This Company Declared War on a Patent Troll With a $50,000 Bounty
A group of lawyers who formed a company called Blackbird to file patent lawsuits against tech and retail firms may have chosen the wrong target. On Thursday, that target—the Internet security company Cloudflare—responded to Blackbird’s legal action with a scorched earth campaign to take down Blackbird and shred its patents.
In a blog post titled “Standing Up to a Dangerous New Breed of Patent Troll,” Cloudflare declared Blackbird’s business model to be destructive and unethical, and announced it would hand out $50,000 to anyone who would help invalidate Blackbird’s patents.
“There’s no social value here. There’s no support for a maligned inventor. There’s no competing business or product. There’s no validation of an incentive structure that supports innovation. This is a shakedown where a patent troll, Blackbird Tech, creates as much nuisance as it can so its attorney-principals can try to grab some cash. Cloudflare does not intend to play along,” said the blog post.
The target of Cloudflare’s wrath, Blackbird, popped up last year after several attorneys quit their jobs at big law firms to try their hand at “patent trolling“—a colloquial term for the practice of forming a company that exists solely to file patent lawsuits. The approach is effective because the troll’s targets usually conclude it is cheaper to pay the troll to go away instead of paying millions of dollars in a court fight. Trolls also have an upper hand because, unlike a regular business, they do not have assets that are vulnerable to a counter-claim in a lawsuit.
So far, Blackbird has filed at least 107 lawsuits—targeting familiar names like Amazon (AMZN), Reebok, and Jet.com—but also lesser known firms that sell clothes, fitness equipment, and lighting. Many of the patents Blackbird is asserting are at least 15 years old, including one related to shipping CDs in the mail, which is the basis for a complaint against Netflix (NFLX) and its new service for offline downloads.
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While patent trolling has been around for years—and is a particular bug bear of the tech industry—Cloudflare says Blackbird’s model of trolling involves a new and unethical twist. Specifically, the company says Blackbird’s lawyer-executives are violating their professional obligations by buying the claims of potential clients and engaging in questionable fee-splitting arrangements. Here is how Cloudflare, which says it is filing complaints with the state bars of Massachusetts and Illinois, explains it:
Blackbird’s “new model” seems to be only that its operations set out to distort the traditional Attorney-Client relationship. Blackbird’s website makes a direct pitch of its legal services to recruit clients with potential claims and then, instead of taking them on as a client, purchases their claims and provides additional consideration that likely gives the client an ongoing interest in the resulting litigation. In doing so, Blackbird is flouting its ethical obligations meant to protect clients and distorting the judicial process by obfuscating and limiting potential couterclaims against the real party in interest.
In a phone conversation with Fortune, Blackbird CEO Wendy Verlander said the company is not a law firm and that it doesn’t use contingency fee arrangements for the patents it buys, but conceded “it’s a similar arrangement.”
Verlander also defended the firm’s business model, claiming it provides a cost efficient way for smaller inventors to assert their rights against big companies with deep pockets. Critics, including Cloudflare, are skeptical of such claims and say patent trolling is nothing more than a way for lawyers to line their pockets, while shaking down firms that are actually engaged in innovation.
While tech companies have long complained about patent trolling, the ferocious response to Blackbird by Cloudflare is unprecedented. The company’s long blog post denounces Verlander and her partners in unusually stark language, while the bounty program could pose an existential threat to Blackbird.
Under the terms of the bounty program, Cloudflare will award a total of $20,000 to those who can provide so-called “prior art” to show the patent Blackbird is using to sue Cloudflare—which dates from 1998 and is titled “Providing an internet third party data channel”—is invalid. Prior art can be anything from a journal article to a web page to a slideshow, and can invalidate a patent if it shows the invention is not new or is obvious.
Meanwhile, Cloudflare is setting aside another $30,000 to pay for prior art that can invalidate any of Blackbird’s other patents, which it has listed on a dedicated website.
“We’re not going to reach a settlement that would pay tens of thousands of dollars to Blackbird to avoid millions in legal fees. That would only allow patent trolls to keep playing their game and preying upon other innovative companies that share our interest in making the Internet work better, especially newer and more vulnerable companies,” said the company.
Meanwhile, the Supreme Court is expected to weigh in any day on a closely-watched case that could curb the power of patent trolls.