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Patent Troll Lawyer Sanctioned Over Extortion Tactics 147

Posted by CmdrTaco from the slap-that-wrist dept.
An anonymous reader writes "For all the stories of patent trolls and copyright trolls, there haven't been too many stories of either being sanctioned for abusive or extortion-like practices... until now. The Court of Appeals for the Federal Circuit (one level below the Supreme Court) has approved over $600,000 in sanctions against a lawyer for a patent troll, saying that filing over a hundred lawsuits, each of which was followed up almost immediately with offers to settle at fees much cheaper than it would cost to fight, has the 'indicia of extortion.' Now if only judges started doing that more often."
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Patent Troll Lawyer Sanctioned Over Extortion Tactics More

Patent Troll Lawyer Sanctioned Over Extortion Tactics

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  • Now We Wait ... (Score:5, Insightful)

    by WrongSizeGlass ( 838941 ) on Tuesday August 09, 2011 @11:50AM (#37033446)
    This is a Federal Circuit court, so the next (and last) step would be to appeal it to the SCOTUS. Let's hope it gets on the docket so this type of egregious misuser of the legal system (the patent trolls) can get the press coverage only a Supreme Court case can give it.

    • Keep in mind that if it goes to SCOTUS, it might be overturned. The Supreme Court might decide that extortion which is asking for an agreement not to pursue a known legal right--i.e. suing you--is perfectly legal. Most of the legal system works that way. But it shouldn't.

      Disclaimer: I haven't read this case yet.

      • FWIW, these are monetary sanctions. So, the patent troll is extorting companies, and the state profits. If the lawyer got disbarred, that'd be one thing. But this validates patent trolling to some extent: now, they just charge a little more to pay off the man.
        • I was thinking that now the lawyers will open up shell companies (law offices) so that it doesn't look like all the suits are coming from the same group of lawyers.

          • Re:Now We Wait ... (Score:4, Informative)

            by bobaferret ( 513897 ) on Tuesday August 09, 2011 @12:40PM (#37034056)

            You need to pay more attention. According to the NPR story that ran a few weeks back, that's exactly what they do. Little tiny offices with no occupants in some small town in Texas, which are effectively controlled by the company that owns the patent pool every one else bought into. Ugh... makes me sick. Sorry if I missed the sarcasm in your post.

            • First thing. Missed the one about them doing it already. Second thing. I should have put a /sarcasm. Either way it's all good. -- Paul: Father... father, the sleeper has awakened! - Dune

        • As I understand it, the Federal courts, and I think all other courts in the USA, have no mechanism for disbarring a lawyer. That is an action of the various Bar Associations. Which might well happen to this lawyer, since it looks like there is a strong case for disbarment.

          • Re: (Score:2)

            by MarkvW ( 1037596 )

            The federal courts do have a mechanism for disbarring.

            • They can recommend that the bar association reexamine the lawyer's membership, but they can't directly disbar them. They could, of course, charge them with contempt and throw them in jail, which will usually get a lawyer disbarred, but there has to actually be a case for contempt for it to work.

      • Re:Now We Wait ... (Score:4, Interesting)

        by Artraze ( 600366 ) on Tuesday August 09, 2011 @12:46PM (#37034132)

        > But it shouldn't.

        But why not? It seems quite reasonable for parties to be allowed to come to an agreement without having to be involved in a court case. After all, it's pretty much fact that court cases (vs fair agreements) only benefit lawyers. What they could strike down is the ability to offer settlements prior to filing a case and proper judicial review to determine if the case has merit. _That_ would be a big step forward and really eliminate all of the 'extortion' aspects. Beyond that though, you're really only tying up the courts, with, I'm supposing, the expectation that it would decrease the rate at which these sort of cases occur. Would that really be better though? Perhaps, but I think that's trowing out the baby with the bath water... Settlements are still useful for non-extortion type cases.

        • Re: (Score:3)

          by sjames ( 1099 )

          Going to court has become so expensive that for a defendant it easily becomes a Pyrrhic victory. The "settlements" being offered are not the result of legitimate grievances, but are calculated to be slightly cheaper for the defendant than going to court and inevitably winning. That is, often enough the plaintiff is well aware that they could never win in court.

          There is some merit in making court cheaper for an obviously right defendant to drive the extortion settlements down, but unless there is a very rea

          • Re: (Score:2)

            by Thing 1 ( 178996 )

            Eventually we will have people comparing settlement offers with the cost of a hitman.

            The old standard, "Never attempt to extort more money than it would cost to have you killed" fits nicely here.

        • I think the line where it become simple extortion is where, in the hypothetical scenario that you're perfectly innocent, the "settlement" offer is the wiser and cheaper option due to the likely expense of the threatened legal action even with an almost sure win.

        • Re: (Score:2)

          by alexo ( 9335 )

          > But it shouldn't.

          But why not? It seems quite reasonable for parties to be allowed to come to an agreement without having to be involved in a court case.

          In a perfect world, yes.

          In real life, however, justice became an expensive commodity which not everybody can afford. If settling is cheaper than winning then it should be outlawed as extortion.

        • Re: (Score:3)

          by LibRT ( 1966204 )
          Agreed: nothing wrong with settlements. Rather, the fundamental problem is that it costs a bloody fortune to defend yourself from a frivolous (or any kind of) suit. That's a function of regulation which says that you must go to (typically very expensive) law school, pass the bar and then article to become part of the club and practice law. The practical effect is that it restrains the supply of lawyers and inflates the cost of legal advice. It's also a rather new concept: it wasn't that long ago that lawyer

      • Re:Now We Wait ... (Score:5, Informative)

        by gstoddart ( 321705 ) on Tuesday August 09, 2011 @12:51PM (#37034204) Homepage

        The Supreme Court might decide that extortion which is asking for an agreement not to pursue a known legal right--i.e. suing you--is perfectly legal.

        Well, if nobody has decided on the merits of the case, but you're immediately providing an offer to settle which is lower than likely legal fees ... I fail to see how this is anything but extortion.

        What's to stop this lawyer from filing suit against a bunch of people who you have no evidence against whatsoever? In this case, and from TFA:

        In this particular case, it was clear that Flagstar did not infringe on the patents in question. ... snip ...

        In addition to finding that Eon-Net filed an objectively baseless infringement action, the district court also determined that Eon-Net filed the lawsuit in bad faith and for an improper purpose... In particular, the district court found that Eon-Net's case against Flagstar had "indicia of extortion" because it was part of Eon-Net's history of filing nearly identical patent infringement complaints against a plethora of diverse defendants, where Eon-Net followed each filing with a demand for a quick settlement at a price far lower than the cost to defend the litigation.

        So, this is a completely baseless suit, with an immediate offer to settle, and with NO legal grounds for the suit in the first place.

        You may not have read the actual legal case, but seriously, RTFA and you might know why this is happening. These filings were completely meritless, and the offer to settle was intended to exploit the cost of litigation being more than the cost of settling.

        This is a case where the lawyer definitely needed to be sanctioned

        • Re: (Score:2)

          by HiThere ( 15173 )

          Yes, but *do* consider why this is news. I.e., it almost never happens.

          If this starts happening regularly, *then* I will be encouraged. As it is...

        • Re: (Score:2, Insightful)

          by Anonymous Coward

          Sounds like the issue here is within the court system itself. It should not cost $upteen dollars for a defendant to defend against a "completely meritless" case. The only reason the trolls are making money is because the court system is too slow / too costly to discard the meritless cases quickly.

          What the trolls saying is: I know it will cost you $500k to defend this (baseless) case, so I will go away if you pay me $25k (a year) in extortion fees.

          • What needs to happen is loser pays.

            Then you won't be afraid to stand up for yourself if you know that you'll get a full refund if you win.

      • Re: (Score:2)

        by Ihmhi ( 1206036 )

        SCOTUS' job (well, one of them) is to interpret the law and have their interpretation act as binding precedent on the national level. The important bit here, though, is "interpret the law". Even if you disagree with them, they do try very hard to explain why they voted a particular way and cite specific laws and precedent.

        If this does get to SCOTUS and it's not found to be extortion (even though it walks like a duck and talks like a duck etc.), then it comes down to the laws being deeply flawed.

      • Re: (Score:2)

        by blair1q ( 305137 )

        I haven't read it either, but I think it should probably be overturned unless there's evidence for the extortion charge other than just doing a lot of it at once.

        Extortion is about threatening harm to someone to get something you aren't owed. That's certainly a reasonable charge if I threaten to sue someone who doesn't owe me anything and I offer to take a small sum of cash rather than put them through the cost of a trial.

        But if I own a patent and I see others selling products containing that idea, I'm owe

        • I haven't read it either, but I think it should probably be overturned unless there's evidence for the extortion charge other than just doing a lot of it at once.

          Extortion is about threatening harm to someone to get something you aren't owed. That's certainly a reasonable charge if I threaten to sue someone who doesn't owe me anything and I offer to take a small sum of cash rather than put them through the cost of a trial.

          But if I own a patent and I see others selling products containing that idea, I'm owed royalties. The fact that there are a lot of infringers and I'm willing to settle immediately instead of demanding more and insisting on going to court to get it means I'm the good guy in the situation.

          It's all about whether my case had merit. Maybe this guy's case didn't, for most of his targets.

          But that is what's in the court's findings according to TFA. The lawsuit was without merit, and the plaintiff was not found to have broken any copyright laws. Ergo he owns nothing to the patent troll. Ergo, patent troll was trying to get something that he didn't own off the plaintiff. Furthermore, the court found that this was ample evidence that this was the patent troll's modus operandi. Ergo, patent troll has attempted to seize something he didn't own from other plaintiffs using similar, merit-less lawsu

        • Re: (Score:3)

          by sjames ( 1099 )

          The judge found that there was no infringement and further that there was OBVIOUSLY no infringement. He further found that this has been true in a majority of the MANY suits filed by the plaintiff. In other words, he finds that any claim that the plaintiff might have genuinely believed themselves to be wronged and owed compensation to stretch credulity past the breaking point.

          He further notes that the inevitably offered settlement figures are rather lowball for a plaintiff that believes their case has enoug

      • Re: (Score:2)

        by mysidia ( 191772 ) *

        Keep in mind that if it goes to SCOTUS, it might be overturned. The Supreme Court might decide that extortion which is asking for an agreement not to pursue a known legal right--i.e. suing you--

        Blackmailing someone is asking for an agreement not to pursue a known legal right---i.e. to exercise freedom of speech and publish newsworthy information.

        That doesn't mean it's no longer extortion.

        I would like to see this hold up at SCOTUS, so it can be applied to RIAA lawyers' tactics.

        All they have to do i

    • SCOTUS? That's so expensive! (Score:4, Funny)

      by Kamiza Ikioi ( 893310 ) on Tuesday August 09, 2011 @12:14PM (#37033760)

      Maybe we can settle for a slightly lower amount and call it a day?

    • My understanding of the system is the next step is the full Federal court. This case was decided by a three judge panel. Both sides can petition the case to be heard by the full panel (I think 12 or 9). Then the Supreme Court has discretion to hear it after that.

      I don't think the Supreme Court is likely to hear it as normally they step in in when there is disagreement by lower courts. In this case both the district court and appeals court ruled the same. However the good news is that a ruling by this co

    • If I understand the system correctly, this decision is a precedent that would be effectively binding on all similar cases in the Federal courts under this Circuit. It would be given strong weight in all other Federal courts, too. So there are benefits without going to SCOTUS.

      That said, the defense could be raised that the precedent does not apply in any given case for one reason or another. So it is a deterrent to lawyers using the modern day equivalent of barratry [wikipedia.org], but it probably will not on its own sto

    • Let's hope it gets on the docket so this type of egregious misuser of the legal system (the patent trolls) can get the press coverage only a Supreme Court case can give it.

      You're hoping for relief from the 5 members of the Corporate Supreme Court? The same people who have never met an unreasonable search. I'm guessing that would be pretty friendly venue for a patent troll.

  • Good.. (Score:2, Funny)

    by TheDarkMaster ( 1292526 )
    ... Now, start shooting the patent trolls.
  • Here's hoping that actions like this will continue, these dirtbags need to feel the pain they constantly shove onto others.

    • Re: (Score:2)

      by arth1 ( 260657 )

      Unfortunately, it won't, because the cost of settling with known scammers is still lower than going to court costs.

      In this case, the judge notes that the company has spent over $600,000, and then awards them $489,150.48 in attorney's fees.
      That's a net loss of $110,000 - far more than the extortion, sorry I mean proposed settlement was.

      So what this unfortunately does is send a clear message to companies that they should continue to settle even if they know it's a scam, or they'll lose even more money.

      • In this case, the judge notes that the company has spent over $600,000, and then awards them $489,150.48 in attorney's fees.
        That's a net loss of $110,000 - far more than the extortion, sorry I mean proposed settlement was.

        The court also awarded them $141,984.70 for Rule 11 violations. So they received a total of $631,135.18. Which is rather more than the $600K they spent.

        • Re: (Score:3)

          by TheLink ( 130905 )
          How much does it cost to actually get the $631,135.18?

        • Re: (Score:2)

          by arth1 ( 260657 )

          I was under the impression that [i]fines[/i] go to the government, not to the opposite party?

  • Slightly scared (Score:3)

    by The Grim Reefer2 ( 1195989 ) on Tuesday August 09, 2011 @11:53AM (#37033482)

    I hope I'm just being pessimistic, but it seems like there has been too much good news about the legal system starting to wise up about this sort of thing lately. I keep expecting to see some kind of backlash in the other direction.

  • Wait, what? (Score:3, Interesting)

    by ThisIsSaei ( 2397758 ) on Tuesday August 09, 2011 @11:56AM (#37033522)
    So, Apple can sue over patents, and the RIAA can extort money, but if you combine the two it's suddenly over the line? Don't get me wrong, this guy had it coming, but let's not pretend that somehow the issue of patent trolling and extortion is being dealt with on any decent level. Had this guy worked for any large company, he'd be in the clear.

    • Re:Wait, what? (Score:4, Informative)

      by gnasher719 ( 869701 ) on Tuesday August 09, 2011 @12:47PM (#37034146)

      So, Apple can sue over patents, and the RIAA can extort money, but if you combine the two it's suddenly over the line? Don't get me wrong, this guy had it coming, but let's not pretend that somehow the issue of patent trolling and extortion is being dealt with on any decent level. Had this guy worked for any large company, he'd be in the clear.

      The point here was that a patent holder says "I have a patent, I sue you, so just pay me a small amount that is much less than you would spend to beat me in court". That is abusing the court system; going to court not because you have a case but because it is cheaper for the defendant to pay you off than to win.

      That is surely not what Nokia did to Apple, and what Apple is doing to Samsung now. Apple is saying to Samsung "I have this patent, and I don't want you to do the stuff in the patent". No paying off, no extortion.

      And what the RIAA did, while it can be considered extortion, is something completely different again. They at least _believe_ that they have a case. The patent troll here _knows_ they don't have a case. (And copyright cases have been lost with sanctions when the copyright holder _knew_ they had no case, like Righthaven).

    • Re: (Score:2)

      by s73v3r ( 963317 )

      Apple actually has products resulting from their patents. Not to mention, they don't troll; they're going after companies they feel actually infringed upon the patent.

      • Apple actually has products resulting from their patents. Not to mention, they don't troll; they're going after companies they feel actually infringed upon the patent.

        Yeah right. They are going after companies in the hopes of eliminating competing products from the market. They "feel" that patents were infringed only insofar as they think they have enough of a case that there is a reasonable chance (not even necessarily a probability) that they can win the case. Even if you only have an outside shot in a given lawsuit, sometimes filing in enough markets for enough reasons is good enough; if they fail in 10 courts and succeed in 1, that's fine as long as the extra market

  • This doesn't apply to most patent trolls. (Score:4, Insightful)

    by Anonymous Coward on Tuesday August 09, 2011 @11:59AM (#37033564)

    Most patent trolls don't sue entities who "it was clear [] did not infringe on the patents in question". They sue entities who might have infringed on the patents in question, or who definitely infringe on patents that are overly vague and that we think should be invalid, but that USPTO granted and the patent troll holds.

    I predict this court case will mean very little.

  • for a system by which you file thousands of complaints based on bogus patent infringment and receive an assload of cash in settlements because it would be less expensive than fighting you in court. I'm think about filing for a few hundred injunctions if I get it.

  • Did anyone else mis-read the title as "There is a God!"?

  • Precedent? (Score:3)

    by erroneus ( 253617 ) on Tuesday August 09, 2011 @12:02PM (#37033606) Homepage

    How close to this to being a precedent which can be used or cited?

  • Re: (Score:2, Informative)

    by account_deleted ( 4530225 )
    Comment removed based on user account deletion

  • It is very rare. (Score:3)

    by www.sorehands.com ( 142825 ) on Tuesday August 09, 2011 @12:06PM (#37033658) Homepage

    From what I have seen, Rule 11 sanctions are very rarely imposed. I have several cases improperly removed to federal court, and the code provides for attorney fees and costs for improper removal. The Court consistently refused to impose those costs.

    This is similar to the rules which prohibit attorneys for committing perjury. I had seen one case where the tentative ruling, written by the law clerk, state that there was no 998 offer sent, despite the sworn statement by defense counsel. The final ruling was unchanged except the finding that the attorney lied.

    It takes a lot for the Court to rule against an attorney.

    On the other hand, is a legal position frivolous, or is it novel? Where does the line gets drawn?

    • Re:It is very rare. (Score:5, Interesting)

      by Oxford_Comma_Lover ( 1679530 ) on Tuesday August 09, 2011 @12:20PM (#37033840)

      It's about as hard as it is to get a doctor to say another doctor is completely wrong. Industries that purport to self-regulate generally don't.

      Bar discipline mostly only occurs in two cases: drug and alcohol related problems and stealing from clients. Lying to the bar during the application process can also screw you. That's about it.

  • The total judgement was $600k with $142k for Rule 11 sanctions and the rest awarded for attorney's fees.
  • Seems like an easy path to riches to me.... (or maybe it would shut it down entirely, either way....)

  • Is being offered a $200 fine in exchange for a court hearing for a traffic ticket "extortion"? How about $500? You build up enough precedent and it just might be.

    I would think there would be no bar against a much wider applicability of this sort of decision and pushing things along the line of saying that settlements and fines in exchange for opting out of a legal proceeding in court are all extortionate.

    This sort of thing didn't use to exist at all. You filed suit against someone and their were no real

  • Precedent Against RIAA (Score:5, Informative)

    by Jason Levine ( 196982 ) on Tuesday August 09, 2011 @12:43PM (#37034098) Homepage

    The RIAA has been using similar tactics only with copyright instead of patent. They file a bunch of John Doe lawsuits, get the people's names, contact them and say "Hey, you can settle with us for a low, low (but not too low) fee or we will sue you for a ton of money." Of course, this patent troll isn't as big as the RIAA is, so the chance that they would be found to be extorting money out of alleged infringers is much lower.

    • The RIAA also has other trolls like Dianne Feinstein and her Democrat hollywood friends behind them. :/ That's a big problem.

      • This is a bipartisan problem. Yes, Feinstein and other Democrats help out the RIAA, but so do Republicans, e.g. Orrin Hatch.

      • Re: (Score:2)

        by gmhowell ( 26755 )

        The RIAA also has other trolls like Dianne Feinstein and her Democrat hollywood friends behind them. :/ That's a big problem.

        Feinstein, embracing and extending a law written by Republican Sonny Bono, amirite?

    • Of course, this patent troll isn't as big as the RIAA is, so the chance that they would be found to be extorting money out of alleged infringers is much higher.

      FTFY. It helps to be a big organization paying off politicians when trying to deflect legal flak like Rule 11 violations.

  • The article reads much like the tactics used by the RIAA as well. File suit with instant offer to settle for way, way less than the cost to fight.

    • Re: (Score:2)

      by ThorGod ( 456163 )

      Yes, you make a good point. There have been a couple (not enough) cases of the RIAA being fined (for similar reasons), right?

  • Someone correct me if this analogy on patent trolls is wrong...

    1-The troll buys the street in front of his house from the government. I don't know how, the government just thought it was a good idea.

    2-The troll then sits in front of his house with a shotgun, and shoots anyone that walks down the street for trespassing. He empties their pockets and then calls the police, which dutifully takes away the bodies.

    3-If anyone asks why he doesn't build a wall or a locked gate, the troll answers that his land is cle

    • the troll answers that his land is clearly marked in the city hall map and people should check it before daring to walk around.

      In the basement with no stairs, tucked behind a filing cabinet in an unused lavatory with a sign that says "Beware of the Leopard?"

  • The only thing that will change is the patent trolls will look a little more closely to make sure their targets can't defend a lawsuit. I wonder: could the previously settled parties use this judgement as the basis of separate legal action against the troll, seeking damages for extortion? Not that it would be that much cheaper than defending the patent suit in the first place.

  • From TFA

    Separately, the court clearly noted the "non-practicing entity" part of the business in pointing out that, "As a non-practicing entity, Eon-Net was generally immune to counterclaims for patent infringement, antitrust, or unfair competition because it did not engage in business activities that would potentially give rise to those claims."

    By this ruling, It would seem that all companies that are just patent holding companies are not allowed to do anything with them unless they produce a product. That would appear to be too good to be true, so going to just file this article away in the "yeah right, that's a good one" file.

  • As long as we have a system where anyone can just sign a few papers and automatically obligate any other person to potentially ruinous legal costs, this sort of thing will continue.

    A first step in the right direction would be to have a judge review all suits before the defendant even hears about it. Unless the judge finds that the likely damages would exceed the legal costs, it dies right then and there.

    No more spending $20,000 in legal fees over a $100 dispute. (or more to the point, no more forcing a $500

  • ... if they crank up the penalty so that it is 10 times the reward for trolling in the first place and take away their law license on the second offense. The risk of getting caught is low, so the penalty needs to be high so people notice.

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