Rackspace Sues Famed Patent Troll For Breach Of Contract

Patents

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.

Filed Under: breach of contract, erich spangenberg, patent trolls, patents
Companies: ip nav, parallel iron, rackspace