Patent Trolling Lawyers May Have Picked With The Wrong Company To Shake Down: Cloudflare Hits Back

Patents

from the bam dept

Earlier this year, we wrote a story about a fairly nutty patent troll, Blackbird Technologies, who had sued a bunch of companies over a patent it claimed covered letting users download content to consume offline (even though the actual patent was for a CD-ROM burning system). Blackbird has been suing a ton of companies over the last few years, and one of its recent targets was CDN provider Cloudflare (note: we’re a customer of Cloudflare). The lawsuit is over US Patent 6,453,335 on “providing an internet third party data channel.” The patent itself seems questionable. The application of the patent to Cloudflare’s technology seems questionable — but rather than dig into all of that, instead, let’s focus on Cloudflare’s response to all of this. First, it’s pushing back on the lawsuit (of course), but it’s going much, much further than that. As detailed in a new blog post, it’s directly going after the lawyers behind Blackbird.

You see, it’s fairly typical for patent trolling operations to be pretty secretive about how they operate. They are often formed by former patent lawyers who then try to lay low while they know they’re abusing the system. In this case, Cloudflare is first calling out the patent lawyers behind Blackbird:

Blackbird was formed three years ago by two attorneys who left law firms where they had been engaged in patent defense work ? Wendy Verlander (@bbirdtech_CEO; LinkedIn) at WilmerHale, and Chris Freeman (LinkedIn) at Kirkland & Ellis. Notably, both of those firms promote themselves as ready to protect companies from patent trolls. Kirkland trumpets that its IP practice group scored a victory against the ?original patent troll,? while WilmerHale has a Patent Troll Initiative that aims to help businesses deal comprehensively with patent trolls.

Having gained valuable experience and training by working for clients who paid their firms handsomely to fight suits brought by patent trolls, Verlander and Freeman were well aware of the harm done to their clients by patent trolls. Yet, Verlander and Freeman decided to cast their lot with the other side and formed a patent troll for themselves.

But it goes way beyond them just flipping to the dark side. As Cloudflare details, it believes that Blackbird and the two lawyers who run it may have violated legal ethics rules. Many of them. First, Cloudflare makes the case that Blackbird Technologies is really just a law firm, rather than a tech company:

As made clear in this blog post, Blackbird?s founders made the decision to leave law firms that were engaged in the defense of clients who were faced with patent lawsuits, and formed a new law firm focused on bringing law suits as a patent troll. The only services promoted on its website (http://www.blackbird-tech.com/) are legal services; the website notes that Blackbird represents a ?new model? which provides the benefits of ?top law firm experience? offering clients the ability to ?litigate at reduced costs.?

Of 12 total employees listed on the Blackbird website, 7 are attorneys. The remaining 5 are very junior employees described as ?analysts? (3 are current undergraduate students and 2 received Bachelor’s degrees last May). As far as we can determine, Blackbird produces no products or services which it makes available to the public. Rather, it offers litigation services and is in the business of filing lawsuits. And its output in that regard is prolific, as it has filed a total of 107 lawsuits since September 2014.

As final confirmation that Blackbird is a law firm marketing legal services, its own website includes a disclaimer about ?Attorney Advertising,? which states explicitly ?[p]lease note that this website may contain attorney advertising.?

Blackbird?s ?new model? seems to be only that its operations set out to distort the traditional Attorney-Client relationship. Blackbird?s website makes a direct pitch of its legal services to recruit clients with potential claims and then, instead of taking them on as a client, purchases their claims and provides additional consideration that likely gives the client an ongoing interest in the resulting litigation. In doing so, Blackbird is flouting its ethical obligations meant to protect clients and distorting the judicial process by obfuscating and limiting potential counterclaims against the real party in interest.

And thus, the company is subject to certain rules. Many of which Cloudflare argues it is not following.

1. Blackbird may have acquired a proprietary interest in the subject matter of the litigation in violation of Rule 1.8(i) ? Attorneys have a near monopoly of representing clients in the judicial system. Rule of Professional Conduct 1.8(i) explicitly prohibits an attorney from ?acquir[ing] a proprietary interest in a cause of action or subject matter of litigation.? But that is exactly what Blackbird does. Blackbird?s website contains a pitch to recruit clients with potential legal claims under their patents, but then buys those claims and brings them on their own behalf. Wouldn?t that be a violation of Rule 1.8(i)? Doesn?t Blackbird?s attempt to pitch this as a ?new model? of being a patent troll ignore the fact that the only non-law firm activity in which they are engaged (buying patents to bring lawsuits) is the exact thing prohibited by Rule 1.8(i)? They shouldn?t be able to use creative contractual or corporate structures to avoid its responsibility under the rules.

2. Blackbird may be sharing fees or firm equity with non-lawyers in violation of Rule 5.4(a) or 5.4(d) ? In order to preserve the integrity of the Attorney-Client relationship, Rule of Professional Conduct 5.4(a) prohibits attorneys from splitting legal fees in individual matters with non-lawyers, and Rule 5.4(d) prohibits providing an equity interest in a firm to non-lawyers. We think Blackbird may be violating both provisions. Although he no longer owns the patent and is not a party to the case, the assignment agreement?s terms (specifying payment of only $1) makes it possible that Mr. Kaufman has a contingency interest in the lawsuit. If that is the case, wouldn?t Blackbird be in violation of Rule 5.4(a)? Similarly, Blackbird has moved very quickly since its founding to file lawsuits against a great number of companies ? 107 complaints since September 2014. So far, none of those cases have gone to trial. We intend to examine whether they have used financial support from non-lawyers to fund the very fast start to their operations in exchange for an impermissible equity interest, or have shared an equity interest with patent holders like Mr. Kaufmann, either of which would be in violation of Rule 5.4(d).

Yeah. So, that might make things slightly more interesting for Blackbird. Rather than just having to fight off the claims of non-infringement or attempts to invalidate the patents, if Cloudflare’s arguments here get anywhere, it could put the founders of Blackbird into serious trouble. In some ways, based on Cloudflare’s description of how Blackbird operates, it reminds me of Righthaven. As you may recall, that was a copyright trolling operation that effectively “bought” the bare right to sue from newspapers. They pretended they bought the copyright (since you can’t just buy a right to sue), but the transfer agreement left all the actual power with the newspapers, and courts eventually realized that all Righthaven really obtained was the right to sue. That resulted in the collapse of Righthaven. This isn’t exactly analogous, but there are some clear similarities, in having a “company,” rather than a law firm (but still run completely by lawyers), “purchase” patents or copyrights solely for the purpose of suing, while setting up arrangements to share the proceeds with the previous holder of those copyrights or patents. It’s a pretty sleazy business no matter what — and with Righthaven it proved to be its undoing. Blackbird may face a similar challenge.

Cloudflare claims they’re taking such an extreme step with the bar complaints to ward off other patent trolls from evolving into this type of model, that will only encourage more bogus lawsuits. And, that’s not all the company is doing in going after Blackbird. The company is also crowdfunding up to $50,0000 for prior art discoveries not just on the patent being asserted against Cloudflare but on any patent held by Blackbird Technologies.

The first bounty (up to $20,000) is for prior art which reads on the patent Blackbird is using to sue Cloudflare, the ?335 patent. $10,000 is guaranteed and will be divided among prior art submissions that raise substantive questions on the ?335 patent. The remaining $10,000 will be used to compensate prior art submissions that Cloudflare uses as evidence in an invalidation procedure at the USPTO or invalidation at trial. The latest date of prior art on the ?335 patent would be July 20, 1998.

The larger bounty (up to $30,000) will be spread among those submitting substantial prior art which reads on any of the 34 other outstanding Blackbird patents or their 3 in-flight patent applications and could lead to the invalidation of these dubious patents. Cloudflare will pay the second bounty to people who submit relevant and substantive prior art which, in Cloudflare?s opinion, reads on any other Blackbird patent. The money will be distributed based on the quality of the prior art, the perceived value of the patent, and the extent to which the evidence is used in a proceeding to invalidate one of the Blackbird patents.

We will maintain a list of all the Blackbird patents at cloudflare.com/blackbirdpatents/. The list will provide the number of each patent, the relevant latest date of prior art, and will list germane already-identified prior art. We will update the list periodically as we get new information submitted.

In other words, if Blackbird Technologies wants to go after Cloudflare in court, Cloudflare is going to hit back hard and make sure that Blackbird can’t just run away. In many ways, this reminds me of Newegg’s scorched earth approach to any patent trolls that sue them. Once a troll initiates a lawsuit, Newegg goes to war to make sure that other patent trolls don’t even think of trying to go after Newegg again (and that strategy seems to mostly be working, as trolls now know to steer clear of the company).

Kudos to Cloudflare for hitting back against patent trolling that serves no purpose whatsoever, other than to shake down innovative companies and stifle their services. But, really, the true travesty here is that the company needs to do this at all. Our patent (and copyright) systems seem almost perfectly designed for this kind of shakedown game, having nothing whatsoever to do witht the stated purpose of supporting actual innovators and creators. Instead, it’s become a paper game abused by lawyers to enrich themselves at the expense of actual innovators and creators.

Filed Under: bar complaints, bounty, chris freeman, lawsuits, patent trolls, patents, prior art, wendy verlander
Companies: blackbird technologies, cloudflare, kirkland & ellis, wilmerhale