The vaguely threatening letter over alleged patent infringement that Azure Farms received last year didn’t make much of an impression on David Stelzer.
Stelzer, the company’s founder and CEO, consulted with his information technology employees, who assumed the letter was a scam.
“I didn’t give it a second thought,” he said.
Now, the Oregon company is the defendant in a lawsuit that alleges its online website for selling organic food and other products has violated a patent for automated financial transactions owned by Landmark Technology LLC of San Diego, Calif.
Stelzer said his website isn’t much different from multitudes of others that sell products online, making him think the plaintiff has filed a “nuisance lawsuit” aimed at a quick settlement.
Azure Farms, based in Dufur, Ore., doesn’t have deep pockets to hire expensive attorneys, which is perhaps why the company was targeted, he said.
“I have no clue what they are after,” said Stelzer, who farms nearly 2,000 acres. “They’re basically saying because we have a working website, we have patent violations.”
According to the complaint, Azure Farms’ website contains numerous functions protected by a patent issued in 2001 that the company should be enjoined from further violating. Landmark Technology also seeks damages for past infringement in an amount to be proven at trial.
“It would be difficult to ascertain the amount of compensation that would afford Landmark adequate relief for such future and continuing acts, and a multiplicity of judicial proceedings would be required,” the complaint said.
John Mansfield, attorney for Landmark Technology, referred questions to his boss, Bill Charters, who wasn’t available for comment as of press time.
Azure Farms isn’t alone in its quandary.
Landmark Technology has been involved in about 170 federal lawsuits — mostly as a plaintiff, but occasionally as a defendant against companies seeking a “declaratory judgment” that they haven’t committed patent infringement, according to court records.
In one such case, the Fabletics online clothing company called Landmark Technology a “patent troll” whose “business model is sending letters threatening patent litigation and following through on that threat.” The lawsuit has since settled for undisclosed terms.
Most such litigation settles fairly quickly due to cost pressures, rather than the merit of the allegations, said Daniel Nazer, senior staff attorney with the Electronic Frontier Foundation, a nonprofit that defends “civil liberties in the digital world.”
Even the simplest patent lawsuit is rarely litigated through trial for less than $1 million, while bigger cases commonly cost more than $10 million, Nazer said.
“Patent litigation is sometimes called the sport of kings,” he said. “They tend to be complicated cases with experts and a lot of document discovery.”
While it’s technically possible for companies that successfully defend themselves against such lawsuits to recover attorney fees, that outcome is rare enough that many defendants don’t take the chance, Nazer said.
The problem would be mitigated if the U.S. Patent and Trademark Office declined to approve patents for overly broad claims, he said. “Generally, we think the patent office needs to do a better job of policing obviousness and not giving patents to mundane business processes on a computer.”
“Non-practicing entities” — the official name for companies that do nothing but sue over patents — have been dealt a couple legal setbacks in recent years, said David Donoghue, a patent trial attorney with the Holland & Knight law firm.
In 2014, the U.S. Supreme Court ruled that enshrining a conventional business transaction in computer code wasn’t enough to make the method eligible for a patent in a case known as Alice Corp. v. CLS Bank.
In 2011, the America Invents Act was signed into law, allowing defendants in such cases to ask the U.S. Patent and Trademark Office to reconsider the validity of a disputed patent, said Donoghue.
This administrative process of “inter partes review,” or IPR, is less expensive than traditional lawsuits, which are often stayed while the agency deliberates, he said.
These two changes haven’t entirely prevented complaints seeking to extract license fees because defendants still often prefer to settle, Donoghue said.
Even so, the value of dubious patents has been reduced, so the financial “sweet spot” of settling such cases has also fallen, he said.
The phenomenon remains troubling for the Electronic Frontier Foundation, since such lawsuits effectively penalize companies like Azure Farms from stepping up their online marketing, Nazer said.
“It disincentivizes people from being entrepreneurial,” he said.