Suing Open Source Startups - A New Scam?

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Suing Open Source Startups - A New Scam?

Posted by Cliff on Friday October 1, 2004 @09:29AM from the despicable-behavoir-in-business dept.

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."

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you don't really lose anything.. by gl4ss · 2004-10-01 09:35 · Score: 2, Informative

..by calling their bluff.

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

--
world was created 5 seconds before this post as it is.
1. Re:you don't really lose anything.. by Anonymous Coward · 2004-10-01 21:55 · Score: 2, Interesting
  
  Actually, that's not what we are scared of -- we're scared of two things:
  
  1. Investors pulling out, for fear of the lawsuit
  2. Customers and clients being scared of the credibility of our software
  
  Besides, we're only a startup -- we do not have an established cred, nor we have the resources. If this proves to be a bad call on our part, it might just prove disastrous, although I hope not.
  
  Anonymous Crowhead
If it's just a threat.... by FooAtWFU · 2004-10-01 09:36 · Score: 2, Interesting

... 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.

--
The World Wide Web is dying. Soon, we shall have only the Internet.
1. Re:If it's just a threat.... by ambrosen · 2004-10-01 09:45 · Score: 5, Interesting
  
  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.
2. Re:If it's just a threat.... by fatmonkeyboy · 2004-10-01 10:06 · Score: 5, Insightful
  
  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.
3. Re:If it's just a threat.... by yog · 2004-10-01 15:34 · Score: 3, Interesting
  
  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.
  
  --
  it's = "it is"; its = possessive. E.g., it's flapping its wings.
4. Re:If it's just a threat.... by dubl-u · 2004-10-01 22:01 · Score: 2, Insightful
  
  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 legal threats from loons around the world. For non-credible threats, we'd just ignore them. Usually they'd just go away. For the plausible or persistent ones, we would be friendly but do nothing.
  
  I found it was very helpful to ask questions about their position in a manner that was friendly, innocent, sincere, and slightly clueless. I also liked to be sympathetic and say pleasant, true things. E.g., agreeing that of course people's intellectual property should be protected. That conceeds nothing legally important, but helps to make people feel less scrappy. And mixing in moderate delays sapped their energy further.
  
  Most people just wanted to vent or bully a little. When they got tired of getting nothing out of us, they just went away. But to maintain that, you must not seem like you're fighting them; many people love a good fight.
  
  Even if your sharks are in it for the money, being polite, friendly, and eternally useless may be a good way to get them to move on to an easier mark.
5. Re:If it's just a threat.... by pbhj · 2004-10-01 23:00 · Score: 2, Interesting
  
  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 is a similar routine in the USPTO, basically recognition of the fact that bad patents slip through.
They didn't tell what patents you're violating? by ion_ · 2004-10-01 09:39 · Score: 4, Insightful

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 by mrblah · 2004-10-01 09:40 · Score: 2, Insightful

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 defend themselves) get the short end of the stick.

From this perspective, open-source seems like a liability. It's harder for companies to snoop in closed-source applications looking for violations of their patents, but open-source is... well, wide open.
its an easy way to get money. by QuantumRiff · 2004-10-01 09:42 · Score: 2, Interesting

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.

--

What are we going to do tonight Brain?
1. Re:its an easy way to get money. by hedronist · 2004-10-01 11:50 · Score: 3, Informative
  
  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 a**holes will take the case on contingency. They know what it will cost for you to defend yourself, even if you win. And if you do win, they know there is little that can be done to counter-sue for fees and costs.
  I am speaking from direct personal experience on this one. When we got the hit with the lawsuit (99% bogus, you got that, Mark?), I was so angry that I was ready to fight til the end of time. Fortunately, my attorney sat me down and explained how this scam works and then said, 'If you want to waste about a year of your time and also pay for my son's tuition at a nice private school, let's fight back. Otherwise, pay these clowns their money and you can get back to the business of making and selling products.'
  He was right I -- but I can still feel my blood pressure go up every time I think about it.
Say what? by max+born · 2004-10-01 09:54 · Score: 4, Insightful

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.
1. Re:Say what? by Anonymous Coward · 2004-10-01 20:56 · Score: 3, Informative
  
  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 them to indicate the sections of our software in which we were violating the patents, and pointers to the said patents. That was met with another C&D letter, this time with strong worded and with a staunch warning. Our legal counsel felt that it would be perhaps wise to negotiate, rather than challenge them -- since atleast during negotiation, we would see part of the code, or at the very least placate them for a while - or worst case, give them a percentage of the product's revenue.
  
  But we felt that to be almost blackmail and did not go with his advice. Instead, we sent them a reply telling them that without the details, it would be pointless for us, and therefore we do not beileve that there is any patent infringment, and consequently we will not be negotiating with them unless they will provide us with evidence. And failing which, we would assume that it was a farce.
  
  I had to fit the story within the word limitations, I should have been clearer -- my bad, I apologize.
  
  Anonymous Crowhead
Re:you don't really lose anything... by swillden · 2004-10-01 09:54 · Score: 3, Insightful

..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.

--
Note to ACs: I usually delete AC replies without reading them. If you want to talk to me, log in.
This seems incredibly fishy by heychris · 2004-10-01 09:56 · Score: 5, Insightful

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
Re:Always let them haul YOU into court. by p2sam · 2004-10-01 10:13 · Score: 2, Interesting

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 if the evidence is not favourable to the plantiff, then plantiff has burden of proof of no wrong doing.

IANAL, of course.
wow! by Scottarius · 2004-10-01 10:16 · Score: 2, Funny

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

holy crap you have products? I've been looking everywhere for those!
Lawyers! by iendedi · 2004-10-01 11:04 · Score: 2, Interesting

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 go that far - showing them that you will not just *take it* will most likely make them run away. If they are serious then they will push forward to sue you and that is the right time to discuss details of the infringement and possible settlements.

There are a ton of business terrorists and extortionists out there. It is an artifact of our legal system. Ignore them until you can't anymore.

And for christsakes, stop talking to your lawyer. The more you talk to your lawyer, the worse your life and business will be (because he will keep you spinning in circles that are important to him and hazardous to you). Use him only when you have no other option.

--

It is your personal duty to fight for what is right on a daily basis. Ignoring injustice is identical to approving
software patents by j0nb0y · 2004-10-01 15:19 · Score: 2, Interesting

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...

--
If you had super powers, would you use them for good, or for awesome?
Lies... Lies... by Corpus_Callosum · 2004-10-01 18:00 · Score: 4, Insightful

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.

--
The reason that it can be true that 1+1 > 2 is that very peculiar nonzero value of the + operator
Re:you don't really lose anything... by solman · 2004-10-02 03:33 · Score: 2, Insightful

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.
And IBM's defense has significantly increased the confidence of the business community in using open source software. Imagine the impact that IBM settling with SCO would have on their multi-billion dollar Linux bet.
They would have gladly spent $100M for this kind of result.
My views by geeklawyer · 2004-10-02 09:40 · Score: 3, Insightful

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

--
-he who laughs last, is a bit slow.
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