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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 glennpratt on 6/7/2008 3:38:28 PM , Rating: 3
Someone with a million brilliant ideas should not have to stop to build every single one before being able to earn a living.

I absolutely disagree. Ideas are easy to come up with. Very, VERY few patents merit the term brilliance, especially to someone in a respective field.

Patents don't exist to reward ideas alone, they are to reward inventors - people who have an idea and then believe in it enough to take the risk to develop.

RE: Not all IP companies are like this
By Lerianis on 6/8/2008 12:27:17 PM , Rating: 2
I have to agree. Personally, I am for only a FINISHED PRODUCT being able to be patented (i.e. a book, a piece of software (Microsoft Office, OpenOffice, etc.), a network card, etc.).

None of this piece meal patents on IDEAS that anyone could come up with and that it is basically just a race to see who can come up with idea first, patent it, and then just WAIT for someone to make a product that encompasses your idea to sue them (which is the MAIN THING these piecemeal patents are being used for).

By EricMartello on 6/9/2008 9:26:52 AM , Rating: 2
The reason it is possible to patent an idea is to allow the inventor to enlist third party help in making the idea a reality. While it there are many tinkerers who create prototypes of their ideas without help, bringing a product to market is a complicated and expensive process. Without patent protection, anybody who the inventor brings on as a contractor or partners with can steal the idea and run with it. Patenting your idea, if you plan to build a business around it, is pretty much step one.

Patents are similar to Copyrights in that they both can protect intangible properties, however unlike copyrights which ONLY apply to creative works and are automatically granted to the creator, patents must be applied for and typically require supporting documentation to show that the idea actually has merit.

“Then they pop up and say ‘Hello, surprise! Give us your money or we will shut you down!' Screw them. Seriously, screw them. You can quote me on that.” -- Newegg Chief Legal Officer Lee Cheng referencing patent trolls
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