Remember Shipping and Transit? The notorious NPENon-Practicing Entity. A broad term associated with trolls but now disfavored because it includes universities and legitimate technology developers that seek to license technology in advance rather than after a producing company has independently developed it. More went bankrupt last year after its campaign against everyone from transit app developers to city transit authorities hit a few potholes. Following a decade-long licensing and litigation campaign leveraging the high cost of patent litigation, including one year in which it filed more patent suits than anyone else, a series of attorney’s fee awards from successful defendants shut Shipping and Transit down.
While this might be viewed as a setback for Peter Sirianni, one of Shipping and Transit’s co-owners, he had other NPEsNon-Practicing Entity. A broad term associated with trolls but now disfavored because it includes universities and legitimate technology developers that seek to license technology in advance rather than after a producing company has independently developed it. More he could fall back on. Sirianni, while conducting Shipping and Transit’s campaign, was also conducting a similar litigation campaign under the name Eclipse IP, now known as Electronic Communications Technologies LLC (ECT). (Eclipse’s patents are prosecuted and ‘invented’ by the same attorney that prosecuted Shipping and Transit’s patents, another tight tie between the two entities.) A total of 213 cases were filed by Eclipse between 2011 and 2018, making it another prolific filer.
But after a recent settlement,[1. While marked confidential, the settlement was ordered unsealed by the presiding judge in the case.] Eclipse has agreed not to sue any California entity on any IP it owns as of the settlement date.
Ever.
ECT’s Pattern Of Litigation Threats Backfires
The case started off as many of Shipping and Transit’s cases did—with an email with no actual information about infringement. A response from the target, Kindred Spirit (doing business as True Grit Texture Supply), triggered a nuisance-value settlement offer of $15,000.
But ECT’s patents all relate to tracking the delivery of a physical object. And True Grit? They sell digital “textures, tools, brushes, actions, effects and assets” for Adobe Photoshop and Illustrator. Despite ECT’s apparent belief, True Grit’s products are not delivered as physical objects. Even a cursory glance at True Grit’s website would have made that plain.
Even given the completely baseless allegation, it probably would have made financial sense for True Grit to settle. Evaluating a patent claimThe section of a patent that describes the legal scope of the invention. Patent claims are supposed to establish the boundaries of the patentee’s entitlement to exclude. Under peripheral claiming as practiced in the U.S., claims establish the outer bounds of the patentee's privilege to exclude others. For further reading, see Burk and Lemley, Signposts or Fence Posts. can be expensive and litigating one is even more expensive. But True Grit decided to fight back before they could be sued.
True Grit Strikes Back
True Grit filed a declaratory judgmentA lawsuit in which one party asks the court to resolve an issue and declare its judgment. In patent litigation, a company that thinks it may be accused of infringing may choose to file a declaratory judgment action, asking the court to declare that the patent is not infringed and/or invalid. Filing a declaratory judgment can have tactical, procedural, or action against ECT. While California doesn’t have a state law against bad faith patent assertion, the bill having stalled in 2015, California does have a state law against unfair competitive practices, one with a financial penalty for violating it.
And in addition to ECT’s co-owners’ history of abusive patent litigation, True Grit had another tool they could employ—the Alice decision’s analysis of § 101. Three of ECT’s patents had already been invalidated for unpatentable subject matter under § 101. And those patents shared common features with the patents used to threaten True Grit—and had been invalidated by the same judge handling True Grit’s case.
Faced with this, ECT decided to make a promise not to sue True Grit—a so-called “covenant not to sue”—and asked the judge to dismiss the case, as there was no longer a basis for declaratory judgmentA lawsuit in which one party asks the court to resolve an issue and declare its judgment. In patent litigation, a company that thinks it may be accused of infringing may choose to file a declaratory judgment action, asking the court to declare that the patent is not infringed and/or invalid. Filing a declaratory judgment can have tactical, procedural, or. The judge agreed—at which point True Grit asked for attorney’s fees, arguing that ECT had threatened litigation based on a claim they knew was baseless to begin with. True Grit also maintained their unfair competition claims, which were not mooted by the covenant not to sue.
Capitulation
Facing both an attorney’s fees motion that seemed like it might be successful and the threat from the unfair competition claims, ECT proposed a partial settlement. But since True Grit had already gotten ECT’s promise never to sue them, it was going to need to be for a little more than just dropping the case. ECT found something sufficient to get True Grit to drop the unfair competition claims (though not the attorney’s fee motion, which was granted last week.)
But that settlement was originally sealed. And the settlement extended beyond True Grit. In fact, ECT ultimately promised not just not to sue True Grit on the threatened patent, and not just not to sue on any patent ECT owned, but actually promised not to sue any California company or person on any patent ECT owned as of the settlement.
A California entity that wasn’t involved in this case would have had a hard time knowing what ECT had promised if the settlement remained sealed, which is why the judge in the case ordered the settlement unsealed. With the settlement unsealed, any California entity sued by Electronic Communications Technology can find out that it might not need to worry—the state of California is officially a no-go zone for ECT’s existing IP.
An Alice Success Story?
This sounds like a success story. ECT lost, and in fact lost big, swearing off of California entirely. And it even had to reimburse attorney’s fees.
But it took 213 lawsuits and an unknown number of additional demand letters that may have been paid to get to the point that someone fought back and won. That’s 213 instances where someone had to evaluate a demand letter and face at least the beginning of litigation, and likely many more instances we will never know about where a company received a demand letter and quietly settled rather than pay the cost to evaluate the claims.
And without Alice—a tool that some U.S. Senators want to limit or remove—ECT would have already moved on to its next targets.
