How To Beat A Patent Troll

Our portfolio company Cloudflare posted yesterday about the two and a half year war it waged against a patent troll called Blackbird.

This was the battle plan that Cloudflare came up with:

After we were sued by Blackbird, we decided that we wouldn’t roll over. We decided we would do our best to turn the incentive structure on its head and make patent trolls think twice before attempting to take advantage of the system. We created Project Jengo in an effort to remove this economic asymmetry from the litigation. In our initial blog post we suggested we could level the playing field by: (i) defending ourselves vigorously against the patent lawsuit instead of rolling over and paying a licensing fee or settling, (ii) funding awards for crowdsourced prior art that could be used to invalidate any of Blackbird’s patents, not just the one asserted against Cloudflare, and (iii) asking the relevant bar associations to investigate what we considered to be Blackbird’s violations of the rules of professional conduct for attorneys.

I will give away the story in case you don’t want to go read the post. Cloudflare’s plan worked in all three ways.

It is tempting to settle with patent trolls if you can settle for less than litigation costs. Our portfolio companies do it all the time and it is rational behavior.

But patent trolls are a tax on innovation and I love it when some of our portfolio companies decide to stand up to them and fight them. Like Cloudflare did.

#the war on software patents

Comments (Archived):

  1. jason wright…”We filed ethics complaints against both of Blackbird’s co-founders before the bar associations in Massachusetts, Illinois, and the USPTO based on their self-described “new model” of pursuing intellectual property claims. Our complaints were based on rules of professional conduct prohibiting lawyers from acquiring a cause of action to assert on their own behalf, or in the alternative, rules prohibiting attorneys to split contingency fees with a non-attorney.”Win, but then have the class not to indulge in ‘tit for tat’.

  2. Rob Pinniger

    There is a feeling here that Cloudflare are taking the moral high ground. Do you think that they might apply that attitude to the enormous levels of piracy that they knowingly support?

    1. fredwilson

      Piracy of ??

      1. red

        Do not play dump! I do support them protecting piracy related companies. I in fact think they should even host the Daily Stormer and not make this coward move against free speech and ban them. Their CEO wrote about how he thinks its wrong that he was that power proving what a total hippo-cite he is. But anyway fredwillson know exactly what his client does for their big fat money.

  3. Erin

    Congrats, Cloudflare!

  4. Tom Labus

    What are the legal fees they mention in the blog post? How much does it cost them to play to play it out?

    1. pointsnfigures

      if it goes to trial, legal fees can be astronomical. $1MM a week or more depending on the case.

  5. LIAD

    best form of defence is attack. love it.

  6. pointsnfigures

    had it the opposite, big companies infringe on startup patents thinking they can bully them. See Shuffletech and Scientific Games. Shuffletech won the lawsuit. Went to a jury trial.

  7. Nicholas Osgood

    Great read and their blog post was fascinating. I feel like this could be made into a movie.

  8. JLM

    .I love this story. I love the business warrior angle of a company standing up to those who picked a fight — really business extortion.I applaud the thoughtfulness that went into the strategy — fight them on the beaches, fight them in the fields, fight them in the lanes. Bullies don’t really like to fight. Everybody re-evaluates life when they get punched in the nose.The three pronged defense and going over to the attack is a brilliant strategy.Putting the Blackbird trollery on its hind legs by invoking the bar association ethics rules is a great stroke. The Blackbirds can claim they are not a “law firm” — good luck with that. Ethics complaints and bar rules apply to individual lawyers, not firms. Make multiple complaints because the Bar Associations are always looking for “patterns of conduct.”Bad news is that bar associations always ultimately rule in favor of the lawyers. You will be lucky to get a letter of admonition, but that’s a good start. No lawyer likes to have to defend their ethics in front of their peers.There are also state legal agencies in addition to the bar association. The state agencies may be tougher because they are not overseen exclusively by lawyers.Cloudflare did an extraordinary job explaining their strategy. Very powerful messaging. Very well done.Things like this just give me a warm feeling and force me to say: “Rock ’em, sock ’em, make ’em eat shit!” [Switching to decaf. Not really.]Full disclosure: I use Cloudflare and I like it.JLMwww.themusingsofthebigredca…

    1. Tom Labus

      Blackbird doesn’t think that any company will call them on their game..

      1. JLM

        .Burn their house down, cut off their food, pollute their water, cut off their Internet.Ooops, I may have gone overboard.JLMwww.themusingsofthebigredca…

        1. sigmaalgebra

          Ah, how ’bout “Make them an offer they can’t refuse.”? May help “to have all the judges and politicians in your pocket”. And there is “today I settle all family business”!Or, we should expect something else? Lots of lawyers deal with lots of nasty people, and clearly that’s not a healthy environment.

  9. JLM

    .This is a perfect example of why business litigation needs a “loser pays” attorney fees standard.I wonder if it might be useful to make a claim against them for a “frivolous” lawsuit with a RICO addition.At first, it seems odd that one would consider such an action because frivolous lawsuits require an element of absurdity, but there is another leg of attack — the use of lawsuits in a scatter gun approach to extort settlements which sets up the pattern necessary for a RICO multiplier. This would be “civil” RICO.Such an action could be undertaken as a class action and as a means of recovering Cloudflare’s legal fees.The background of the founders of Blackbird is extraordinary. They both worked at the highest level in top notch firms. They will understand this approach and why it could be powerful. They need a good thrashing to spend a lot of time and money to atone for their transgressions.JLMwww.themusingsofthebigredca…

    1. JamesHRH

      US legal system’s biggest flaw.

    2. Bruce Warila

      Jeff, I enjoy reading most of your comments on AVC. Here’s another perspective on this (yes, I see the bias, but it’s still worth noting)(disclosure: I am a patent holder):

      1. JLM

        .The article you note has one small error. Blackbird did not file the patent. They bought it. It would be fair to say that Blackbird engages in a business practice that seeks to “enforce” patent infringement as a money making proposition, rather than trying to bring order and fairness to the chaotic world of patents.As in any matter of business contention, litigation is the last resort in any such matter. In this instance, litigation was the first resort.I advised someone who regularly reads this blog on a similar matter. A fairly large and established firm sicced a big SV law firm on this fairly small company CEO with all kinds of dire warnings of the kind one can command at $750/hour.I advised the small company CEO to send a polite letter to the holder of the alleged trademark pleading the law — there was no confusion in the marketplace as to what their two companies did, their relative size, or the age of their operations.As I recall, I think I advised her to send it to the CEO, rather than the law firm which had already exhibited some “ugly on an ape” tendencies, who was a man of inestimable reputation — an older Freddie Wilson type of chap.After a polite exchange of correspondence, the big law firm decided that the small firm was, in fact, not capable of causing “confusion in the marketplace” the standard for trademark mischief.It was all settled perfectly amicably. I think it was settled because the small firm CEO, a woman of charm and cunning, wrote a polite and reasonable letter.If someone throws a lawsuit over your transom, it is often the sign that there is no chaos to be made into order, but a demand for monetary damages and nothing else. A lawsuit is beyond the polite letter resolution technique.In patent cases, an alleged “tortfeasor” may stop using the patent, license the patent, or enter into a dialog as to what else is possible — like buying the patent.This reasonable behavior is foreclosed by a lawsuit that begins to run up expenses at high rates of legal fees in what is a very specialized part of the law.There are plenty of instances in which tortfeasors misuse and infringe upon patents, and therefore deserve a good thrashing (there is another reader of this blog who I know well who had the providential good fortune to win a huge judgment for patent infringement long after the underlying company was in dire straits), but in this instance if someone taps on your door wearing a ski mask with a gun in one hand and a lawsuit in the other, I think you are entitled to consider them a burglar and take appropriate action.There is novelty to the approach Cloudflare took. It is a new approach. If one is going to get into a fight, it is fair to consider what weapons you intend to employ and upgrade the inventory.Let me be clear, while I am sympathetic to patent holders being infringed upon, in this instance there is sufficient evidence as to the intentions and operating history of Blackbird to arrive at a conclusion as to their intentions at an early point in the contest.JLMwww.themusingsofthebigredca…

        1. sigmaalgebra

          A keeper. Kept. Thanks. I hope I don’t need that, but I might.

    3. frank golding

      this is not a perfect example of ‘loser pays’ rationality – mainly because rarely in a litigation is there a clear winner or loser, meaning that such a standard results often in more, not less, litigation. it is however an excellent example of leveling the playing field with options 2 and 3 terrific examples of how to fight back.

      1. JLM

        .Allow me to differ with you. The beneficial impact of “loser pays” is not initially the reality of the loser having to pay, but the initial cautionary impediment on the plaintiff to join battle if there is simply the possibility that they may have to pay the defendant’s legal fees.In this manner, it is a filter to litigation, preventing some litigants picking up the sword of litigation.The hurdle to filing a lawsuit is minimal — a filing fee of $25 and a few hours of a lawyer’s time. So, this may be a welcome addition to a business environment that is quick to file a lawsuit.In those instances in which a settlement is reached during litigation — which is quite common — the cost of the legal fees becomes an impact on the likelihood of settlement, pushing the probability of a settlement higher during the initial phase of the litigation when legal fees incurred to date are low.A trial taken to a verdict is always going to arrive at a “loser” and a “winner” even if it has to be anointed with a specific jury instruction for the sole purpose of awarding legal fees, which routinely happens in matters that have a contractual basis — e.g. landlord-tenant disputes that are subject to the contractual terms of a lease.Judges are well versed in awarding legal fees in this instance, so the notion of loser pays in murky statutory conflicts is a very small extension of the existing practice.JLMwww.themusingsofthebigredca…

  10. JamesHRH

    Love it.

  11. sigmaalgebra

    Kept a reference to that one! I’ll add it to other possible defenses — 50′ wide, 50′ deep moats with 30′ saltwater crocodiles, Viet Cong style booby traps, rings of various styles of land mines, a ring with a roving pack of hungry hyenas, some rabid vampire bats, plus the ones I won’t talk about!There is a risk: The crocodiles, hyenas, and bats may regard the lawyers as too toxic to eat! Besides, a dead lawyer might be regarded as HAZMAT.And there is another risk: The lawyers, likely long since immune to rabies, might just EAT raw all the crocodiles, hyenas, and rabid vampire bats.When the Europeans discovered America, the prairies and forests were full of game, the lakes, rivers, and oceans were full of fish and shell fish, the women wore no bras or panties and did all the work, there were no taxes and no LAWYERS, and the Europeans thought that they could improve on that situation?Apparently to a lawyer what is honorable, proper, ethical, and right is anything they can get away with legally.IIRC, someone once remarked that in the US legal system, can get all the justice you can afford!

  12. sigmaalgebra

    I’m going to have to look into how I could possibly be sued for patent infringement for some obscure code buried deep inside my server farm and known only by me with all the documentation and source code long since gone missing?

  13. Paul McTaggart

    Fred great work turning the tables on Blackbird…strategy #2 is a stroke of genius (funding awards for crowdsourced prior art that could be used to invalidate any of Blackbird’s patents, not just the one asserted against Cloudflare, )!

  14. Art Nutter

    Better way to solve troll problems is via PatentBooks. First PatentBook is for Autonomous Vehicles. Allows all patent owners, large and small, to get paid relative to the quality of their patents, while allowing all companies to use all patents for simple subscription pricing. Think Spotify for patents. Caterpillar, Volvo Cars, Volkswagen/Audi, BMW, possibly Google/Waymo, Apple, Intel, IBM, Sony, Samsung, many others coming in during this Open Enrollment period, which ends Nov. 30.

  15. Art Nutter

    PatentBooks is a much better, less distracting, more efficient way to deal with not just one troll, but all of them. Even better, the troll will end up with more $ anyhow. The only people that are cut out in PatentBooks are the patent litigators.