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Judge considers forcing aggressor to pay attorneys' fees

Plutus IP, a patent assertion company, suffered a major blow last March after a jury found the company shuffling patents between shell companies in order to launch multiple lawsuits against the same target, circumventing a previous do-not-sue covenant.

Now, U.S. District Judge Barbara Crabb is mulling over whether or not to force Plutus IP owner Erich Spangenberg to pay DaimlerChrysler’s attorneys’ fees.

The covenant dates back to 2006, when Plutus settled with car company DaimlerChrysler over a “broadly-worded” patent on software the company uses for sales tracking. Rather than challenge the patent – a battle it was likely to have won – DaimlerChrysler instead opted to settle with Plutus IP for $2.3 million in order to stave off a court battle that would have been far more expensive. As part of the settlement process, Plutus IP entered into an agreement not to sue DaimlerChrysler for the sales technology or any other related patents.

Reports indicate that Plutus then transferred the patents in question to an unknown Plutus affiliate, and proceeded to file three additional suits against DaimlerChrysler, as well as Mercedes-Benz and Toyota, in March 2007. This time, however, DaimlerChrysler chose not to settle, instead countersuing the Plutus affiliates for break of contract. The jury’s decision in favor of DaimlerChrysler concluded a three-day trial that found Spangenberg in breach of the March 2006 settlement agreement.

Joe Mullin, author of patent and IP blog The Prior Art and reporter for IP Law & Business magazine, notes that Spangenberg sits at the “heart” of a “massive empire” of patent-holding companies, including Taurus IP, Gemini IP, Caelum IP, Phoenix IP, Orion IP, and Constellation IP, together with his attorney David Pridham.

Mullin reports that his investigation of the case is complicated by the Wisconsin court’s unusually high propensity for granting Spangenberg’s requests to seal court documents, and the case court docket reports indicate a complicated array of parties on both sides.

Spangenberg could be on the hook for up to $4 million in attorneys’ fees, payable to DaimlerChrysler’s legal team at Kilpatrick Stockton LLP. Mullin notes that Spangenberg acknowledged having $6 million in the bank of account of one of his “many shell companies,” adding that the amount is “surely just a small fraction of his fortune.”

“I can't see any justification for this radical action,” wrote Mullin. “Federal judges are often too loose in allowing lawyers to seal documents in patent cases, but this is by far the worst I've seen.”

While U.S. Judge Barbara Crabb has yet to reach a decision regarding attorneys’ fees, the suit underscores a larger political climate of large technology companies turning against firms that hold patents on a “speculative” basis, exercising their patent rights in a court of law without building products of their own.

The highly controversial Patent Reform Act, which ZDNet recently called “dead for 2008,” sought to reform abusive patent practices like “forum shopping,” or the act of filing patent claims in preferred, patent-friendly venues like the Eastern District of Texas, as well as streamline the infringement complaint process and place caps on damages awards. The bill pitted the computing industry, which is currently plagued by patent-trolling by the likes of firms like Plutus IP and SCO, against the pharmaceutical industry, which says it relies on current practices and awards amounts to protect drug research.

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RE: Not all IP companies are like this
By spluurfg on 6/7/2008 6:30:37 AM , Rating: 3
If you can't conceive your idea into a working prototype in 5 or 10 years, then sorry, you never will. Your just being a patent troll and the market is worst for it.

Pharmaceuticals struggle to bring products to markets based on patented research in a time-frame of 5-10 years, despite having done the research themselves and filing very specific, non-generic patents for it. Clinical trials take ages...

RE: Not all IP companies are like this
By omnicronx on 6/7/2008 11:31:31 AM , Rating: 2
I am pretty sure they have 20 years from the day they filed the patent. Whether or not it takes 15 years to bring many drugs to the market is a totally different story.

By Lerianis on 6/8/2008 12:28:46 PM , Rating: 2
It doesn't actually take that long. Most times, to make the product and test it, it only takes 4-5 years. It is getting the approval of the FDA or whatever consumer protection organization in the country you live in that takes much longer than that, and adds numerous delays to the process.

RE: Not all IP companies are like this
By Strunf on 6/7/2008 12:02:47 PM , Rating: 3
Pharmaceuticals struggle ?
Ya but they make billions of profit 20 years is more than enough to get the money from the research back.

RE: Not all IP companies are like this
By spluurfg on 6/7/2008 3:05:15 PM , Rating: 3
Many of Big Pharma's biggest blockbusters will soon lose their patent protection. Deloitte, a consultancy, estimates that $55 billion of products will go off patent in 2009 and will then face competition. At the same time, pharma bosses are being asked to defend patents in costly legal battles against an increasingly confident and litigious generics industry. As generics firms evolve from mere copycats into innovators in their own right, many such firms—led by Israel's Teva, India's Ranbaxy and Dr Reddy's Laboratories—are vigorously challenging patents.

The best way out for the established drugs industry would be to find lots of clever new blockbusters to replace the ones going off-patent. But as the industry's sagging share valuations suggest, the new-drugs pipelines at big firms have run dry.

Yet the clouds have darkened over Big Pharma. The industry's share prices have performed pitifully and a new report from Accenture, a consultancy, calculates that a whopping $1 trillion of “enterprise value”, which measures future profitability, has been wiped out because investors have lost faith in drugmakers' growth prospects

Source of above excerpts: The Economist

Fact is, pharmaceutical research is hugely expensive, and clinical trials take a LONG time. From filing patent to getting their product approved for the market, the process could take 10 years or more. And when the patent expires, generics move in to produce the drug en-masse, essentially destroying profits from that drug to the pharmaceutical company that invented it.

I'm not saying this is bad for the consumer -- it helps consumers get cheap drugs after a while. But I am simply offering a counterpoint to the OP's assertion that after 5-10 years, a patent holder is negatively impacting the market. If patents expired after 5-10 years, generics would completely destroy pharmaceutical companies' market share, and there would be no 'billions of profit' to fund new pharmaceutical research.

RE: Not all IP companies are like this
By Reclaimer77 on 6/7/2008 5:17:39 PM , Rating: 2
" Clinical trials " imply there is a drug to test. That your patent idea DID produce a quantifiable and tangible result. So my " 5-10 " years statement wouldn't matter here.

Besides I'm not trying to suggest tyranny. Look, if after 10 years you can show that your actually TRYING to do something with this idea, fine. You get an extension or something. Shiny ?

To be honest I was more interested in the tech patents industry.

RE: Not all IP companies are like this
By spluurfg on 6/8/2008 3:37:05 AM , Rating: 2
" Clinical trials " imply there is a drug to test. That your patent idea DID produce a quantifiable and tangible result. So my " 5-10 " years statement wouldn't matter here.

I think I agree in general with your original point. I just wanted to point out that determining the line between a patent troll and an intellectual property company would have to be drawn carefully. ARM for example has its IP used in the vast majority of smartphones, but is an IP-only firm and doesn't build stuff.

But I am definitely in agreement that the patent-to-sit-on-it-and-troll model doesn't do the market nor society any good, and an activity based benchmark is sensible.

RE: Not all IP companies are like this
By Oregonian2 on 6/9/2008 3:57:25 AM , Rating: 2
Yes, companies that only design things but don't build them would be in trouble. Contract engineering houses, consultants, etc.

RE: Not all IP companies are like this
By JS on 6/9/2008 8:30:46 AM , Rating: 2
You are confusing patents with copyright and intellectual property in general.

By Yawgm0th on 6/9/2008 11:53:48 AM , Rating: 2
But the confusion is justified. The entire paradigm of IP in the United States is inherently flawed. The patent system is probably the worst offender, but even that is debatable.

By Oregonian2 on 6/10/2008 8:30:03 PM , Rating: 2
They are related somewhat. Design houses sometimes live off their patented IP and is one reason a company might have them do a design rather than someone else (in addition to possibly licensing it out). Not all IP is patented, but some is.

Additionally, I've read stories of folk who have had great ideas that they patented but still had years of development work before they were able to get around other problems in a working system ($$$ sometimes being one of the problems). People should just keep it to themselves and perhaps die with the idea just because they didn't have the money to build one?

RE: Not all IP companies are like this
By Strunf on 6/7/2008 6:44:16 PM , Rating: 2
20 years patent may be after you have made your own tests in "secret" and release it to public, there's no reason to patent a drug that hasn't been released yet, unless you fear a spy may steal your research but that can even happen before you fill the patent anyway.

Ya economist interests and consumers interests very often collide, in one hand the big pharma companies will loose some income on the other the generic ones will increase theirs and the consumer will get the benefit of it.

By soxfan on 6/8/2008 12:04:17 AM , Rating: 2
"Public" disclosure is easier than you think. That is why most pharma companies (and several are my clients) seek patent protection for compounds of intetest, i.e., target compounds which show better activity for doing a specific thing (i.e., binding to a particular receptor in the body) than others.

Further, it should be noted that most pharmaceutical companies are entitled to patent term extension. That is, under certain aspects of the law, they can reques that their patent term be extended to account for the time they could not market their drug because it was awaiting FDA or other government approval.

By fic2 on 6/9/2008 11:42:41 PM , Rating: 2
You forgot to mention that Big Pharma spends at least 2x on marketing than they do on research:

RE: Not all IP companies are like this
By cscpianoman on 6/7/2008 12:33:56 PM , Rating: 2
The drug companies already have a working prototype. They are working on getting it to market, therefore the validation of a prototype in 5-10 years still holds out. Personally, I agree with the statement, if it isn't being worked on, or a plan in place to put it to market, then it never will and leave it to someone who can.

RE: Not all IP companies are like this
By Reclaimer77 on 6/7/2008 1:04:00 PM , Rating: 3
20 years is too long in my opinion. Give me a break, it took us less time to get us to the moon.

In my opinion if a patent honestly can't come to a realization of prototype or product in less then 20 years, its probably a patent that shouldn't have been granted in the first place.

And since someone brought up medical research, the patent industry ( sadly its an industry now ) is actually stifling medical research. Research firms are actually being granted patents on human genomes preventing others from working on them. Can you imagine !?? Human genomes, that exist in every single man woman child, being sold off like property ?

The entire patent process needs to be cleaned up, leaned up, and in some cases stopped all together. Lets stop feeding the trolls ok.

RE: Not all IP companies are like this
By Strunf on 6/7/2008 6:58:48 PM , Rating: 2
Look into "Monsanto", this company patents seeds and others and now the farmers have contracts restricting the usage of their seeds, you can not for instance give your seeds to someone else, you can not save the seeds from one season to another... once they have replaced effectively the "open source" seeds we will pay whatever they want for theirs.

By soxfan on 6/8/2008 12:11:18 AM , Rating: 2
Genetically modified organisms are considered "touched by the hand of man" and are thus patentable. Google "Diamond v. Chakrabarty." Honestly, shouldn;t we give an incentive for a company to develop genetically engineered organisms, such as plants, if they are superior in some way to their natural form for a given purpose? It seems fair to me to give someone the ability to profit from their discovery fi, after 20 years, everyone gets to use it for nothing!

Asfor Monsanto limiting the distribution of their seeds, that is part of the rights afforded by patent protection. Specifically, a patent allows the patentee to prevent others from making, using, selling, offering for sale, importing or exporting the claimed invention. If the seeds are the claimed invention, then Monsanto should rightfully have the ability to limit their distibutiion over the patent term.

RE: Not all IP companies are like this
By soxfan on 6/8/2008 12:06:09 AM , Rating: 2
You cannot patent the human genome. You can patent ISOLATED DNA strands, ISOLATE proteins, etc. You cannot patent something as it exists in nature.

By Reclaimer77 on 6/8/2008 12:25:11 PM , Rating: 3
Pretty evasive language if you ask me. Those isolated strands and proteins DO exist in nature. They are simply exploiting a gray area or loophole seems to me.

Can I patent a frogs leg ? I mean after all, I " isolated " the leg from the frog right ?

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