Cognex Corp. is a small high-tech Massachusetts public company, yet it's funded an unusual, decade-long court offense against several so-called "patent trolls," which typically use patents to demand licenses from other companies.
They may have more company, and soon.
Companies now deciding to fight entities they believe are patent trolls may be in a better position, thanks to several recent U.S. Supreme Court cases limiting the rights of patent owners, particularly a June 9 U.S. Supreme Court decision that curbs patent owners' ability to sue customers of its licensee, lawyers say.
In Quanta Computer Inc. v. LG Electronics Inc., No. 06-937, the Court said that selling a patented item ends the patent holder's rights to it.
The ruling is likely to reduce the incentives for settlements between patent-holders who demand that companies take licenses and the threatened companies, because patent-holders won't be able to sell one company a license and sue that company's customers, said Neil Smith, an intellectual property lawyer in Los Angeles-based Sheppard, Mullin, Richter & Hampton's San Francisco office.
MORE MONEY UP FRONT?
In a unanimous opinion that overturned a decision by the U.S. Court of Appeals for the Federal Circuit, Justice Clarence Thomas wrote that the "sale of an item that substantially embodies a patent exhausts the patent holder's rights and prevents the patent holder from invoking patent law to control postsale use of the article."
That means patent-holders, like one of Cognex's recent court opponents, Acacia Research Corp., are likely to demand more money for such licenses, Smith said.
Smith advised some of the more than three dozen companies in California's adult media industry who were sued by Acacia several years ago for patent infringement, but he isn't involved in the ongoing litigation, which has been consolidated into federal court in the Northern District of California. In re: Acacia Media Technologies Corp., No. 5:05-cv-01114 (N.D. Calif.)
"Now [companies like] Acacia won't be able to sue downstream customers and may want a lot more money, because they're licensing all the customers," Smith said.
Cognex has taken a rare aggressive stance by suing companies that claim infringement and demand licenses.
Cognex makes industrial vision systems and software used as either a component in other companies' products or to detect defects and monitor production in manufacturing.
The company is also bringing business defamation claims against one of the companies for statements its officials made to Cognex's customers.
Its efforts have yielded a May 19 victory in a Minnesota federal court, which granted the Natick, Mass.-based Cognex summary judgment in its patent case against Acacia Research Corp., Veritec Inc. and a subsidiary of each entity. Cognex Corp. v. VCode Holdings Inc., No. 06-1040 (D. Minn.)
Cognex sought a declaratory judgment that neither its components, nor its customers' products that use Cognex technology, infringed on the defendants' patent.
The court also agreed with Cognex that the defendants' patent was invalid and unenforceable because of the companies' inequitable conduct during the patenting process at the U.S. Patent and Trademark Office. Inequitable conduct involves withholding or misrepresenting material information or making false statements for the purpose of deceiving the patent office.
The defense team attorneys with Nelson Bumgardner Casto and Friedman, Suder & Cooke in Fort Worth, Texas, and with Fredrikson & Byron of Minneapolis, did not return calls for comment.
Veritec CEO Van Tran referred calls to Acacia, which did also not return calls for comments.
A $3M TO $4M LEGAL BILL
Cognex's in-house counsel, Todd Keebaugh estimated that Cognex has spent roughly $3 million to $4 million fighting Acacia, not including in-house employees' time.
"Cognex has demonstrated as a company that we're not afraid to take action whether that be asserting our own patents or filing a declaratory judgment action to protect our customers and our product sales," Keebaugh said.
The Minnesota court's ruling also moves Cognex's business defamation case against Acacia forward by denying the defendant's motion for summary judgment.
Cognex claims that Acacia officials, who allegedly tried to get Cognex customers to buy licenses by threatening them with patent suits, also attempted to discredit Cognex by falsely claiming Cognex tried to buy the patent in question from Veritec for an eight-figure sum. Cognex also claims Acacia showed some customers a phony document as proof.
When deciding to bring the case, Cognex's CEO and board evaluated the business considerations and costs of litigation and also the impact of Acacia and Veritec's actions on its customers, Keebaugh said.
Cognex's recent win echoed its 2004 court victory against the Lemelson Partnership, which invalidated 14 Lemelson patents, Keebaugh said. Cognex started its campaign against aggressive patent holders by filing a 1998 case against Lemelson in federal court in Massachusetts, which was later consolidated into a Nevada federal case. Symbol Technologies Inc. v. Lemelson Medical, Education & Research Foundation, No. 2:01-cv-00701, (D. Nev.).
Before the Quanta decision, it was rare for companies to expend the kind of resources Cognex has when accused of patent infringement by patent-holding entities, Smith said.
"They [would] look at the economics and the cost of defense and the uncertainties and be more wiling to make a deal to get themselves out of the fight," Smith said.