Patents were originally intended to foster innovation. But the unfortunate dark side of the patent system is that there exists wretched monsters who suck the life out of innovators and do nothing more than ruin the lives of innocent bystanders (consumers who often benefit from innovation). They're called patent trolls - the evil doers who abuse the patent system, regardless of how invalid the patents are in the first place.
It's good news, therefore, that the patent lawsuit, brought on by Gooseberry Natural Resources LLC against a number of popular websites, including Fark, TechCrunch, Digg, Reddit and Yahoo, could be unraveling.
Fark settled Tuesday a patent 6370535 titled "System and method for structured news release generation and distribution." Moreover, the settlement required no money to change hands. In eight months, the legal nightmare for the comedic aggregator of news has finally come to an end.
"I never thought of this as a real threat, but it was still there nonetheless," said Drew Curtis, founder and CEO of Fark, in an interview. "Glad to have it gone, because you never know when outlying risks can become serious concerns. My entire family and a community of three million people were at risk here. No matter how remote the chances are, you never want them on the firing line."
At issue was an invention that was awarded in April 2002. Basically, it seems to cover any action of putting text into a stored system and then publishing the text in the future. Read this way, every news publisher appears to be in violation of this patent. Some people interpret the patent, however, as only relating to press releases.
"The wording of the patent uses the term "news release," however there's only one definition for that in journalism, which is press release," said Drew. "The patent itself uses the terms interchangably as well,
which is basically why this lawsuit was a pain in the ass, because Fark doesn't have anything to do with assembling press releases online and emailing them to people.
"This patent shouldn't have been granted at all."
Indeed, it turns out that of the patents from the U.S. Patent and Trademark Office that are litigated, 40% are "declared invalid in court," according to the authors of Freakonomics. In the same article, the authors argue that patents continue to be awarded, often for perverse reasons, that have less to do with protecting innovation, and more to do with poor incentive structure at the PTO and potential upside for legal wins by patent trolls.
About 97% of lawsuits are settled by defendants, because the legal battle could prove to be too costly. This makes the patent troll business a lucrative one.
In this case, however, Fark seems to have had a pretty big win. While the patent trolls wanted to extract some money, Drew refused. He also managed to avoid the typical costs and time associated with fighting out patent suits.
"The average patent lawsuit defense costs $1.5 million and takes 18 months," said Drew. "And, that's when you win."
"I was told by an attorney who reads Fark that even if we managed to get the plaintiff for sanction (often a payment made by the plaintiff if the patent lawsuit was found frivilous), that even then we'd only recover something like 80% of what we spent defending the lawsuit," Drew added. "Generally, these patents are all owned by a series of shell companies that have no other assets so there's nothing to get at with a judgement."
Drew also got the standard settlement NDA taken out.
"Terms of patent lawsuit settlements are usually bound by ironclad nondisclosure agreements," said Drew. "NDAs allow patent trolls to extract maximum settlements from each entity they've filed lawsuits against - no one knows who paid what. In the last round of settlement negotiations we asked to strike the NDA provision. They agreed."
In the end, Fark paid less than $1.5 million in legal fees because the suit ended ahead of schedule - eight months. The counsel for Fark was Joe Ruscak, Ryan Kennedy and James Scott at Roetzel & Andress.
"We too the approach that Fark didn't infringe, which they didn't," said Joe, in an email to me. "Was the patent invalid? Probably. But that would have taken years to prove and cost a lot of money. Our strategy was to attack infringement and not validity."
Still, the process was brutal, especially since Fark apparently wasn't accused of anythig. "We asked for more detail on exactly how we were violating their patent," said Drew. "They never provided any."
This sheds some negative light on the entire system. "To me, that's the flaw in this entire process," said Drew. "That they can accuse you of patent infringement without having to provide details as to how you're infringing."
Despite the win, Drew adds: "I still would have rather spent the money hiring an employee, sending all three of my kids to college, or pretty much anything else useful."
(Image source: rowthree)