Chrysler and Mercedes-Benz, clients represented by a team of Kilpatrick Stockton lawyers, have been awarded almost $4 million after beating back a patent infringement suit brought by one of several interlocking companies whose "primary source of income is from litigation settlements," according to the judge's order.
The award came on June 3 from a federal judge in Wisconsin after a jury found in March that a patent-owning company had breached a settlement agreement with Kilpatrick's clients, then called DaimlerChrysler.
The automakers' opponents were companies controlled by Texas entrepreneur Erich Spangenberg that own patents and license patents.
In 2006, DaimlerChrysler paid one of those companies, Orion IP, $2.3 million to settle a suit filed in the Eastern District of Texas over two Web site technology patents allowing online interaction.
The next year, a new Spangenberg company, Taurus IP, sued Chrysler and Mercedes in federal court in the Western District of Wisconsin for violating another patent related to the same Web site function.
Chrysler and Mercedes countersued for breach of warranty, and in February, Judge Barbara B. Crabb ruled that the companies had not infringed the Taurus patent. In March, Chrysler and Mercedes -- now in the plaintiffs' role
-- took their case before a jury, which agreed that Orion had violated its settlement agreement.
In her June 3 order, Crabb awarded Chrysler and Mercedes $3.8 million for attorney fees, and enjoined Orion and Spangenberg from "transferring, disbursing or otherwise depleting Orion's assets."
Crabb's 62-page order explains in great detail the breadth of Spangenberg's business practices.
"Orion and other Orion Related Companies are in the business of enforcing their patents through lawsuits and licensing them," she wrote. "[T]heir primary operating expenses are legal fees and their primary source of income is from litigation settlements. The business model of Orion is to license patents through litigation: first file a lawsuit, then negotiate a licensing agreement as part of settlement. Orion has been a party to approximately 100 litigation settlements. As of October 2007, Orion had generated approximately $72.3 million in revenues, primarily from litigation settlements [and] incurred related expenses, most of which was for legal fees, expert fees, court reporters, and other litigation expenses."
In addition to Chrysler and Mercedes, Toyota, Ford, Volvo, Hyundai, Yahoo, Amazon.com, Nike and hundreds of other defendants have been the target of suits filed by companies owned by Spangenberg's Plutus IP, the hub of a network that "provides cash management services and investment capital for the other Orion Related Companies," the judge wrote.
Spangenberg "has done very well" with the portfolio of patents acquired from Firepond, a software and consulting company where Spangenberg once served as CEO, said Kilpatrick Stockton partner Wab P. Kadaba, one of a team including partners Mitchell Stockwell and Ronald Raider, associates Vanessa Spencer and Tiffany Williams and former associate Barbara Grant.
Kadaba describes the Spangenberg companies as "patent trolls," entities that exist solely to acquire and enforce patents.
"The patent troll model is quite common now," said Kadaba, including operations much larger than Spangenberg's. "These are companies that don't create any products. ... Most of the time there is no counterclaim, so you either have to settle or take it to trial."
Often companies find it cheaper to simply settle for a million or two than engage in litigation, he said, but the settlement in the Texas case offered Chrysler a chance to fight back.
Kilpatrick had initially represented Chrysler in the case filed by Orion in Texas. When the Wisconsin suit was filed, "even though they said it involved a different patent, it was the same part of [the automakers'] Web site that was accused of infringing."
A telephone message left at Spangenberg's Dallas home was not returned, and his lead attorneys -- Plutus General Counsel David M. Pridham and Michael J. Newton of Flower Mound, Texas -- did not respond to telephone or e-mail queries.
A spokesman for Chrysler said the company would have no comment, given the possibility of further litigation.
That prospect is very real, said Kadaba, although no notice of appeal has yet been filed.
"Our clients were courageous enough to take this to trial," he said, "and we're hoping that's enough of a deterrent to prevent any more [litigation]. But Mr. Spangenberg has a lot of resources, and he's certainly willing to use them."
The case, in the Western District of Wisconsin, is Taurus IP, LLC v. DaimlerChrysler et al., No. 07-cv-158.