Patent Troll Dismisses Frivolous Lawsuit and then Donates to Charity

Patent Troll dismisses lawsuit

Lodsys has dismissed the patent infringement lawsuit it filed against my company TMSOFT.  The dismissal is with prejudice which means they can never sue my company again for infringing its patents.  I did not have to pay any money to Lodsys or sign a license agreement.  I also did not sign a confidentially agreement so I’m free to talk about this matter.

So what did I have to agree to?

  1. Never to sue Lodsys over its patents (I otherwise would have the right to ask a court to rule their patents invalid if I wanted)
  2. Dismiss all motions with prejudice (we had filed a motion to dismiss that also sought to recover my attorneys fees, costs and expenses)
  3. Make a donation to a mutually agreeable charity

I’m in the business of creating apps, so mutually agreeing not to sue each other was fine with me. Dismissing all our motions would terminate this lawsuit which is what I wanted as long as I didn’t pay Lodsys a dime and I could still talk about it.  The mutual donation to charity was also fine with me especially if it was to the EFF or  Of course they wouldn’t agree to that, so Make-A-Wish Foundation was selected.

I was a little confused about why Lodsys wanted to make a donation to charity.  I asked my lawyer if it was to make them appear more human.  He said it is most likely because if we would have said no to this offer, the judge could have said we were not behaving reasonably.  That seems a little ridiculous given they were the ones that filed this frivolous lawsuit. But, I get the point that Lodsys could say to the judge they were willing to dismiss it if only I’d make a small donation to a charity.  This would be their way of making me look like I was the one wasting the court’s time by continuing to fight the case despite Lodsys being willing to dismiss it without me having to pay them anything.

Although this was a win for my company, it was only a win because I had Dan Ravicher and his associate from the Public Patent Foundation ( representing me pro bono.  It is extremely rare to get this kind of assistance (I know of no one else out there offering to defend small businesses like mine pro bono from patent infringement allegations) and I am very fortunate that someone as talented as Dan agreed to fight these bullies for free.  I asked Dan how much this would have cost me:

“I’ve spent about 200 hours on the matter and Sabrina about another 80. My comparable market hourly rate (partner at a top NYC patent firm) would be $750 and a comparable rate for Sabrina (senior associate at a top patent firm) would be about $500.”

The total costs to my company would have been $190,000.  And that’s just for the initial response to this lawsuit.  We hadn’t even gotten to court which would have increased that amount into millions.  Remember that it only cost Lodsys about $450 to file the lawsuit.  This is why small businesses will usually always settle.   It’s just not worth it to fight.  And even if you could win and get awarded your attorneys fees and costs, which are very rare, you probably won’t see a dime of that money.

This is because patent trolls are set up as shell companies without much in assets.  Any money that the patent troll receives from all the licensing agreements is immediately distributed to other companies—this includes the law firm representing the patent troll on contingency and the company that originally held the patent.  Any money you might be awarded will be long gone by the time it comes to collect.

Payments are also sent to the troll using overseas bank accounts.  This is mainly to avoid paying US taxes, but it could also make it more difficult to follow the money if an investigation was ever brought on.  The patent trolls have created an extortion business model that is virtually risk-free–Nothing to lose and everything to gain.

There is a lot of talk going on about patent reform, but most of the ideas being discussed would not help small companies.  In my next article, I’ll discuss solutions to the problem and my visit to Capitol Hill where I was able to share my story to those that might be able to fix our broken system.  Hopefully one day tech startups can stop worrying about patent trolls and get back to building cool stuff.

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49 thoughts on “Patent Troll Dismisses Frivolous Lawsuit and then Donates to Charity”

  1. I understand why you felt it best to settle under these terms, and why you needed to move on. But given he fact that you were being backed, and had apparently caused these guys to blink, I would have just as soon seen you tell them to pound sand.

    Someone needs to break these guys’ back with a judgment that would hopefully invalidate the other licenses they’ve gotten from bullying small developers like you. There’s a special place in Hell for people who run companies like Lodsys

    1. The people who have signed licensing agreements with Lodsys have to pay into the future – even if the patents are found to be invalid. The license is an agreement between two private parties. It does get trickier if you lose in court and later, likely at a different venue, the patents are found invalid.

  2. Todd: Do you have any estimates on how much it originally cost these fenderheads to GET said patents? I’ve read through all four of their so-called “inventions” and they are essentially nonsense – just obtuse descriptions of things that are either common process or basic innocuous activities. What actual “investment” did these mopes have beyond the 450 dollars it cost to try and extort you?

    1. Patent prosecution generally costs between $10k and $20k. That is the cost to get the patent drafted and prosecution to a set of issued claims. You can then often file a second set of claims – skipping many details here – off of the first filing with much lower cost (since you already had a lawyer draft the entire specification).

    1. They did- This American Life has a great segment- actually two parts- where they show how the money from these shell companies, which exist only to file patent lawsuits, flows back to Intellectual Ventures:

      It’s worth listening to the whole thing, but a summary here:

  3. Well, it is obvious to me that what is needed is a forward thinking insurance company to offer a patent troll policy that you can buy into.

    It would cover an infringement lawsuit from a known patent troll and cover maybe $750K of lawyer work.

    Pointing out that you have such a policy in force would shoo the trolls away from you.

    Might cost say $5k or so.

    Something to ponder, eh?


  4. In Germany we have the criminal penalty warning „Abmahnung“. Any lawyer can bring a pretext to silence citizens and extort large sums of money from them. Legal.

  5. Great post, Todd. It’s nice to see so much detail in the settlement of the case, as these things are almost always sealed. It’s unbelievable how much pro bono work your lawyers were able to do in the case to just get it to this point. And you said they only wanted about $4000?

    I’d like to see 60 Minutes pick up this story. They seem to wield some power in getting change around Washington. I know Obama has been talking about his concerns over what is happening. Someone needs to point him to this blog. I can’t wait to hear about your Capitol experience.

  6. A donation to a mutually agreeable charity?

    So they now get to deduct money on their corporate taxes? Are they at least making this donation in YOUR name? It would at least be nice if you got more out of this “donation” than they do, other than peace of mind of course. They put you through hell I am sure.

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