Rackspace Sues Famed Patent Troll For Breach Of Contract

from the not-for-the-first-time dept

Well, well. Rackspace, who has been successfully fighting back against a bunch of patent trolls lately, is fighting back again, and this time they're taking on one of the more notorious patent trolls out there: Erich Spangenberg. Rackspace explains a bunch of the details on their site, though it helps to know a bit of the background. While some of the reporting out there suggests that Rackspace's reference to "the most notorious patent troll" is about the company Parallel Iron, it's really Spangenberg who is the target.

First, some background. Spangenberg has built up quite a business for himself by buying up awful patents and suing tons of companies, often getting them to pay up. He's claimed in the past that he likes to sue first and ask questions later. He famously got in trouble a few years back for shuffling some of his patents around and suing Daimler Chrysler twice over the same patent even though the company had settled the original lawsuit and licensed the patent. That didn't go well for Spangenberg, as he was told to pay $4 million. Remember that story, because it seems like Spangenberg's apparent sloppiness in actually living up to the terms of deals he signs may be part of why he's likely to be on the hook against Rackspace.

The other time we wrote about one of Spangenberg's schemes failing massively was when he used one of his many shell companies, IP Nav, to demand a license from Renaissance Learning. Except that IP Nav wasn't the patent holder, but claimed to be "representing" the patent holder, and then it refused to tell Renaissance how they were infringing or even what the patent was unless the company agreed to sign a total gag order, such that they couldn't talk at all about whatever came from the discussions. Renaissance, smartly, went to court instead, issued a subpoena demanding Spangenberg identify the patent and the patent holder, and then sought declaratory judgment that it did not infringe. The court sided -- strongly -- with Renaissance, and smacked Spangenberg down a bit for his actions.
Some might look at the silky wording of IP Nav's letter to Renaissance and see a close question; this court, however, sees an unmistakable and intentional warning shot across the bow. The actual message is pellucid to any patent litigator, so that IP Nav's use of apophasis is disingenuous and unavailing. Remember Mark Antony's funeral oration in Julius Caesar? That's how an experienced business executive or lawyer would view IP Nav's assertions that "we are focused on addressing these issues without the need for costly and protracted litigation" and "our client's preferred approach is to conclude licensing discussions without resorting to litigation. We hope you share this objective." The implied "or else!" oozes from this letter like lye from lutefisk. To paraphrase an observation attributed to Anton Chekhov, you don't hang a gun over the mantle in Act I unless someone is going to fire it in Act III.
Not surprisingly, this wasn't the only time that IP Nav and Spangenberg tried these kinds of tactics. Rackspace recounts a similar approach from IP Nav:
Our dealings with this particular troll reach back to December 2010 when IP Navigation Group (IP Nav), as agent for a supposedly secret patent owner, now known as Parallel Iron, accused Rackspace of patent infringement. IP Nav told us that they could not divulge the details of their infringement claims – not even the patent numbers or the patent owner – unless we entered into a “forbearance agreement” – basically, an agreement that we would not sue them. IP Nav was worried that as soon as we found out what their patents and claims actually were, Rackspace would sue to invalidate their patents or for a declaration that Rackspace does not infringe.
Rackspace pushed back against this, and instead "negotiated a mutual forbearance agreement that required either party to give 30 days’ notice before bringing suit."

Since then, Parallel Iron has become a popular name in patent trolling circles, suing a ton of companies for their choice of file systems. They basically claim that the super popular Hadoop file system violates their patents, which seems incredibly dubious. Parallel Iron has already shifted around what patents it's suing over, as earlier cases got dismissed due to another mistake by Parallel Iron. As Rackspace's lawsuit explains:
Unfortunately, the lawsuits filed on the ‘565 patent were just part of the pattern of misconduct by Parallel Iron and IPNav. Parallel Iron-Texas did not have standing to sue because the ‘565 patent was not enforceable by Parallel Iron- Texas. The ‘565 patent was subject to a terminal disclaimer, requiring that the ‘565 patent be commonly owned with an earlier patent. Unaware that Parallel Iron- Texas had no right to enforce the ‘565 patent, many of Parallel Iron-Texas’s targets settled out to avoid the high cost of litigation. But when one of the targets discovered the lawsuit’s fatal defect, Parallel Iron-Texas immediately dismissed all but one of the remaining defendants (the last defendant, EMC, was not dismissed until July 2012).
However, the new version of Parallel Iron has filed nearly two dozen new lawsuits over the past few months making similar claims using other patents, and finally got around to suing Rackspace in one of these rounds. But, apparently someone forgot about that agreement that Rackspace had signed with IP Nav a couple years ago, and did not give Rackspace the 30 days notice. So, not only is Rackspace seeking declaratory judgment that it does not infringe, but it's also going after IP Nav for breach of contract.
Each party agreed “that it [would] not bring litigation against the other Party from the date of execution of [the Forbearance Agreement] until 30 days after either Party provides written notice to the other Party that discussions between the Parties have ended.” Parallel Iron provided no such notice, yet sued Rackspace in Delaware. Thus, it breached essentially the only covenant of the contract.

Parallel Iron’s premature lawsuit amounts to a material breach of the Forbearance Agreement. Rackspace has been completely deprived of the benefit of the Forbearance Agreement. Rackspace cannot be adequately compensated for Parallel Iron’s breach. Parallel Iron cannot cure its breach. Parallel Iron’s behavior—breaching the only covenant of the contract—cannot be said to comport with the standards of good faith and fair dealing.

IPNav—in addition to Parallel Iron—is liable on the Forbearance Agreement because it was the agent to an unidentified principal. The Forbearance Agreement did not contain any language releasing IPNav from liability.
Rackspace also notes that it "has been forced to expend time and money to defend" this "wrongfully brought" lawsuit, suggesting they're going to seek attorneys' fees as well.


Reader Comments (rss)

(Flattened / Threaded)

  1. This comment has been flagged by the community. Click here to show it
     
    identicon
    out_of_the_blue, Apr 12th, 2013 @ 10:05am

    Shell companies should be outlawed.

    They've NO legitimate purpose and are tools for abuse. They're easily and unambiguously spotted.

    Also easy to spot is unearned income. Outlaw it too.

    Most problems that Mike think due to patents are thereby solved. Yet again, Mike doesn't look at root causes, only narrowly at the effects.

    Now, I give two areas in which solution requires only political pressure -- true, regardless whether unlikely to come about. And Mike's suggestions for solution? ... Yeah, you'll wait forever. Never a position from Mike, and I think it's mainly because he's IN the moneyed class, just wants to tweak around the edges to keep the thieves from destroying the money machine.

     

    reply to this | link to this | view in thread ]

  2.  
    icon
    GMacGuffin (profile), Apr 12th, 2013 @ 10:07am

    The actual message is pellucid to any patent litigator, so that IP Nav's use of apophasis is disingenuous and unavailing.

    Judge's law clerk must have needed to break in a new thesaurus .

     

    reply to this | link to this | view in thread ]

  3.  
    identicon
    Anonymous Coward, Apr 12th, 2013 @ 10:08am

    Re: Shell companies should be outlawed.

    Then may I suggest you start your own blog whereby you can write about things that are of disinterest or of interest to you.

     

    reply to this | link to this | view in thread ]

  4.  
    identicon
    Scote, Apr 12th, 2013 @ 10:14am

    Hmm...

    pellucid |pəˈlusəd| |pəlˈjusəd|
    adjective
    translucently clear : mountains reflected in the pellucid waters.
    • lucid in style or meaning; easily understood


    Is there such thing as a one word oxymoron?

     

    reply to this | link to this | view in thread ]

  5.  
    identicon
    in_from_the_red, Apr 12th, 2013 @ 10:14am

    You guys ever get the feeling out_of_the_blue just sits staring at his screen looking at Techdirt and hitting refresh just waiting for a new Mike article so he can add his whimsical comments with absolute counterpoint? If an article said the sky was blue and grass was green, he'd say it was the other way around and that was that.

     

    reply to this | link to this | view in thread ]

  6.  
    identicon
    Mason Wheeler, Apr 12th, 2013 @ 10:26am

    Re: Shell companies should be outlawed.

    You've actually got a bit of a point here, about going after causes rather than effects. It seems to me that most of the problems we're seeing with the abuse of various IP laws have a single factor in common: the threat of litigation.

    Not the threat of punishment, or of losing in court, but of being taken to court at all. When lawsuits are too costly to defend against, so that even someone who is clearly in the right can still be ruined just from the suit alone (cf. Veoh) the whole system is broken.

    Reform the legal system, make it so that no one honestly believes that they will win needs to be afraid of ruination and judicial Pyrrhic victories, and patent trolling (and a host of other ills) will vanish overnight.

     

    reply to this | link to this | view in thread ]

  7.  
    identicon
    AC Unknown, Apr 12th, 2013 @ 10:47am

    Re:

    Yep. I think that. It could also apply to AJ, Darryl, and hurricane_head.

     

    reply to this | link to this | view in thread ]

  8.  
    icon
    DH's Love Child (profile), Apr 12th, 2013 @ 10:52am

    Re: Re:

    It does make me long (sometimes) for Angry guy (?) his posts were at least entertaining.

     

    reply to this | link to this | view in thread ]

  9.  
    identicon
    Titania Bonham-Smythe, Apr 12th, 2013 @ 10:52am

    I wonder if the solution is to treat this the way you have to treat someone who is blackmailing you - make the whole thing public despite the possible damage it might cause you. Blackmailers rely on you believing that it's worth paying to avoid possible discomfort.

     

    reply to this | link to this | view in thread ]

  10.  
    identicon
    Digitari, Apr 12th, 2013 @ 11:05am

    Re: Shell companies should be outlawed.

    well seeing as how Corporations are now considered to be people, are you advocating murder or abortion OOTB?

     

    reply to this | link to this | view in thread ]

  11.  
    icon
    Ninja (profile), Apr 12th, 2013 @ 11:15am

    Re: Re: Shell companies should be outlawed.

    I said before, there are some thoughts that are pretty interesting or debatable but he can't avoid attacking someone, anyone in his comments. It's kind of sad.

     

    reply to this | link to this | view in thread ]

  12.  
    icon
    Ninja (profile), Apr 12th, 2013 @ 11:18am

    Re:

    I wonder. If the damage caused is big enough why not go public regardless of gag orders or whatever consequences you might face? There are points you reach when there's nothing else left to lose. Any person can become the most dangerous thing once that point is reached. Much like animals.

     

    reply to this | link to this | view in thread ]

  13.  
    icon
    Gwiz (profile), Apr 12th, 2013 @ 11:26am

    Re: Shell companies should be outlawed.

    Also easy to spot is unearned income. Outlaw it too.


    Please define what "unearned income" means to you.

    Would that include the interest on my checking account? Would it include the inheritance my Dad spent his life earning and left to me? Would it include the free movie tickets I received for placing my business card in a fishbowl?

    Please elaborate.

     

    reply to this | link to this | view in thread ]

  14.  
    identicon
    Anonymous Coward, Apr 12th, 2013 @ 11:31am

    Re:

    I'm sure he gets paid to smear Mike and Techdirt... the sooner the better - probably uses an rss feed or something to notify him when something pops up and already has the comment templates setup to copy/paste, change a few words, done.

    Then wait for the paycheck!

     

    reply to this | link to this | view in thread ]

  15.  
    identicon
    Anonymous Coward, Apr 12th, 2013 @ 12:00pm

    Americas's war on innovation; one of the more successful it has waged.

     

    reply to this | link to this | view in thread ]

  16.  
    identicon
    Sunhawk, Apr 12th, 2013 @ 2:59pm

    Re: Re: Shell companies should be outlawed.

    My own thought is that, once a company has filed a lawsuit, they are now on the hook for defendant's attorney fees unless:

    1) They win the lawsuit, or
    2) A settlement is reached in which one of the terms is a reallocation of said fees in some mutually agreed-upon manner.

    Granted, that still leaves the threat, but if, once they file, they cannot drop the suit unless they're willing to pay the defendant's expenses... well, ideally a company would think carefully.

    Add in possible sanctions for a pattern of lost or dropped lawsuits in an area and that could do the trick.

     

    reply to this | link to this | view in thread ]

  17.  
    icon
    Duke (profile), Apr 13th, 2013 @ 2:38pm

    Re:

    Blackmailers rely on you believing that it's worth paying to avoid possible discomfort.

    Which is presumably why this patent troll has been requiring confidentiality agreements before disclosing any material information (as have similar trolls). By keeping it quiet they make it much harder to gain publicity and band together to fight them off.

     

    reply to this | link to this | view in thread ]

  18.  
    identicon
    staff, Apr 14th, 2013 @ 8:20am

    more dissembling by Masnick

    “patent troll”

    infringers and their paid puppets’ definition of ‘patent troll’:

    anyone who has the nerve to sue us for stealing their invention

    The patent system now teeters on the brink of lawlessness. Call it what you will...patent hoarder, patent troll, non-practicing entity, shell company, etc. It all means one thing: “we’re using your invention and we’re not going to stop or pay”. This is just dissembling by large invention thieves and their paid puppets to kill any inventor support system. It is purely about legalizing theft. The fact is, many of the large multinationals and their puppets who defame inventors in this way themselves make no products in the US or create any American jobs and it is their continued blatant theft which makes it impossible for the true creators to do so. To them the only patents that are legitimate are their own -if they have any.

    It’s about property rights. They should not only be for the rich and powerful. Show me a country with weak or ineffective property rights and I’ll show you a weak economy with high unemployment. If we cannot own the product of our minds or labors, what can we be said to truly own. Life and liberty are fundamentally tied to and in fact based on property rights. Our very lives are inseparably tied to our property. Large multinational corporations are on the brink of destroying the American dream -our ability to pull ourselves up by our bootstraps from the working classes by building our own companies while making better futures for our children and our communities.

    Prior to eBay v Mercexchange, small entities had a viable chance at commercializing their inventions. If the defendant was found guilty, an injunction was most always issued. Then the inventor small entity could enjoy the exclusive use of his invention in commercializing it. Unfortunately, injunctions are often no longer available to small entity inventors because of the Supreme Court decision so we have no fair chance to compete with much larger entities who are now free to use our inventions. Essentially, large infringers now have your gun and all the bullets. Worse yet, inability to commercialize means those same small entities will not be hiring new employees to roll out their products and services. And now those same parties who killed injunctions for small entities and thus blocked their chance at commercializing now complain that small entity inventors are not commercializing. They created the problem and now they want to blame small entities for it. What dissembling! If you don’t like this state of affairs (your unemployment is running out), tell your Congress member. Then maybe we can get some sense back into the patent system with injunctions fully enforceable on all infringers by all patentees, large and small.

    Those wishing to help fight big business giveaways should contact us as below and join the fight as we are building a network of inventors and other stakeholders to lobby Congress to restore property rights for all patent owners -large and small.

    For the truth about trolls, please see http://truereform.piausa.org/default.html#pt.
    http://www.hoover.org/publications/defining-ideas/article/142741

     

    reply to this | link to this | view in thread ]

  19.  
    identicon
    ROFL, Apr 15th, 2013 @ 12:02am

    Re: more dissembling by Masnick

    Yes, and show me one troll that actually (1) invented anything or (2) where the invention is actually useful. Most trolls buy inventions from companies and the inventors get nothing, nada, ziltch.

    So tell me how the trolls protect individual inventors? Actually, tell me how individual inventors not working in the tech business can invent anything useful?

    Answer: they don't. They just write patents to block actual inventions.
    I'd be curious to see what company scans patent applications for new inventions that it can use in its products. I'm betting the number is 0. Companies make inventions then look and see what type of patent headaches they may have to deal with. Patents by non-makers do not embody inventions, they embody barriers to invention.

    The one case that I am sympathetic to, which is virtually non-existent but does indeed exist for the few brilliant inventors, is the case of a contractor that actually invents something useful then a company steals his/her invention. Everyone wants to get behind this inventor, but patent trolls are not his champion. In fact they hate individual inventors because these individual inventors can devalue the patent portfolio the trolls pay for.

     

    reply to this | link to this | view in thread ]

  20.  
    identicon
    ROFL, Apr 15th, 2013 @ 12:07am

    Re: more dissembling by Masnick

    Yes, and show me one troll that actually (1) invented anything or (2) where the invention is actually useful. Most trolls buy inventions from companies and the inventors get nothing, nada, ziltch.

    So tell me how the trolls protect individual inventors? Actually, tell me how individual inventors not working in the tech business can invent anything useful?

    Answer: they don't. They just write patents to block actual inventions.
    I'd be curious to see what company scans patent applications for new inventions that it can use in its products. I'm betting the number is 0. Companies make inventions then look and see what type of patent headaches they may have to deal with. Patents by non-makers do not embody inventions, they embody barriers to invention.

    The one case that I am sympathetic to, which is virtually non-existent but does indeed exist for the few brilliant inventors, is the case of a contractor that actually invents something useful then a company steals his/her invention. Everyone wants to get behind this inventor, but patent trolls are not his champion. In fact they hate individual inventors because these individual inventors can devalue the patent portfolio the trolls pay for.

     

    reply to this | link to this | view in thread ]


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