Techdirt. Stories filed under "litigation"

New Tool Lets You See How Often A Patent Has Shown Up In Litigation

Mike Masnick — Fri, 19 Apr 2013 15:25:24 PDT

A few years back, a patent attorney made a simple suggestion to me, asking that, whenever I write about patent lawsuits, that I include the US patent number on the patent within the text of the article. He explained that for those sued, one of the most useful things is to find other lawsuits regarding that patent, and it's actually not that easy, so having stories list the patent numbers becomes a big deal. In many cases, when companies are sued, their lawyer does a general search to see if the patent has been used in litigation before -- and it's that general Google Search, which is why the request was made to me to include patent numbers. However, for companies or individuals sued by patent holders, having a lawyer sit there and do a Google search can cost you an extra $500 to $700 per hour of lawyers' fees. Many lawyers have argued that the system needs to be much better.

Thankfully, the folks over at Patexia have recently launched a new feature on their site that makes it much easier to look up such things. For example, here are the Patexia results for lawsuits involving US Patent 6,857,067 which is held by Uniloc, who recently used it to sue X-Plane, Mojang and others. While, in that case, you can see all the recent lawsuits come from Uniloc (who could be searched via Pacer), it may not be as complex. But when patents get passed around a lot, following the trail isn't always so easy. No matter what, this seems like it could be a useful tool, especially for those sued by patent trolls.

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Patent Trolls Now Make Up More Than Half Of All Patent Lawsuits

Mike Masnick — Tue, 11 Dec 2012 15:52:38 PST

The latest research by law professor Colleen Chien is getting lots of much-needed press coverage, in that it reveals we've passed the tipping point with patent trolls, as more than half of all patent lawsuits were brought by trolls. In fact, her new report reveals that 61% of all patent lawsuits filed in the first 11 months of 2012... were from patent trolls. That's an astoundingly large number -- and one that is growing fast. The same report notes that just last year the number was 45% and five years ago it was just 23%. When does the government wake up and realize we have a serious problem on our hands?

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The Dark Patent Troll Rises: Now 40% Of All Patent Litigation

Timothy Geigner — Mon, 15 Oct 2012 09:50:26 PDT

With story upon story upon story (upon story) of how patent trolls, those non-producing entities that derive income solely through litigation and threat thereof, are enormous leeches on innovation and progress, you may have noticed something. You possibly thought to yourself, "it sure seems like we're hearing more about these vampiric bastards these days". Guess what? You are, because there's more of them. Vastly more.

According to a recent study by Robin Feldman of UC Hastings College of Law and Lex Machina, the percentage of patent cases finding their way to court jumped from 22% in 2007 to 40% in 2011. Note that the following graph is a corrected graph issued after the initial report by the authors.

The study was inspired by the America Invents Act, last year's largely toothless overhaul of the patent system. In it, Congress asked the Government Accountability Office (GAO) to study the impact of non-practicing entities—a more clinical term for patent trolls—on the economy. Because Lex Machina already had a database of patent litigation, the GAO asked it to produce a random sample of 100 patent lawsuits for each year from 2007 to 2011. In addition to supplying the GAO with the data it needed for its forthcoming study, Lex Machina decided to publish its own interpretations of the sample.

As the Ars Technica piece notes, that shocking statistic above doesn't even tell the whole story. When you consider that patent litigation as a total has jumped in volume, coupled with the number/percentage of patent troll threats settling well outside of the courtroom, experts figure that the size of the patent troll leeches are roughly double the size of your average adult kraken.

"From all appearances, lawsuits filed are only the tip of the iceberg (editors note: kraken-sized leeches often hide under iceberg tips), and a major operating company may face hundreds of invitations to license for every lawsuit," the authors write.

The America Invents Act was enacted in the final months of the study period. And there was at least one minor change designed to deter troll behavior: the law made it harder to name many defendants in a single lawsuit. But the law's main provisions, such as the switch from a "first to invent" rule to "first to file" is unlikely to affect the volume of troll litigation.

Hell, this all sounds like promoting the progress to me. That, or some flavor of patent abuse. Surely it's one of the two...

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New Patent Reform Bill Defines Software Patents; Targets Trolls

Mike Masnick — Wed, 1 Aug 2012 14:05:32 PDT

We've discussed the "America Invents Act," a patent reform bill that passed last year after years of Congressional fighting. As we (and plenty of others) noted at the time, for all the hyperbole around the bill, it completely ignored nearly every problem with the patent system today, and seemed almost entirely useless. Our worry, then, was that this would kill off any appetite for Congress to take on the real problems of patents today. So it's good to see that a new patent bill has been introduced -- by Reps. Peter DeFazio and Jason Chaffetz, with a very, very minor change to patent law: it would allow those sued for hardware or software patents the ability to recover litigation costs if it's determined that the suing patent holder "did not have a reasonable likelihood of succeeding."

In other words, this is a bill targeted very directly at the pure trolls: the patent holders who sue companies with no real intention of taking a case to court, but rather just to get them to pay a settlement fee to avoid the (expensive) court costs in defending a patent infringement claim (which is quite frequently much more expensive than the settlement options):

Notwithstanding section 285, in an action disputing the validity or alleging the infringement of a computer hardware or software patent, upon making a determination that the party alleging the infringement of the patent did not have a reasonable likelihood of succeeding, the court may award the recovery of full costs to the prevailing party, including reasonable attorney's fees, other than the United States.

But what's much more interesting about this is that it seeks to carve out a specific definition for software patents. I know that in software circles there's been plenty of talk over the years about the problems of software patents, and many don't believe that software should be patentable at all. However, as defenders of the patent system like to point out, there's no such "thing" as a "software patent" defined in the law, so it would be difficult to say software isn't subject to patents. Well... this bill defines software patents:

SOFTWARE PATENT.--The term 'software patent' means a patent that covers--

"(A) any process that could be implemented in a computer regardless of whether a computer is specifically mentioned in the patent; or
"(B) any computer system that is programmed to perform a process described in subparagraph (A).".

Given the massive fight in previous years over patent reform, I fully expect to see patent system supporters throw a massive hissy fit over this very, very minor change to patent law, but it's so minor that I'm at a loss as to how they'll have any compelling argument. The only reason I can think to be against the changes here is if you're in the business of abusing the patent system to shake down innovators. I actually think that supporters of the patent system, such as pharma companies, should support this kind of change too. If the patent system can successfully slice off the problems associated with software patents, it means that there will be less pressure for massive patent system changes.

Of course, if you want real patent reform that takes on the larger issues that impact all sorts of areas (beyond just software), we've made clear our suggestions -- though there doesn't seem to be any appetite in Congress to make such major changes in the near future.

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You Don't Need A Mythical Club Membership To Call Yahoo's Patent Threat Against Facebook Desperate

Mike Masnick — Wed, 29 Feb 2012 15:06:32 PST

We just wrote about Yahoo admitting to the world that it was done and cooked as an innovative company when it chose to threaten to sue Facebook over patents. Plenty of other commentators wrote similar stories. We've all seen this pattern before: Company that used to lead the market, but has become an also-ran, suddenly pops up with patents to sue the hot new thing. It's a sad statement of a company that just can't compete any more. However, in a really, really bizarre screed, hedge fund investor Eric Jackson seems to suggest there's a crazy conspiracy of hypocritical bloggers making these statements.

It should be noted that Jackson has a bit of a reputational stake here: four months ago, he specifically called on Yahoo to do exactly what it's doing now. So, now he seems to want to defend this turf, but his argument is bizarre and nonsensical. It starts off with a crazy conspiracy theory about how Silicon Valley bloggers have a special "clubby" relationship with VCs:

If you’re a blogger, you play nice to keep future sources happy (unless you’re someone like Kara Swisher and reached another level of appreciation/admiration). If you’re a VC, what makes your $10 million check more valuable than the next guy’s? Of course, you’re going to be nice. It’s all about access for these non-engineers. If you’ve been black-balled in Palo Alto – whether you’re a VC, blogger, or PR person — what advantage do you have?

Considering that I am a "Silicon Valley blogger" and have been around and doing this longer than anyone he mentions, I find this curious. I know it's become a popular talking point lately -- this supposed close relationship between VCs and bloggers -- but I seem to get by just fine without such relationships (yeah, I know some VCs, but I don't recall ever using one as a source, other than on information they stated publicly -- so not as a "scoop"). As for "what advantage" you have, if you don't have VCs feeding you information, that's a ridiculous question. Plenty of blogs have advantages in the community of readers they have and the analysis and insight they provide. Jackson seems to believe that the way a blogger can provide value is by being first. He's wrong.

He follows this up with an argument that doesn't make any sense at all -- something about the fact that new nominees to Yahoo's board are all from New York... and that means something crazy about the "negative reputational effects" it would have on anyone in Silicon Valley to serve on Yahoo's board. I have no idea what this means. I can't think of any negative reputational effect it could possibly have. He also mentions the "open secret among Silicon Valley elites that Yahoo! is in great need of reform." Wait. That's an "open secret"? How about it's not a secret at all. It's common sense to anyone who has watched Yahoo fade from glory and fail to actually keep up in the marketplace. Suggesting all this stuff about "open secrets," "Silicon Valley elites," and "reputational effects" just makes it sound like there's a conspiracy going on where there's none. Someone has hit the paranoia sauce hard.

What does all of this have to do with patents? I have no freaking idea. And neither does Jackson, who transitions with the grace of a rhinoceros ballerina, by simply switching to the patent question and insisting that this somehow "proves" the nonsense he just spouted.

But the vocal, nonsensical, and hypocritical response this morning to Yahoo! serving Facebook notice that it’s in violation of 10 - 20 key patents by several Silicon Valley watchers takes this clubbiness to new heights.

A bunch of veteran Silicon Valley observers, who know damn well what Yahoo's move is a sign of, isn't evidence of any "clubbiness." It's evidence that a bunch of people who know this space have seen this train wreck before. He then attempts to explain the "two big problems" with people pointing out that Yahoo's actions are a bad sign.

The merits of their assertion that anyone claiming intellectual property rights is somehow a “troll” and “not innovating.” When did we decide that IP is reprehensible? I missed that lesson at blogging school.

Er. It's not "blogging school." It's just Silicon Valley (and history) in general. We believe in innovating in the marketplace, not fighting in the courtrooms for the most part. A study last year suggested that somewhere between 70% and 80% of folks in Silicon Valley are generally distrustful of patents. I learned that by paying attention to reality. Not blogging school.

Should no company be able to “innovate” something without it immediately being copied by dozens of other firms? Is mass copycatting preferable to having rule of law saying someone should be able to come up with a new idea — as recognized by an impartial third party — and then have that idea protected for some period of time (not forever)?

Actually, there have been studies and research that suggest that despite Jackson's mocking rhetoric, indeed, yes, the ability to copycat is preferable to monopolies on ideas. Why? Because merely being a copycat isn't particularly effective. First movers have an advantage, and you win in the marketplace not by copying, but by out-innovating and providing something better. Even better, as others copy you and try to out innovate you, you get to learn from them too. And thus, innovation accelerates. That's a good thing.

If Sarah Lacy et al. find IP so reprehensible, I would ask them: are you arguing for Silicon Valley to be a place much closer to China where Internet firms can engage in mass copycatting immediately as a normal course of business? Is that what you want? Is that what your sources at Facebook, LinkedIn, Digg, and all the other great Web 2.0 companies of the future want?

It's already the normal course of business for the most part. We see copying happen all the time, and history has shown that's where much of Silicon Valley's innovative nature comes from. And I have no idea what the sources at these companies want -- but in general, yes, most of the folks I know in Silicon Valley seem to prefer to compete in the marketplace. I was at a roundtable of entrepreneurs not too long ago, meeting with some federal officials, discussing patents, and the officials seemed to expect that everyone would talk about the importance of more patents. Instead, every single entrepreneur talked about how patents were a distraction and a hindrance to their business. Multiple entrepreneurs talked about how they didn't care if people copied them, because they understood their own customers better and were already ahead in the market. Jackson seems to ignore all of this.

The obvious hypocrisy between these Valley-types criticizing Yahoo! and yet whistling past the Cupertino graveyard with Apple is what’s really galling to me. If all of you are so incensed by a company protecting its IP rights, why are you not picketing in front of Tim Cook‘s house? Hasn’t Apple pursued this line of defense/offense for its business most aggressively of anyone in the Valley?

Er... we've criticized Apple's patent strategy plenty and have done done so for years.

It goes back to clubbiness. One of the rules of the Valley is that no one criticizes Apple (or Google for that matter).

Geez. I guess all those blog posts above don't exist. And, honestly, that's just crazy talk. I know tons of "Silicon Valley bloggers" who criticize Apple (and "Google for that matter") all the time. Just for the hell of it, since all the links above are about Apple, here are some criticizing Google too, for "that matter."

Does Jackson even read the blogs he's slamming?

And for those saying that Yahoo! caved to Wall Street pressure to launch a patent fight now against Facebook prior to its IPO, this avoids looking at some key facts. Starting in 2005, Yahoo! began to make a concerted effort to develop its patent portfolio. According to PatentVest, Yahoo! was granted 20 patents in 2002 by the US PTO, 50 in 2006, 80 in 2008, 300 in 2010, and 325 in 2011. One of the key IP lawyers at Yahoo! in 2006 left the company shortly thereafter to take a more senior job at Google doing the same thing.

All companies in Silicon Valley recognized this trend and began investing in protecting their IP starting in 2006. Yahoo! was one of many doing this. When Yahoo! began growing its portfolio, it was before anyone realized Facebook was going to be the size it is today. Of course, Yahoo! famously tried to buy Facebook for $1 billion in 2006 — which was seen as an outlandish number to pay at the time by the blogosphere.

This is a convenient rewriting of history. While he's right that many companies in Silicon Valley started investing heavily in obtaining patents around that time, it wasn't to use them as an offensive weapon -- but as a defensive weapon against silly lawsuits from dying companies... like what we're seeing with Yahoo today.

Which brings us to today. Yahoo! has a case against Facebook. It might have cases against others in the future. Yahoo!’s owned by its shareholders – not the clubby bloggers of Silicon Valley.

Let the bloggers do what they need to do to protect their self-interests. Yahoo! will do the same.

But that's the thing: this strategy never works. That's what the bloggers were saying. Because we've seen it. The companies that start suing more nimble, more successful competitors over patents, always end up failing in the long run. That's why it's a clear indicator of a company that's done innovating. Breaking out the "sue over patents" folder is a key sign of a company that knows it can't compete. Because when you can beat the competition by innovating, suing over patents is always seen as a waste of time.

Shareholders in Yahoo -- and Jackson admits that he is one -- may get some short term benefits, if it happens to get a chunk of cash from some company, but when a company that fits Yahoo's profile starts suing over patents, it's a clear, clear sign that it's time to short that stock. The company has given up.

And I'm still wondering when I get invited into this supposed "club."

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Yahoo Going Patent Troll: Threatens Facebook Over Patent Infringement

Mike Masnick — Tue, 28 Feb 2012 14:37:00 PST

We've said it a bunch of times here in the past when describing the life cycles of tech companies: when you're young, you innovate. When you're old, you litigate. We've seen it time and time again. The big tech companies that are no longer innovating and are far removed from their former position as major players in the market, make one last grasp at relevance by breaking out their patent portfolio and beginning to sue. The latest to take this death knell step appears to be Yahoo, which is threatening to sue Facebook for patent infringement. This may be a sad end to the legacy of Yahoo -- a once innovative company that has made pretty much all the wrong moves over the last half-decade or so, that is now left to snipe at those more innovative and nimble.

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Lead Inventor On One Of The Patents Paul Allen Is Suing Over Worries About Litigation Over Innovation

Mike Masnick — Mon, 31 Jan 2011 02:31:39 PST

We've been covering Paul Allen's move into patent trolling in which he's suing Google, Apple, AOL, eBay, Facebook, Netflix, Yahoo and others over a set of incredibly broad patents, covering things like "recommendations," "alerts" and popping up information in the corner of your screen. The EFF points out that Michael Naimark, the lead inventor on one of the patents, 6,757,682, on "alerting users to items of current interest," has put out a statement about the lawsuit.

He does note that he is contractually obligated to "defend intellectual property to which [he] contributed and to respect confidentiality," and he intends to live up to those obligations. However, he did not sign any kind of "no-speak" or "non-disparagement" agreement, and thus he's comfortable making a general statement expressing concern about how much money is focused on litigation instead of innovation these days:

I am also committed to fostering a vibrant creative culture. Long-term labs like Interval Research don't come along often, and I'm grateful for Paul Allen's support. But the stage is now set for enormous resources, from all sides, to support litigation over innovation. The creative community needs all the support it can muster, and it's a perplexing thought that the money at risk in this lawsuit will likely exceed the annual budget of the National Endowment for the Arts, possibly several times over. It could be hugely significant if all parties commit to something good for the creative community as an outcome.

While the statement is carefully worded and balanced, it's good to see him at least suggest there's a serious problem in how much litigation has taken over for actual innovation.

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I Hear The Weather's Nice In East Texas, Too, But I Doubt That's Why Patent Litigants Move There...

Mike Masnick — Fri, 26 Mar 2010 00:53:38 PDT

We're all familiar with the many reasons why patent holders try to file their lawsuits in East Texas -- a notoriously "patent holder friendly" court, such that the it remains (far and away) the most popular court for patent lawsuits. However, in recent years, there has been some effort underway to get cases that obviously don't belong in East Texas to be moved elsewhere, with some success. However, to deal with this, we've seen a variety of tactics from patent holders, including suing lots of companies in a variety of places so that "any place" is better than somewhere else and picking a random tiny local East Texas company to sue along with all the big companies, just so you can claim "hey, the lawsuit belongs in East Texas."

Apparently, another tactic is to move your "operation" from wherever it was to East Texas just before filing the lawsuit -- so you can claim that you're actually based there. That happened in a recent lawsuit, and the company being sued tried to have the venue moved, claiming that the "move" to East Texas was "a sham" designed solely to set the venue. However, as Joe Mullin notes, East Texas' most famous judge for patent cases, Judge Ward, is having none of it, suggesting there are plenty of other reasons a company might "move" to East Texas right before suing over patent infringement:

"[Defendant] argues that [plaintiff] moved its location from Ann Arbor to Longview as a sham concocted simply in anticipation of this litigation. . . . [A] business opens its doors in a particular location for a number of considerations, including the cost of rent, market profitability, cost of doing business, and tax benefits. The Court declines to scrutinize litigants' business decisions in order to determine whether opening an office in a particular location has a legitimate business purpose or is merely a 'tactic . . . to manipulate venue.'

If you want to make some quick money, now might be a good time to set up a business that helps "small companies" quickly "set up offices in East Texas," because I get the feeling it's about to become a booming business.... for the tax benefits, of course.

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Nokia Getting Killed In The Smartphone Market... So Of Course It Sues For Patent Infringement

Mike Masnick — Thu, 22 Oct 2009 15:22:49 PDT

Funny how this works, right? Just a week or so after it's first ever quarterly loss and an admission that it totally screwed up in the smartphone market, Nokia suddenly sues Apple for patent infringement over the iPhone. It looks like the old adage is true again: if you can't innovate, litigate! It's the same story all over again. A company that was a leader in the market but got complacent and lazy, suddenly finds that it lost its lead to a more innovative upstart. Since it's so far behind, even scrambling around doesn't help it to catch up, so it just starts suing over patents.

This story nicely highlights a few other points as well. We keep hearing from patent system supporters how the patent system is necessary because, without it, the market leader would always just immediately copy the upstart and "steal" their idea. Of course, Nokia has had two plus years to "steal" Apple's idea, and where is it in the smartphone market? It's not so easy to just copy someone else's idea -- especially if you're a huge player like Nokia, who will often view the disruptive innovator as not being worthy of paying attention to (which basically was Nokia's reaction to the iPhone).

Separately, remember how confused we were when Steve Jobs proudly hyped up the fact that Apple had over 200 patents on the iPhone concept? We've pointed out that it's hardly done anything to stop lawsuits. Apple has been sued over and over and over and over and over and over again for patent infringement. Welcome to the tragedy of the anti-commons, where it becomes impossible to do pretty much anything innovative without facing massive legal costs. Basically, if you build anything even remotely innovative these days, you're going to get sued for patent infringement, probably multiple times. It's become a massive tax on innovation, rather than a lever for innovation.

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Our Litigious Society: Woman Sues Daughter-in-Law Comedian Over Jokes

Mike Masnick — Mon, 31 Aug 2009 12:23:00 PDT

In-law jokes are a pretty standard staple of the standup comedy business. They can be pretty funny too... even if the concept is a bit dated. But, apparently, they're not so funny to the in-laws of comedian Sunda Croonquist. ChurchHatesTucker alerts us to the news that Croonquist's mother-in-law and sister-in-law are suing the comedian for cracking rather typical "in-law" jokes, which, apparently the in-laws didn't find to be all that funny. They're suing for defamation, even though you have to wonder if anyone actually takes such jokes seriously. I mean, it's a comedian. Of course the jokes are either made up or exaggerated for comedic effect. Still, probably makes for a frosty family gathering.

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New Patent Buying Firm Swears It'll Never Litigate Over Its Patents

Mike Masnick — Tue, 25 Nov 2008 03:11:00 PST

When Intellectual Ventures first came about, Nathan Myhrvold convinced tech companies to back him, with a business plan that was all about pooling resources to buy patents for defensive purposes. The original pitch was that by joining with IV, you could make use of the patent portfolio to protect yourself against potential patent lawsuits. Except that once things got going, Myhrvold admitted that to make this work, the threat of also suing people for patent infringement had to be on the table (though, it hasn't reached that point yet). So, consider me quite skeptical of some former IV execs who have gone off to start a new firm that sounds suspiciously like IV's original plan.

It involves getting a bunch of tech companies to pay up, so that this new company, RPX Corp., can buy up a bunch of patents "for defensive purposes only." The company insists it won't sue anyone with these patents. But, of course, the whole thing makes you wonder. For the companies that buy into RPX's deal (or IV's for that matter), they end up spending a bunch of money for a rather weak form of insurance that protects them in the very rare case where they might be able to use a patent in either firm's portfolio to maybe, possibly protect itself against an infringement lawsuit. It won't stop others from suing, of course. And, if RPX is serious about not suing for infringement, then why won't other firms just free ride? They get the benefit of those patents not being in litigious hands, but without having to pay. The whole situation just shows how ridiculous the patent litigation world is these days, that a bunch of companies feel the need to fund other companies to buy up patents just so they're not sued. That's not quite "promoting the progress."

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How Software Patents' Fuzzy Boundaries Create Unnecessary Litigation

Timothy Lee — Fri, 23 May 2008 10:35:00 PDT

James Bessen and Michael Meurer, authors of an important new book on the patent system, have a great post on the problems created specifically by software patents. They argue that the most serious problem with software patents is that they tend to cover abstract concepts rather than specific physical devices or processes. As a result, the boundaries of software patents tend to be uncertain, leading to a lot of litigation. In many areas of patent law, the "enablement" rule (which says that patent applications have to describe an invention in enough detail to "enable" someone to replicate it) helps to ensure more precise definition of patent boundaries. But the patent office only requires a general description of an "invention's" functionality to get a software patent. As a result, there tends to be a lot of uncertainty about what a software patent covers, and uncertainty inevitably spawns litigation.

Bessen and Meurer don't offer a strong recommendation on the best way to solve the problems with software patents, but they tentatively endorse a "subject matter test" -- that is, reinstating the ban on software patents -- as one part of a solution to the problem. However, they worry that a subject matter restriction won't entirely solve the problem because applicants might resort to creative drafting to evade it. I'm not sure it's so hard to draw a line to exclude software patents. Ben Klemens has suggested a standard that strikes me as pretty serviceable: mathematical algorithms are not patentable, and coupling an algorithm with "insignificant postsolution activity" does not transform an unpatentable mathematical algorithm into a patentable machine. In particular, the mere act of loading software onto an ordinary general-purpose computer cannot transform an unpatentable algorithm into a patentable machine. Although this standard might not invalidate all problematic software patents, it would invalidate most of the really harmful ones. To take one example, NTP's infamous wireless email patents almost certainly wouldn't pass muster under Klemens's test because the "invention" in question consisted of running certain email-processing algorithms on generic computer hardware. If you took away the software component, you'd be left with an unpatentable collection of generic computers and generic wireless links. I'm sure there would be some hard cases that Klemens's test wouldn't deal with precisely, but it's certainly more precise than the tests the Federal Circuit is using now.

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Facebook/ConnectU Settlement Shows Why Losers Litigate

Mike Masnick — Mon, 7 Apr 2008 14:40:28 PDT

Last year, in the midst of various claims from multiple different people that Mark Zuckerberg somehow "stole" the idea for Facebook from other Harvard students, we noted that it really didn't matter. After all, the basic concepts behind Facebook were hardly new when Zuckerberg started it. There had been sites like SixDegrees, Ryze and Friendster long before Facebook came along. What mattered wasn't the idea, but the execution -- and for whatever reason, what Zuckerberg did with Facebook got traction while the others did not. That's called competition, and we generally think that leads to a healthy economy. Yet, the founders of ConnectU, the competing site that went nowhere, sued Zuckerberg and Facebook over this, and both sides were pushed by a judge to settle out of court -- and that appears to be exactly what's happening. The NY Times is reporting that Facebook has reached some sort of settlement with ConnectU's founders.

This sort of thing was inevitable, but it's still problematic. With Facebook generating so much publicity lately, and potentially gearing up for an IPO, it doesn't want these types of lawsuits hanging over it. So it's worth more to just settle and pay up, even if the claim itself is bogus. Yet, all this really does is encourage more similar lawsuits from companies that lost in the marketplace whining about competitors who did a better job executing. While some may say the ConnectU case is different because Zuckerberg worked with ConnectU for a few months, that hardly changes the basic facts of the case. This wasn't a new idea, and it's unlikely that ConnectU had done anything remarkably different than other competitors out there. In fact, it seems clear that it did not, since the site never went anywhere. Yet, because it's cheaper for Facebook to pay out and keep this quiet, ConnectU's founders get paid for failing in the marketplace. That's a bad precedent no matter how you look at it.

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