Sat, 09 Nov 2019

Cloudflare Explains What It Takes To Slay A Patent Troll

Furnished content.


A couple years back we wrote about the patent trolling operation Blackbird Technologies, which was a law firm that pretended it wasn't a law firm, and seemed to focus on buying up patents to shake down companies for cash. It had threatened many and sued a few, but definitely picked the wrong target when it decided to go after Cloudflare. Like Newegg before it, the team at Cloudflare decided that even if it was cheaper to settle, it would set a bad precedent and would likely lead to more trollish threats landing on its doorstep. So, instead, Cloudflare decided to fight back. And it went a step or two beyond Newegg, who would just fight the trolls in court. Cloudflare decided to not just fight in court, but then to seek to destroy Blackbird Technologies entirely. It launched a crowdsourced contest to search out prior art not just on the patent at issue in its own case, but on all Blackbird patents. It also went after the lawyers at Blackbird, filing bar complaints against the company for violating attorney ethics rules (mainly in holding itself out as not a law firm, but then acting as a law firm). There was also the issue of the firm appearing to purchase the bare right to sue, the same issue that brought down copyright trolling operation Righthaven. The issue there is that if you purchase the rights to a patent or a copyright, you have to actually purchase all of the associated rights, not do a convoluted thing where you pretend to buy the rights, but the original copyright or patent holder gets some of the proceeds of your trolling.The legal strategy went swimmingly well. Cloudflare got an easy win at the district court, and then a super quick and easy win on appeal at CAFC, the Court of Appeals for the Federal Circuit. Cloudflare was so obviously on the right side of things that the CAFC panel didn't ask its lawyers a single question (which is very rare), issued a decision mere days after the hearing (incredibly rare) and found Cloudflare's arguments so correct that it didn't even explain its decision, but just issued a judgment that said "Affirmed" (even more rare). As we noted at the time, even though it was an "easy" win for Cloudflare, it still involved two years of legal wrangling, involving over 1,500 pages of legal briefings on both sides (900 from Cloudflare alone). That's expensive, time-consuming and distracting.Earlier this week, Cloudflare released an update about the rest of its efforts to hit back at Blackbird (now that Blackbird chose not to request the Supreme Court review the CAFC decision). All in all, the effort to clip Blackbird's wings appears to have been a pretty good success overall, even if the company is still operating. The crowdsourcing (and funding) campaign to find prior art against a bunch of Blackbird patents was definitely a success:

A high-level breakdown of the submissions:

• We received 275 total unique submissions from 155 individuals on 49 separate patents, and we received multiple submissions on 26 patents.
• 40.1% of the total submissions related to the '335 patent asserted against Cloudflare.
• The second highest concentration of prior art submissions (14.9% of total) relate to PUB20140200078 titled Video Game Including User Determined Location Information. The vast majority of these submissions note the similarity between the patent's claims and the Niantic game Ingress.

In the one-year period immediately preceding Project Jengo, (Q2'16-Q2'17) Blackbird filed more than 65 cases. Since Project Jengo launched more than 2.5 years ago, the number of cases Blackbird has filed has fallen to an average rate of 10 per year.  Not only are they filing fewer cases, but Blackbird as an organization seems to be operating with fewer resources than they did at their peak. When we launched Project Jengo in May 2017, the Blackbird website identified a total team of 12: six lawyers, including two co-founders, four litigation counsel, as well as a patent analysis group of 6. Today, based on a review of the website and LinkedIn, it appears only three staff remain: one co-founder, one litigation counsel, and one member of the patent analysis group.  

We based our complaints on the assignment agreement we found filed with the USPTO, where Blackbird purchased the '335 patent from an inventor in October 2016 for $1. It seemed apparent that the actual but undisclosed compensation between the parties was considerably more than $1, so Blackbird may have simply acquired the cause of action or the agreement involved an arrangement where Blackbird would split a portion of any recovered fees with the inventor. Such agreements are generally prohibited by the ethical rules.In public statements, Blackbird's defense to these allegations was that it (i) was not a law firm (despite the fact it is led exclusively by lawyers who are actively engaged in the litigation it pursues) and (ii) does not use contingency fee arrangements for the patents it acquires, but does use something similar. Both defenses were rather surprising to us. Isn't an organization led and staffed exclusively by lawyers who are drafting complaints, filing papers with courts, and arguing before judges amount to a law firm? In fact, we found pleadings in other Blackbird cases where the Blackbird leadership asked to be treated as lawyers so they could have access to sensitive technical evidence in those cases that is usually off-limits to anyone but the lawyers. And what does it mean for an agreement to be merely similar to a contingency agreement?

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