Qcue introduced dynamic pricing to the live entertainment space. We were named as one of the 10 most innovative companies in sports twice, and also as one of the 50 most innovative companies in the world. Most dynamically priced inventory in professional sports flows through our system.
But on March 23, 2012, we were sued for Intellectual Property infringement by a competitor who was second to market, had minimal market share, and, as their patents show, had been attempting to retrofit a solution from other markets to the live entertainment space.
They filed two continuations with United States Patent and Trademark Office on a patent designed for online music sales, and with minor changes, claimed they were “important to pricing in the sports, entertainment, and hospitality industries” – taking direct aim at us.
Six weeks later, they filed suit against us.
It didn’t matter that we were first to market. It didn’t matter that our product was released more than three years before their patents were issued or that our technology bore no resemblance to their patents. And it didn’t matter that they had no idea how our software worked.
And so began my introduction to the absurdities of IP law, as I was pulled down a path that forced me to mature from an entrepreneur founder into a chief executive officer, spending nearly a million dollars in legal fees along the way.
The Innovation Act is a bill that will certainly help, but isn’t the magic bullet against patent trolls. While not every aspect of the bill would have been relevant to our case, certain key features would have had a material impact on us and for cases like ours.
Allowing defendants to recover legal fees when the court rules in their favor is the key benefit of the Innovation Act. Many companies don’t fight these cases because winning a case can often cost over a million dollars in legal fees. That means, even if you are 100 percent certain that you will win, it can be more expensive to try the case than to simply settle.
This has been talked about in terms of the strategies of patent trolls who may file suit and ask for settlements well below the known legal costs. But it also applies in situations like ours, where the patent holder picks an entity that they believe will opt for settlement, sometimes using that settlement later as a precedent to go after larger players with deeper pockets.
Fee shifting, by its nature, will significantly increase the likelihood of companies choosing not to settle, which in turn, will reduce the number of patent cases. While there has been concern about this provision preventing small inventors from protecting their IP, the truth is that patent prosecution and litigation costs in the millions of dollars have already priced them out.
At first glance, this appears to be a great step forward by the Innovation Act. However, as I learned when our competitor was required to state its claim, it is actually fool’s gold.
Under current law, patent owners can file bare-bones complaints, without specifying what products they think infringe their patents or even which patent claims they are asserting. This leaves defendants like us guessing until a Statement of Alleged Infringement is required as much as a year later in the process.
However, in our case, they simply re-stated the original complaint and claimed that we infringed all the independent claims in their applications as well as a handful of dependent claims.
The Innovation Act requires that pleadings include this Statement of Alleged Infringement, but unless the courts are granted very liberal powers to throw out cases when this statement is overly broad and unfounded, shifting the pleading requirements up in the process really provides no benefit except to shift forward some of the costs for the plaintiff.
In its current form, the Innovation Act states that “discovery shall be limited, until such ruling is issued, to information necessary for the court to determine the meaning of the terms used in the patent claim.”
We had to provide our source code, our arguments for why their patents were invalid, and our arguments for why we weren’t infringing. Think about that for a moment. They got to use our source code to determine how they wanted to argue what their patents meant.
Not only did that give them an unfair advantage in arguing the scope and definition of their patents, but it also forced us to spend money putting together a defense, which we ultimately didn’t need, before we truly understood what we were defending against.
If we really are going to address discovery issues, we should go further and mandate that nothing is discoverable from the defense prior to trial. After all, if a patent is issued, it should be credible as a stand-alone invention, not something that can be potentially retrofitted to use against a specific entity.
While it may be difficult to reinterpret patents in biotech, engineering and hard sciences, it is easy to see how business method and software patents are more susceptible to manipulation -- and begs the question if patents should exist in these spaces at all.
Fortunately for us, we were one of the lucky ones. We never had to go through trial or provide the full discovery that would have disclosed our financials and other sensitive information to a competitor. While we ultimately survived, it was hard not to feel as if the deck was stacked against us.
With proper law changes, companies will think twice about pursuing lawsuits that are unlikely to prevail in front of a jury. And if they do, they will bear the burden of cost when the case is ultimately ruled against them.
-- Barry Kahn, Ph.D. is founder and CEO of Qcue, Inc. Named one of the Most Innovative People under 40 by Business Insider, Barry works with professional sports teams, concert promoters and venue managers to optimize revenue while providing the best value to fans.
[Image: Flickr user Rodrigo Moraes]