Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Intellectual property attorneys are used to bucking the odds when suing companies for patent infringement. But for James Gatto, a partner at Pillsbury Winthrop Shaw Pittman, one court battle has become less of a long-shot case than a personal fight for legal and financial redemption. Gatto, 42, is a well-known figure in Washington’s IP bar. The peripatetic attorney — he’s been at six firms in the past 17 years — is described by those who know him as driven and dynamic. Those same qualities, however, may have led him to embark on a perilous fight that could end up costing him dearly. In January of last year, Gatto sued Amazon.com Inc., alleging that the online retailer’s “1-Click” shopping button violates an electronic fund-transfer system he patented in 2000. Last August, Gatto lost decisively in the U.S. District Court for the Eastern District of Virginia. There, presiding Judge Leonie Brinkema knocked down his claims on summary judgment, then stuck him with a whopping $1.6 million bill for Amazon’s legal fees, as well. Still, Gatto soldiered on. This Tuesday he’ll fight a return engagement against Amazon when his appeal is heard by the U.S. Court of Appeals for the Federal Circuit. Though the case (predictably) turns on the arcane minutia of patent law, the dispute has evolved into an unusual personal drama for the Pillsbury partner as well as for several prominent Washington law firms. For starters, the plaintiff is himself a patent attorney. While IP lawyers often use their expertise in science and engineering to pursue personal inventions, it is almost unheard of for such lawyers to sue over their own patents. (A noted exception is attorney Thomas Woolston’s $35 million victory for patent infringement against eBay Inc. in 2003, which was partially overturned by the Federal Circuit in March. But even he had left firm life to run his own business.) The case, IPXL Holdings v. Amazon.com, has also entangled a coterie of D.C. law firms, which were subpoenaed for documents. And the parties have remained at odds over the fees awarded to Amazon’s attorneys. Both sides declined to comment, citing the pending appeal. The stakes are high. Gatto could either gain millions or be forced to pay the seven-figure legal bill awarded by the lower court, as well as his own costs. Although his complaint doesn’t specify damages, according to Amazon, Gatto is seeking approximately $50 million. This isn’t the first time Amazon’s “1-Click” system has been at the center of a patent controversy. Just weeks after receiving its patent for “1-Click” in 1999, Amazon filed an infringement case against BarnesandNoble.com for its “Express Lane” billing system. Amazon won a preliminary injunction against the bookseller, but the Federal Circuit overturned the ruling in 2001, and the case ended in a confidential settlement. But, says Jonathan Marshall, a partner at Weil, Gotshal & Manges who represented Barnes & Noble, “It was clear from our point of view that, at the end of the day, the court would hold the patent invalid.” This time around the context is different. Patent law on Internet systems is now more developed. And the litigation comes amid a debate inside the legal profession over the rise in patent lawsuits. For many large corporations the problem is so-called patent trolls — canny investors who buy up patents from defunct companies and flip the purchases into lawsuits against big corporations. For the others, however, these lawsuits are about a protection of the right to property. Though Gatto’s patent is his own invention, the larger climate may have spurred Amazon to put up a tougher fight. “Companies are now saying there are opportunities where maybe we could and should settle these cases for the legal fees,” says patent attorney Aldo Noto, a partner at Andrews Kurth. “But the large companies are afraid of setting a precedent allowing these small guys to roll over them.” THE ENTREPRENEUR Raised in Westchester, N.Y., Gatto had a knack for technical gadgetry from an early age, studying electrical engineering and physics as an undergraduate at Manhattan College. After graduating in 1984 he went straight to the U.S. Patent and Trademark Office, working as a patent examiner for electrical and optical applications. But Gatto had larger ambitions than shuffling papers inside the government bureaucracy, so he put himself through night school at Georgetown University Law Center while holding down a full-time job during the day, says former law school classmate Jeffrey Sanok, now chair of Crowell & Moring’s IP practice. Even then, Gatto displayed business acumen. He bought rental properties in Northern Virginia, invested in a company that helped law firms obtain documents from the PTO, and became the organizer of regular ski trips among his law school classmates, Sanok says. “He’s very much an entrepreneur,” says Tim Brackett, a patent attorney at Nixon Peabody. Over the next decade and a half, Gatto built a practice litigating and prosecuting patents on behalf of a stable of high-tech clients, ranging from Internet startups to blue chip companies including Microstrategy and IBM. He began his career at the IP boutique then known as Banner, Birch, McKie & Beckett, and then moved to Marks, Murase & White before going to Baker Botts in 1992, where he became a partner. In 1997 he jumped ship again, landing with Hunton & Williams. All the while, Gatto continued to dabble in outside businesses and would-be inventions, including the cash-transfer system now at the center of his dispute with Amazon, which he filed an application for in June 1996. One of his current patent applications is for a so-called friendship object, described as two identical objects sold together so that the purchaser can give one to a friend. Gatto filed the application jointly with Heidi Jacquin, the wife of a former law school classmate who sells the product in a small business she owns called Wibbles. Gatto’s itinerant career path, some former colleagues say, was not simply a matter of moving to greener pastures. It also had to do with Gatto’s less than stellar management skills and the fact that he sometimes fell behind on collecting his bills. Though officially his 2001 departure from Hunton & Williams was friendly, five former colleagues and legal recruiters say it was more acrimonious than amicable. Still, Gatto landed softly, scoring a roughly million-a-year pay package at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, which was pushing to boost its IP practice in the Washington area. But problems arose with his new firm, as well. Last fall he bolted for Pillsbury, along with 10 other Mintz, Levin attorneys and support staff. Gatto’s supporters defend his firm-hopping. “Some people are more restless than others,” says Christopher Campbell, a partner at Hunton & Williams. “I wouldn’t chalk it up to anything more or anything less. . . . If he thinks there is an opportunity to expand, he’s not afraid to pursue it.” TAKING ON THE GIANT Although Gatto is a prominent figure in Washington’s IP community, his company, Virginia-based IPXL Holdings, the named plaintiff in the case, seems little more than a license holder for Gatto’s patents. (He is the sole member of the limited liability company, which currently holds three other patents and has four applications pending, according to court filings.) But IPXL’s size didn’t stop Gatto from targeting the Goliath of e-commerce with his slingshot. In March 2002 he fired off a letter to Amazon CEO Jeff Bezos, asking if the company would be interested in purchasing Gatto’s patented cash-transfer system, which, according to court documents, is described as a method for customizing financial transactions for users so that they can “select a desired transaction by a single selection or with limited inputs.” The two parties negotiated briefly but failed to reach any agreement. So Gatto turned to litigation, hiring veteran plaintiffs firm Robins, Kaplan, Miller & Ciresi and filing suit in a Virginia federal court, in January 2004. The Minneapolis-based shop is known for taking high-risk cases on contingency, including one that led to a 1998 victory against cigarette-makers, which forced Big Tobacco to pay out about $6.5 billion to the state of Minnesota and health care providers. More recently, the firm has focused on intellectual property cases like Gatto’s. Jan Conlin, one of the lead attorneys for IPXL, was a key player in the firm’s victory over Microsoft, which resulted in a $565 million judgment against the software giant for infringing a patent licensed to Eolas Technologies. The award was upheld earlier this year. Amazon is similarly well armed, with a team from Kirkland & Ellis led by Chicago-based partners Thomas Pasternak and David Callahan. Characteristically, the Kirkland attorneys took an aggressive line, making what was described in court filings as an “unprecedented” request by subpoenaing three firms Gatto had worked for — Baker Botts; Hunton & Williams; and Mintz, Levin — to obtain files related to patents Gatto had worked on over a nine-year stretch. The purpose, according to court filings: to show that Gatto had “derived his patent from the ideas of his client.” Such proof, if found, could invalidate Gatto’s patent and undermine his claim against Amazon. “It was a classic fishing expedition,” says Scott Robertson, a Hunton partner who handled the subpoena for his firm. The subpoenaed firms feared the request would not only tap into privileged and proprietary material but would be costly to comply with, as well. The court agreed with the firms, finding the subpoenas unduly burdensome given that there was not sufficient evidence of impropriety to justify the imposition. Accordingly, the court limited Amazon’s request to the patent numbers of any applications in which Gatto had participated. But by August 2004 that issue was made moot when Brinkema threw out all claims of infringement on summary judgment and questioned whether the action should ever have been brought. “I didn’t even think this was a close case,” the judge said the following month at a hearing with the attorneys. A few weeks later, the court ordered IPXL Holdings to pay Amazon’s legal tab — a particularly punitive ruling usually reserved for cases the court considers entirely frivolous. That order, however, led to a new round of legal jockeying over exactly what fees were justified. Amazon asked for what it claimed was 90 percent of its bill — $2,030,235.90 for Kirkland & Ellis and $63,071.37 for Greenberg Traurig, which served as local counsel in Virginia. IPXL thought it should pay only half that amount, arguing that it should not be liable for its opponents’ “pervasive overstaffing” and “luxury expenses.” In June the court more or less sided with Amazon, ordering IPXL to pay 80 percent of the bill. Gatto then tried to get the Federal Circuit to suspend the payment of legal fees while the case is on appeal. He lost because he did not show that taking out a bond would be overly burdensome. Is all this past prologue for what will happen at this week’s argument? Marshall, the former counsel to Barnes & Noble who has no involvement in the current case, thinks the deck is stacked against Gatto. “This court did a very good job,” Marshall says, referring to the District Court’s decision. “My judgment is that the decision that Amazon did not infringe will be upheld.” That could prove a costly outcome for Gatto and IPXL. As of June 28, the company had exactly $899.91 in the bank.
Emma Schwartz can be contacted at [email protected].

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.