’re taking it back. It’s on the record. I heard it. So on appeal you can make that point; but this jury is going to hear all of this stuff about the closet. And you’re going to have to explain why “Mr. Sham” was signing these documents.

Mr. Sham? Ouch. I imagine the actual trial on this will be worth watching.

Filed Under: east texas, patent trolls, patents, rakesh ramde, sham, wilfred lam, william alsup
Companies: fortinet, innovation management sciences, network proteciton sciences

Ubuntu's Self-Appointed Benevolent Dictator For Life: 'Whole Patent System Is A Sham'

from the and-he-should-know dept

Mark Shuttleworth is probably best known for three things. Selling the certificate authority Thawte Consulting to VeriSign for about $575 million in 1999; using some of that money to become the second self-funded space tourist; and using some more of it to found and sustain the Ubuntu version of GNU/Linux.

Given that history, perhaps it’s only fair that his title in the Ubuntu community is “Self-Appointed Benevolent Dictator for Life“. It was using the equivalent acronym “sabdfl” that Shuttleworth took part recently in a Google+ chat organized by Muktware, where he had some scathing things to say about Microsoft’s use of patents:

the biggest mistake Microsoft made was to decide that patents would be an effective defence against new competitors because that stops you from really innovating yourself

And about the patent system in general:

The whole patent system is a sham, unfortunately. Patents were invented to encourage inventors to publish their trade secrets, because society would benefit from the disclosure. But we now allow patents on things you could never keep secret in the first place, like software and business methods and medicines. That’s insanity. Innovation happens because people solve problems, not because they might get a monopoly on it.

Shuttleworth’s successful record in business means that his words ought to carry more weight with supporters of patent monopolies than they might if he were just a free software project leader. After all, in a world where money talks, half a billion dollars just dismissed the patent system as a “sham.”

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

Filed Under: mark shuttleworth, patents, sham
Companies: ubuntu

Judge Rules That Righthaven Lawsuit Was A Sham; Threatens Sanctions

from the huge-win dept

In a huge victory against copyright trolls, a judge has thrown out the lawsuit filed by Righthaven against Democratic Underground. This was the key case where (after lots of stalling), Righthaven eventually revealed the strategic agreement between it and Stephens Media, which basically shows the copyright assignment to Righthaven was a fraud. All Stephens really transferred was a “right to sue,” and that’s not a transferable right under copyright law. As we had expected, the judge relies on the Silvers vs. Sony Pictures case, which notes that you can’t assign just the right to sue.

Pursuant to Section 501(b) of the 1976 Copyright Act… only the legal or beneficial owner of an exclusive right under copyright law is entitled, or has standing, to sue for infringement. Silvers v. Sony Pictures Entm’t Inc…. In so holding, the Ninth Circuit followed the Second Circuit?s decision in Eden Toys, Inc. v. Florelee Undergarment Co.,… superseded by rule and statute on other grounds…. Section 106 of the Act defines and limits the exclusive rights under copyright law…. While these exclusive rights may be transferred and owned separately, the assignment of a bare right to sue is ineffectual because it is not one of the exclusive rights…. Since the right to sue is not one of the exclusive rights, transfer solely of the right to sue does not confer standing on the assignee…. One can only obtain a right to sue on a copyright if the party also obtains one of the exclusive rights in the copyright… Further, to obtain a right to sue for past infringement, that right must be expressly stated in the assignment.

That’s the basics. As the court digs into the details, it becomes clear that the judge is monumentally not impressed by the arguments from Righthaven and Stephens Media. A couple of choice quotes:

This conclusion is flagrantly false?to the point that the claim is disingenuous, if not outright deceitful.

The companies? current attempt to reinterpret the plain language of their agreement changes nothing. In reality, Righthaven actually left the transaction with nothing more than a fabrication…

Righthaven argues that Section 15.1 of the SAA gives the Court authority to correct any provision of the SAA that is deemed void or unenforceable to approximate the manifest intent of the parties. The problem is that this argument requires a provision of the SAA to be void or unenforceable. However, Righthaven?s problem is not that any provision of the SAA is void or unenforceable but that the SAA simply does not grant Righthaven any of the exclusive rights defined in Section 106 of the Act required for standing. Therefore, the SAA is not void or unenforceable, it merely prevents Righthaven from obtaining standing to sue from the Assignment. Accordingly, the Court need not and shall not amend or reinterpret the SAA to suit Righthaven?s current desires…

Here, Righthaven does not ask the Court to recognize an oral transfer with a late made written memorandum of the deal, but to fundamentally rewrite the agreement between Righthaven and Stephens Media to grant Righthaven rights that it never actually received…

Towards the end, the judge unloads on Righthaven’s attempt to claim that because earlier rulings by the same court had been okay with its standing, there was some sort of precedent:

Finally, Righthaven contends that multiple courts within this district have already determined that Righthaven has standing to bring claims for past infringement under the Silver standard based on the plain language of the copyright assignment. At best, this argument is disingenuous. As the undersigned issued one of the orders Righthaven cites for this argument, the undersigned is well aware that Righthaven led the district judges of this district to believe that it was the true owner of the copyright in the relevant news articles. Righthaven did not disclose the true nature of the transaction by disclosing the SAA or Stephens Media?s pecuniary interests. As the SAA makes abundantly clear, Stephens Media retained the exclusive rights, never actually transferring them to Righthaven regardless of Righthaven?s and Stephens Media?s current contentions. Further, Righthaven also failed to disclose Stephens Media in its certificates of interested parties, despite Stephens Media?s right to proceeds from these lawsuits…

As for that last point, it may open up Righthaven to a world of hurt. The judge notes that it appears Righthaven violated the law here and gives the company two weeks to explain why it shouldn’t face sanctions not just for the failure to disclose in this case, but in all of its cases:

As shown in the preceding pages, the Court believes that Righthaven has mademultiple inaccurate and likely dishonest statements to the Court. Here, however, the Court will only focus on the most factually brazen: Righthaven?s failure to disclose Stephens Media as an interested party in Righthaven?s Certificate of Interested Parties. (Dkt. #5.) Rule 7.1-1 of the Local Rules of Practice for the District of Nevada requires parties to disclose ?all persons, associations of persons, firms, partnerships or corporations (including parent corporations) which have a direct, pecuniary interest in the outcome of the case.? This Local Rule requires greater disclosure than Federal Rule 7.1, which only requires non-governmental corporate parties to disclose parent corporations or corporations owning more than 10% of the party?s stock. Frankly, if receiving 50% of litigation proceeds minus costs (Dkt. #79, SAA Section 5) does not create a pecuniary interest under Local Rule 7.1-1, the Court isn?t sure what would.

Making this failure more egregious, not only did Righthaven fail to identify Stephens Media as an interested party in this suit, the Court believes that Righthaven failed to disclose Stephens Media as an interested party in any of its approximately 200 cases filed in this District. Accordingly, the Court orders Righthaven to show cause, in writing, no later than two (2) weeks from the date of this order, why it should not be sanctioned for this flagrant misrepresentation to the Court.

I would suggest that judge Roger Hunt is not particularly pleased with Righthaven. He’s also allowing Democratic Underground lawyers to seek attorneys’ fees from Righthaven and Stephens Media.

This will likely kill off most of the remaining Righthaven cases in Nevada. While not all are handled by Judge Hunt, you can be quite certain that all the other judges in the court will be aware of this. The impact on the Colorado cases isn’t as certain, but all of those cases are under a single judge who is equally upset at Righthaven, and reviewing similar issues. I wouldn’t be surprised to see a similar end result.

Righthaven could (and might?) appeal, but it’s going to be difficult to reverse this. Furthermore, in theory Righthaven could come up with a new agreement with Stephens Media and continue suing, but the court already expressed its doubts about the weak attempt by the two companies to “amend” the existing agreement, suggesting that it was just “cosmetic adjustments” that the court did not believe would change the outcome.

What may be interesting is to see if any of the dozens of folks who already settled come after Righthaven now and demand their money back… That could make for an interesting followup legal battle. All in all, this is a huge win against copyright trolling.

Filed Under: assignment, copyright, sanctions, sham
Companies: democratic underground, eff, righthaven, stephens media

from the keep-digging dept

Things keep looking worse and worse for Righthaven. After documents were unsealed that show that the transfer of copyrights from the Las Vegas Journal-Review (and its parent company, Stephens Media) to Righthaven were almost certainly a sham transfer, designed solely to pass along “the right to sue” (which is not a separately transferable right under copyright law), it seemed like Righthaven might finally have to suck it up and realize that its business model might be a disaster. Instead, it’s chosen to fight on, even as other courts have publicly raised concerns about the legitimacy of Righthaven’s efforts. And while the company has hired a “star” attorney with lots of case experience supporting extreme maximalist copyright positions, Righthaven is facing even more challenges. Buzzfeed.com, one of the sites sued by Righthaven, has now filed a class action counterclaim against Righthaven based on these documents. The idea is to bring together various Righthaven defendants, as a class, and have them all sue Righthaven for its faulty lawsuits. The class action effort claims not only did Buzzfeed not infringe, but that the whole legal effort by Righthaven is an “abuse of process,” especially in light of the newly-exposed legal documents. I’m not sure if this kind of class action has much of a chance, really, but it’s interesting to watch Righthaven getting beat up repeatedly lately. That’s what happens when you try to use a legal loophole as the basis for an entire business model.

Filed Under: class action, copyright, sham, transfer
Companies: las vegas review-journal, righthaven, stephens media