Suing Open Source Startups - A New Scam?

Anonymous Crowhead asks: "I'm posting this anonymously for reasons that will soon be obvious. We're a fairly new startup company who specialize in products, and we have a policy of making all our software Open Source. A while ago, we received an notice from a company claiming that we were violating some of their patents, and that they had found this out by looking at our code. They gave us one of the two options - either make the product closed source and sign up for a percentage of the profits with them, or provide them with a stake in our company. Our legal advisors felt that it might be wise for us to settle, but we decided to press them further for details of the infringement and refused to yield. We haven't heard from them since - so either we called their bluff, or they've gone to come back with more legal firepower. No matter what, we feel that this is a scary precedent. Have any other entrepreneurs around here experienced anything similar? Is this one of the after-effects of the SCO episode - to go after unwitting small startups who cannot fight back? Personally, this was a nightmare for our company, and we are not aware of any patents that we may be violating."

you don't really lose anything..

..by calling their bluff.

if their claims have any merit they'll cough up.

Re:you don't really lose anything...

..by calling their bluff. if their claims have any merit they'll cough up.

Like The SCO Group did?

I'm sure IBM has sunk close to $10M into the SCO litigation by now, and after that, a year and a half in court and two court orders, SCO *still* hasn't said just what their beef is.

With any luck, Judge Kimball will grant IBM's motion for Partial Summary Judgement and put the whole copyright fiaSCO to rest once and for all (barring appeal). If not, IBM could spend another $10M before SCO's bluff is fully "called".

Granted, that's a much more complex situation, and there is still a faint glimmer of a flicker of a possibility that SCO, somewhere, somehow, will actually find something IBM did wrong (not on the copyright question, I don't think, but perhaps on the contracts), but the point is that you very well can spend a lot of cash calling their bluff.

Might as well at least make them file a formal complaint, I suppose.

Re:you don't really lose anything...

IBM's SCO suit has been a marketing bonanza. All of the sudden, IBM has become a good guy in the eyes of the Geeks who control much of IT spending. [msn.com]

And IBM's defense has significantly increased the confidence of the business community in using open sourc

Re:Always let them haul YOU into court.

it's a popular mis-conception that "innocent until proven guilty" applies universally in all legal arena. The burden of proof is on the side of the accused in criminal cases. But for civil matters (contract/IP/etc.), the evidence speaks for itself, and i

If it's just a threat....

... then please, don't just give in without at least some idea of what it is you're supposedly violating. Surely they can understand the rationale behind this if they're at all vaguely legit.

Re:If it's just a threat....

Truly. It's not as if patents are secret. They should give you the Patent number and then if there's any case at all, you can answer it.

Re:If it's just a threat....

And once you have the number (at least in the UK) you can ask the Patent Office (the "Comptroller") to say whether the patent is valid or not. So if it's trivially anticipated you may be able to sort it out without making a court appearance.

I think there

Re:If it's just a threat....

And you could add a little thing at the end that says "And you know, I was surfing the web and I was shocked to learn that barratry is illegal and can get an attorney disbarred. I just love what I can learn on this here World Wide Intarweb."

Re:If it's just a threat....

No, there's no point in making veiled (and probably idle) threats.

It's in your best interests to remain polite. The company might come back with a legitimate patent infringement. Just because you're not aware that you've infringed on a patent doesn't mean you haven't done so. There are patented algorithms (the "marching cubes" algorithm for voxel rendering comes to mind). Even if you independently develop such an algorithm, you'd be infringing the patent by using it.

Now, if you never hear from them again after challenging them and feel you have a moral obligation to strike back (on behalf of future victims or something)...and after you've done your research and you're sure that the company isn't legit...then you should contact a lawyer and see what he or she suggests as a course of action.

And if you're not willing to retain a lawyer, then what are you going to do? Call them names? Idle threats won't stop them. Do something useful about it, or just forget it and move on.

Re:If it's just a threat....

No, there's no point in making veiled (and probably idle) threats. It's in your best interests to remain polite.

I strongly agree.

I've never dealt with patent threats, but I used to work at a company that ran on-line communities. We regularly received l

Re:If it's just a threat....

Maybe while they're at it they should fire their legal counsel and get someone with a little more backbone.

It's common for lawyers to present a cost benefit analysis of this type of situation and quite often they will encourage a settlement, similar to the way a family pays off kidnappers to free a hostage or a retail business pays protection money to some street gang.

One wonders whether there is in fact a conspiracy in the legal world to encourage settlements, because if people challenged every questionable lawsuit that came down the pike, perhaps there would ultimately be fewer such suits, just as if all businesses refused to pay protection money there would be no protection racket (albeit, after some bouts of violence) and there would be no incentive to kidnap hostages either.

open source doesn't pertain

It is irrelevant to the patent infringement issue whether your code is open or closed. If you negotiated a license for a patent, and that license did not specifically preclude it, there would be nothing to prevent you from releasing it as open source code

They didn't tell what patents you're violating?

A while ago, we received an notice from a company claiming that we were violating some of their patents, and that they had found this out by looking at our code.

we are not aware of any patents that we may be violating.

Did i get this right - they didn't tell you what patents you are supposed to be violating?

In that case their claims don't sound very credible IMHO.

Probably do Infringe

Realistically, probably almost all software these days infringes on some kind of patent. The patent office seems willing to hand out anything, letting the courts sort it all out. That's fine for big companies, but it means smaller companies (who can't defe

its an easy way to get money.

Most small startups (and small businesses) cannot afford the cost of the litigation for something like this. So they settle. It might take $10k to fight in court, or $7k to settle (For example). And there is the chance that if you lose, its suddenly $17k total. That makes the settling cost look very attractive. This is really easy for the bad company, since if you want to fight them in court, they just run and hide, but a large portion of people just settle. So they get tons of money, and never have to take things to court. Long live the american legal system!. Its hard to tell what the other companies intentions are, based on the info in the story. Are they a big company? (if they have lots of salaried lawyers sitting around, they're probably going to have no problem sending them to work against you.) But your right to request further clarification.

Re:its an easy way to get money.

There is a particular breed of scum-sucking parasite (I believe they are called small plaintiff attorneys) that look for clients that have a kind-of/might-be valid complaint in the $10,000 to $20,000 range. Unlike normal business-oriented attorneys, these

It's a scam, but it still might be dangerous

Get a bunch of plantiff's attorneys involved, and a chase for money will ensue. Though SCO may have opened the doors here, IT really isn't very special when it comes to this sort of thing. Business has been dealing with this for years. There's a scam right

Say what?

Our legal advisors felt that it might be wise for us to settle, but we decided to press them further for details of the infringement and refused to yield...

So your legal advisors advised you to settle without further details? Something is not right about this story.

Re:Say what?

Sorry, advisors is a wrong term that I should not have used. To be fair, we have just one lawyer who has been our counsel since inception - and a couple of his associates, but essentially he is the only one.

We got a C&D notice, at which point we asked

This seems incredibly fishy

If you're a new startup, how did they happen to come across *your* open source project so swiftly? Could you have a disgrutled ex-employee who decided to up the stakes for you?

That said, if it's a patent, the patent is public information. They should have to provide the number of the patent that you have infringed, and proof of their ownership of said patent. It should then be easy enough to get the relevant info from the Patent Office. There's no incentive for you to settle until they do those 2 things. They *could* try to directly file a legal case, but it looks like they are out for a quick buck, and they are just hoping to scare you into a bad call.

CC

Lawyers!

Never call your lawyer unless you have paperwork that you need his help with.

In this case, you can fight, argue and whatnot with this patent extortionist infinitely. If they are really serious you will get paperwork (e.g. start of a lawsuit). Let it g

wow!

We're a fairly new startup company who specialize in products

holy crap you have products? I've been looking everywhere for those!

software patents

You're a software company. You *are* violating software patents. You can't have software without violating software patents. There are too many of them, covering too many trivial and common software tasks. It's only a matter of time before someone sues you for infringement.

There are only a few true defenses against this kind of attack. The first is to have a large patent portfolio of your own, to countersue any litigants. Unfortunately, this doesn't work against the recent trend of companies in the business of lititgation (eg. SCO). How can you sue a company for patent infringement if they have no product?

The second defense is a large bankroll. Not very many people successfully sue IBM, since IBM has an army of lawyers at their disposal to delay the lawsuit until the litigants run out of money.

My advice to any software developers is to go to law school and become lawyers. Litigation is the fastest growing industry in the US. Software companies will be put out of business by litigation companies, the only ones left will be behemoths like IBM and Microsoft, both of which will be using dev teams in places like India and China, where they can be paid a fraction of what US developers make. So quit your job, and go to law school. Try to make enough money so you can retire when the system collapses in on itself. Things won't be very pretty at that point.

We can continue to press our government for patent reform to try to prevent all this, but they won't listen. They haven't listened in the past, and they won't listen in the future. I give my money to the EFF, I write letters and emails to my congressional representatives, yet nothing makes a difference. Instead of fighting for reform, we're fighting the INDUCE act so IP law doesn't become even *more* insanse. It's a losing battle. The lack of proportional representation in the US forces the election to be decided on just a few issues. The rest are auctioned off to the highest bidder for a few campaign contributions.

Wow, I'm jaded. I remember when I used to have a shred of hope that things would improve...

Lies... Lies...

I'm posting this anonymously for reasons that will soon be obvious.

And what is it that is obvious?

New startup that specializes in products

Our legal advisors felt that it might be wise for us to settle

but we decided to press them further for details of the infringement and refused to yield

we feel that this is a scary precedent

Have any other entrepreneurs around here experienced anything similar?

to go after unwitting small startups who cannot fight back?

Personally, this was a nightmare for our company

we are not aware of any patents that we may be violating.

This reads like it was written by a psychologist to scare us out of starting an open-source company (note the use of language to make as many people identify with the text as possible combined with the implicit transfer of fear). That is what is obvious.

My views

IAAL.

Which country are you based in? if you are UK based, as some of your remarks suggest, I might give you a little consultation time for free. I do patents and IP, BTW.

Stop asking the IANAL /. crowd for legal advice: it's a serious waste of time as many of the reponses so far demonstrate.

The signature of this company suggests a scam: if I was representing someone with a strong patent I would be only too happy to give the patent number and relevant claims. But I certainly wouldn't refuse to divulge the patent and get snotty: that suggests lack of confidence on their part, and a tactically misjudged aggressive response.
On the other hand it may be just their litigative style and say nothing of the merits. Dunno, insufficient information.

You dont say whether your lawyer is an IP specialist: this matters, a generalist is fine for routine contracts, your building lease and employment law but you must know when to consult a specialist. your lawyer maybe out of his depth and not willing to admit it to you. He may worry about losing face and having you go elsewhere for legal services, whatever. Get someone with relevant experience if he hasn't got it: ask him to find you someone. I'm an IP lawyer but if a client asks me about tax law I wont bullshit: I'll refer them or find out myself from a specialist.

As one poster said: the temptation to push it all the way in outrage is understandable. this will cost you a fortune but the most pragmatic solution may be to enter some sort of agreement. But to do so without knowing the true strenght of their case is absurd. If their patent is weak and the prior art plentiful you may get them to agree to go away period, or with a very poor deal. I might be tempted just to say "bring it on".
You're playing poker: understand that and you are some of the way to understanding your predicament.

Your approach so far suggest diffidence and a lack of confidence, both you and your lawyer - while it's difficult to assess the dynamics of the parties from a /. posting you seem to be at risk of making bad decisions from a lack of proper guidance: get a specialist lawyer. Dont 'ask /.'. Really.

mail me offline for some advice: david atsign geeklawyer [dot] org