Intellectual Ventures' Evil Knows No Bounds: Buys Patent AmEx Donated For Public Good... And Starts Suing

from the despicable dept

Intellectual Ventures may be running out of cash, but that doesn't mean it's slowed down the pace of evildoing. If you look over its recent lawsuits, you'll notice that over the summer, Intellectual Ventures was busy suing a bunch of banks, including Capital One (that lawsuit is embedded below). At least some of those lawsuits involve US patent 6,182,894 entitled: "Systems and methods for authorizing a transaction card." In short, it basically describes the concept of the CID or CVV number that is found on the back of most credit cards today, which you often have to enter when purchasing stuff online with a credit card. Now, we may question how the hell the idea of adding 3 numbers to the back of a card as a security measure should be patented in the first place, but let's leave that aside for a moment.

Instead, let's go back a bit to look at the history of this patent, and a man named Bernard Bilski. As you may recall, Bilski was involved in what appeared to be a key lawsuit concerning the ability to patent software. Eventually, the Supreme Court gave a very narrow ruling on the issue that didn't provide very much clarity at all on the question of software patents. However, go back a little bit further, to one of the Bilski appeals, heard by CAFC. Lots of different players on all sides of the patent debate lined up to supply amicus (friend of the court) briefs. One of them was American Express, who (somewhat ridiculously) argued in favor of software and business method patents. And, in a bit of news that is rather important here, it happens to use patent 6,182,894 as an example of why these kinds of patents are so important, wherein it gives us a history of that patent up until 2007 or so. It talks about the importance of CID/CVV numbers for credit card security and fraud reduction, and then notes the following:
Recognizing the value of this fraud reduction process to not only the financial services community, but also to the individual consumer, American Express donated the ’894 patent to the not-for-profit corporation Consumer and Merchant Awareness Foundation ("CMAF"). According to the CMAF, “the core objective of CMAF is the cultivation and encouragement of responsible, proven practices that sustain and build consumer and merchant confidence in the financial services marketplace.” The CMAF seeks to achieve this objective by raising awareness of best practices to protect consumers and merchants. The "CMAF views the ’894 Patent as an asset that should be used to help fulfill its mission." As owner of the ’894 patent, the CMAF can license the process disclosed in the ’894 patent throughout the financial services industry. If patent protection had not been available to drive the initial innovation costs, this method may not have been developed or made available to the CMAF to advance the process industry-wide. CMAF, which is currently developing its licensing policy, states that it is committed to “refrain from actions that will result in enforcement of intellectual property against issuers, acquirers, merchants or consumers related to activity in the retail financial services and payment areas.” As a result of this policy and its licensing efforts, CMAF will make this important fraud-prevention technology available throughout the financial services industry.
Those quotes are from CMAF's website. As a quick aside, I'll note that AmEx's argument here is totally nonsensical. If AmEx was planning to donate the details of this patent to a non-profit and make sure that any card issuer could use it... then what's the patent for? AmEx could have just as easily publicly released a description of the concept or tried to create a standard or something. There's absolutely no reason for a patent since the only thing a patent lets you do is exclude others. The idea that you'd need a patent to come up with this... only to then donate it to a non-profit that promises not to enforce the patent against anyone in the space just doesn't make any sense. You don't need a patent for that.

And, actually, the end result here shows why patents like this are bad. Because even after AmEx got the patent and donated it, and after CMAF flat out promised not to enforce the patent against banks, that's exactly what's happening now -- thanks to the pure evil of Intellectual Ventures. The record shows that, in June of 2009, the patent changed hands from CMAF to an organization called Losipial Wireless, who has been identified as an Intellectual Ventures shell company. And then, just this past May, right before IV started suing banks over this patent, Losipial assigned the patent directly to Intellectual Ventures. And then Intellectual Ventures started suing. So you have a situation where even when the original patent holder donated the patent for "the public good," sooner or later, an obnoxious patent troll like IV comes along and turns it into a weapon.

Again: AmEx patented those little numbers on your credit card, and then for the good of the industry and consumer protection donated the patent to a non-profit, who promised not to enforce the patent against banks... and then proceeded to sell the patent to Intellectual Ventures who is now suing banks over it.

What I haven't yet been able to figure out is what happened to CMAF itself. The website still exists, though it's pure brochureware, and there's little info on the site. If you poke around, the page with the description of the patent still exists (even though AmEx cited the wrong link in its brief). If CMAF sold off the patent in 2009, you'd think somewhere in the intervening 4 years, someone would think to take down the page about that patent -- if anyone actually worked at CMAF. I've sent them two separate emails, but never heard back. It's worth noting that American Express has a deal with Intellectual Ventures. I'm sure AmEx also got a nice tax deduction for "donating" the patent to CMAF (CMAF's website plays up that there are tax benefits to donating patents to it). And then IV gets to still sue a bunch of AmEx competitors over the patent AmEx insisted it was donating for the good of the public... Nice trick.




Reader Comments (rss)

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  1.  
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    Zakida Paul (profile), Oct 8th, 2013 @ 11:11am

    Intellectual Ventures is iron clad proof of how broken the patent system really is. Surely, the government and courts can see this.

     

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  2.  
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    DannyB (profile), Oct 8th, 2013 @ 11:21am

    Promisary Estoppel?

    That is a term learned in the early days of the SCO fiaSCO.

    Basically, you can rely on a promise that a previous owner made that would insulate you from legal liability.

    Once upon a time AT&T licensed it's proprietary Unix system. AT&T publicly promised that if you made modifications to the source code, those modifications were yours and did not belong to AT&T. Later, SCO claims that it owns Unix (later proven false) and SCO sues IBM for taking IBM's modifications to Unix and distributing them for free as part of Linux. IBM had relied upon AT&T's earlier promise. It does not matter the chain of ownership that led to SCO owning Unix (which it did not actually even own). IBM could invoke Promisary Estoppel. (IBM had lots of other defenses, including that SCO did not own Unix.)

    IANAL. Just remembering all of the insightful and educational information from the early days of Groklaw.

    Now if the inventor of a patented subject had donated the patent to a non profit with the express purpose of preventing banks from being sued over the patented subject matter, then shouldn't banks now be able to rely on that earlier assurance?

     

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  3.  
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    DannyB (profile), Oct 8th, 2013 @ 11:27am

    Re: Promisary Estoppel?

    Wouldn't Intellectual Vultures and the non profit be unable to revoke that earlier promise that banks had relied upon in order to practice the patented subject matter?

    If you could not rely on Promissory Estoppel, then Intellectual Vultures could engage in a new business model!

    Party A gets a patent. Party A promises not to sue and widely publishes the patent, and especially convinces open source projects to practice the trivial, ridiculous and never-should-have-been-patented subject matter. Later, Party A sells patent to Intellectual Vultures, who then sues everyone. While the one suing over the patent (Intellectual Vultures) can no longer hide it's identity, both Intellectual Vultures and Party A might be able to sufficiently disguise the identity of Party A, which in reality is just an Intellectual Vultures shell.

    http://legal-dictionary.thefreedictionary.com/Promissory+Estoppel

     

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  4.  
    identicon
    Dan B. not to be confused with DannyB, Oct 8th, 2013 @ 11:37am

    CMAF?

    Is CMAF owned and operated by IV as a shell company? Certainly seems that way.

     

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  5. This comment has been flagged by the community. Click here to show it
     
    identicon
    out_of_the_blue, Oct 8th, 2013 @ 11:38am

    The patent system as such isn't broken: corporatists use it.

    Mike spends a paragraph and more flailing around wondering, "then what's the patent for?", without quite admitting the possibility that AmEx too is a bad actor. -- My opinion is that Mike is pro-corporation and as practical matter CAN'T consider any corporation as evil. -- But from evidence; the patent and its phony (no doubt tax-deducted) donation was clearly to gin this up out of nothing at all, quite likely in cahoots with those above.

    "patents like this" -- There's your problem. -- Now, college boy, where are your specific terms for eliminating useless and trivial patents? For many years, you've touted alleged expertise and ranted about mis-uses, but where are your bullet points outlining what's good about patents and should be preserved, or how to bring bad corporate actors under control? Kibitzer.

     

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  6.  
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    Anonymous Coward, Oct 8th, 2013 @ 11:48am

    The other patents are bad, too

    The other patents in the cited case are:

    7664701 - Masking private billing data by assigning other billing data to use in commerce with businesses
    7603382 - Advanced internet interface providing user display access of customized webpages
    8083167 - Administration of financial accounts
    7260587 - Method for organizing digital images

    In other words, it's a suit over absurd "business method on the internet" patents, with the '894 patent thrown in as icing on the cake.

     

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  7.  
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    TheLastCzarnian (profile), Oct 8th, 2013 @ 11:48am

    Now I sorta understand

    I never understood why Linux coders were so adamant about not using Mono, when Microsoft had a "promise not to sue" pasted all over the place. Now I understand: they can just give whatever patent to IV to sue. Easily. They already have a relationship.

    What I don't understand about Linux coders is that they don't have the same trepidation about Java, when Oracle has already sued over Java technology. If anyone knows, feel free to explain...

     

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  8.  
    identicon
    Anonymous Coward, Oct 8th, 2013 @ 11:55am

    Re: The patent system as such isn't broken: corporatists use it.

    Now, college boy, where are your specific terms for eliminating useless and trivial patents? For many years, you've touted alleged expertise and ranted about mis-uses, but where are your bullet points outlining what's good about patents and should be preserved, or how to bring bad corporate actors under control? Kibitzer.

    You seem to post that every time there's a story about patents. And yet you ignore that Mike has posted exactly that. Multiple times.

    http://www.techdirt.com/articles/20110819/14021115603/so-how-do-we-fix-patent-system.shtml
    http://www.techdirt.com/articles/20121127/11245721156/some-thoughts-fixing-problems-patent-system. shtml
    http://www.techdirt.com/articles/20120712/18322919680/judge-posner-mission-to-fix-patents-we- have-some-suggestions.shtml

    Can you at least admit that you're wrong about claiming he's never made suggestions? I doubt it.

     

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  9.  
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    Gwiz (profile), Oct 8th, 2013 @ 11:56am

    Re: The patent system as such isn't broken: corporatists use it.

    Now, college boy, where are your specific terms for eliminating useless and trivial patents? For many years, you've touted alleged expertise and ranted about mis-uses, but where are your bullet points outlining what's good about patents and should be preserved, or how to bring bad corporate actors under control? Kibitzer.





    RTFW* Blue!




    Search Techdirt for the words "patent" & "fix"




    *Read The Fucking Website

     

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  10.  
    identicon
    jackn, Oct 8th, 2013 @ 12:02pm

    Re: Re: The patent system as such isn't broken: corporatists use it.

    If you don't pay attention to them, they go away.

     

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  11.  
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    Anonymous Coward, Oct 8th, 2013 @ 12:04pm

    Re: Now I sorta understand

    We now only look to the OpenJDK and code to that. Sun's original licenses for the version that was forked were very clear and something Oracle can't get around.

     

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  12.  
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    Anonymous Coward, Oct 8th, 2013 @ 12:04pm

    What really needs to happen here is someone like Warren Buffett or Bill Gates or Google or Microsoft, with loads of money, needs to sue IV and Lodsys and the rest of the vultures into oblivion. Squash 'em flat.

     

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

  13.  
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    Cowards Anonymous, Oct 8th, 2013 @ 12:05pm

    So CMAF is using it's fraud-prevention technology through a third party (IV) to commit fraud by suing merchants and consumers it promised to build confidence with and not to sue?

     

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  14.  
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    DannyB (profile), Oct 8th, 2013 @ 12:24pm

    Re: Now I sorta understand

    IIRC, Microsoft only had a promise not to sue over certain parts of the .NET ecosystem. I know the compiler and language definition were free to use. But if you re-implemented the runtime libraries, as Mono did, I don't know of any promise not to sue that covered that.

    In fact, I seem to recall that Microsoft had been asked to make such a promise if that is what they actually meant, and Microsoft refused to do so. Therefore, I would, as others did, see this as a trap. A trap that nobody fell into thanks to the bright light that illuminated the danger.

     

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

  15.  
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    Josh in CharlotteNC (profile), Oct 8th, 2013 @ 12:27pm

    Re: Promisary Estoppel?

    All true. And totally meaningless from the point of view of a patent troll.

    You still need to pay all the high-priced lawyers to argue that in court.

    If the settlement costs less than the lawyers, there's not many businesses willing to pay more than they need to.

     

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

  16.  
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    Derek Kerton (profile), Oct 8th, 2013 @ 12:28pm

    Re: The patent system as such isn't broken: corporatists use it.

    OOTB, you are positively a terrible reader, with consistently lacking retention and comprehension.

    You wrote that Mike criticized IV and the patent system "without quite admitting the possibility that AmEx too is a bad actor". You'd have to be an idiot to miss this:

    "I'll note that AmEx's argument here is totally nonsensical... I'm sure AmEx also got a nice tax deduction for "donating" the patent to CMAF (CMAF's website plays up that there are tax benefits to donating patents to it). And then IV gets to still sue a bunch of AmEx competitors over the patent AmEx insisted it was donating for the good of the public... Nice trick."

    And, PS, I recall that AmEx, at least years back, was a paying client of Techdirt expert insight, but Mike still criticizes them openly. It speaks to integrity. You could never spot integrity, because you can't get past the hurdle of understanding language.

     

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

  17.  
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    Mark B. (profile), Oct 8th, 2013 @ 12:32pm

    Re: CMAF?

    How very conspiratorial... On the other hand, CMAF doesn't appear to actually do anything, except hold a handful of patents and never update a crap website whose primary value is a bunch of links to external sites on its "resources" page.

    It's offices are listed at the same address as its (presumed) lawyers, K&L Gates. Too bad Amex isn't on their client list :P

     

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  18.  
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    John Fenderson (profile), Oct 8th, 2013 @ 12:35pm

    Re: Now I sorta understand

    I never understood why Linux coders were so adamant about not using Mono, when Microsoft had a "promise not to sue" pasted all over the place


    That's easy to understand. Microsoft has a long history of lying, cheating, and stealing -- particularly when it comes to All Things Linux. Microsoft is a bad actor and can never be trusted.

     

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  19.  
    identicon
    Anonymous Coward, Oct 8th, 2013 @ 1:04pm

    what a shame that the DoJ doesn't use some of it's ill-gotten consumer money to sue the likes of these and, come to think of it, Am Ex as well for pulling a stunt like this! it would be money better spent and gain some public brownie points instead of continuously ignoring matters that are for the greater good of all and concentrating on matters that are for the good of only a few that reside in the entertainment industries and Hollywood!!

     

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

  20.  
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    KJ (profile), Oct 8th, 2013 @ 9:46pm

    Was donation legitimately deducted?

    Can Amex legally donate the patent, take a deduction, then terminate the organization's nonprofit status?

    From faqs.org at http://ow.ly/24RRmZ :
    Employer Identification Number (EIN): 320085922
    Name of Organization Consumer And Merchant Awareness Foundation
    In Care of Name: American Express Company
    Deductibility: Contributions are deductible
    Exempt Organization Status: Organization terminating its private foundation status under section 507(b)(1)(B) of the Code

     

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  21.  
    identicon
    Anonymous Coward, Oct 8th, 2013 @ 10:27pm

    Re: Was donation legitimately deducted?

    Wait. So AmEx actually controlled the nonprofit?

    Something really smells about that. Donate a patent to a nonprofit you control (and get a tax break), have the nonprofit tell everyone they won't be enforcing it, then 5-6 years later have the nonprofit sell the patent to IV, IV sues your competitors who used the patent they were told they could use.

     

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  22.  
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    Pragmatic, Oct 9th, 2013 @ 5:56am

    Re:

    Surely IV makes generous donations to their campaign funds, Zakida. Amirite?

     

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

  23.  
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    Pragmatic, Oct 9th, 2013 @ 5:58am

    Re: Re: The patent system as such isn't broken: corporatists use it.

    Isn't it funny how the Crazy Copyright Lady never mentions that Corporations and The Rich are the ones who benefit most from copyright. Why is she only bashing patents, and only now? She used to be all over them like a rash.

     

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

  24.  
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    BernardoVerda (profile), Oct 9th, 2013 @ 6:45pm

    Re: Re: Now I sorta understand

    And in any case, the devil was in the details:

    Many Linux developers concluded that they just couldn't really be sure what MS was actually promising, nor how binding those promises really would prove to be, if the FOSS/Linux community actually tried to rely on them. Others simply concluded that the "promises", "commitments" and pronouncements which MS made regarding its patents related to Mono, were in the final analysis limited to such a narrow scope, that they weren't actually useful.

    (Some developers really liked Mono, so much, that because of that they just didn't want to accept such pessimistic perspectives, and chose to reject such interpretations despite the evidence. Also, certain actors in the Mono camp deliberately muddied the waters, as well).

     

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

  25.  
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    araybold (profile), Oct 10th, 2013 @ 6:33am

    Reason to Patent

    I agree with just about everything Mike says here, but there may be a
    reason to acquire a patent you don't intend to enforce: to preempt a
    competitor or troll from doing so. Given the USPTO's irrational
    interpretation of the concepts of obviousness and prior art, having a
    patent may help in fending off subsequent attempts at patenting the same
    thing.

    That said, AmEx's amicus brief to the CAFC still makes no sense, because
    no such defense would be necessary in the absence of business-process
    patents, and their absence would be the best possible reassurance that
    they could not be used to derail standards.

    For the USPTO, this is a wonderful business model: they do a crappy
    job, and thereby drum up more business!

     

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

  26.  
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    Steph Kennedy, IPTT (profile), Oct 11th, 2013 @ 11:27am

    Re:

    Well, Bill and Nathan (of IV fame) are in bed together so MSFT isn't likely to sue anyone out of oblivion, lol! Well, not anyone big anyway.

    IV is panicking because they can't pay back their investors. They're going to sue and sue and sue until they get their returns up. They know the game well.

    Just sayin',

    IPTT
    Disclaimer: Bill and Nathan aren't literally in bed together. That I know of.

     

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

  27.  
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    tom, Oct 13th, 2013 @ 7:34am

    Amazed

    I'm amazed that AmEx didn't have certain contractual stipulations placed into any licensing/donation agreement that meant CMAF had to consult and reach agreement with AmEx on any onward sale of said patents. Because the fact is that they could donate to CMAF, CMAF then sell on and that company (in this case IV) could go on to sue AmEx - there is no way they would be so careless. So it makes you wonder if AmEx did in fact agree to the sale.

     

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  28.  
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    The Gold Tooth (profile), Oct 14th, 2013 @ 6:52pm

    CMAF

    Guidestar.org has the most recent IRS Form 990s submitted by CMAF.

    The contact name given on their 2010 form (Dec. 1 2010 to Nov. 30 2011) is Jonathan M. Barron, an associate in New York at the law form of K&L Gates. His contact information, including his phone number, is at http://www.klgates.com/jonathan-m-barron/.

    In that year they had revenues of $770 (sic), and expenses of $201,054. Part VIII of the form lists the organization's directors at that time. Near the end of the form under "Other Assets" they list "US Patent," "Patent Applications, "Domain Names," "Patent License," and "Trademarks" with a fair market value of $2,116,692.

     

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

  29.  
    identicon
    Anon, Oct 21st, 2013 @ 4:02pm

    Re:

    Yeah the catch is they were founded by a Microsoft executive, and Google and a number of other tech companies were members of their original patent fund. This stuff runs deep.

     

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

  30.  
    identicon
    SecretSquirrel, Dec 18th, 2013 @ 6:32am

    Response to: Anonymous Coward on Oct 8th, 2013 @ 12:04pm

    Are you being sarcastic??? Gates, Allen, and others are huge silent investors. Hell, IV was started and is run by the former MS CTO Nathan Myhrvold...it's a small club, and we ain't in it.

     

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


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