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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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By soxfan on 6/7/2008 11:53:46 PM , Rating: 2
Article I, section 8 of the constitution states that Congress shall have the power "[t]o promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and DISCOVERIES."

Thus, the literal language of the constitution indicates that Congress has the power to protect discoveries, which are of course not limited to physical products. Thus, a fairly strong argument could be made that a Congressional act to limit the scope of patent protection to real world products, as you suggest, would be unconstitiutional.

Moreoever, you rather limited view of the value of the patent system overlooks its biggest benefit, namely the public disclosure of information that, but for the patent system, would not be disclosed. Indeed, it could reasonably be argued that the U.S. and world patent databases are the largest sources of public information in the world. It doesn't take much brains to see that the public disclosure of information is of enormous value. But if you can't see that, just go ask a research scientist how they use patent databases.

As for me, I think the solution to certain problems such as patent trolls may lie in the modification of property law, not the reformation of the patent system per se (such as limiting the scope of patentable subject matter, as you propose). Though unlikely, one solution is to limit the ability of inventors to assign their applications to third parties. Indeed, if patents could only be assigned (owned) by the inventors or their immediate employer at the time of filing, then the parties who invested in the research behind the patent still gain the benefits of patent protection (the exclusive right to make, use, sell, offer for sale, import or export the claimed invention), but cannot transfer those rights to a party who might abuse them (i.e., a patent troll). Of course, property rights in this country have been set in stone for a very long time, so I doubt this solution would be amenable to anyone.


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