Antitrust Law Daily Wrap Up, RICO NEWS: Frivolous patent infringement suits filed by shell companies violate RICO, complaint alleges, (Sep 19, 2013)

By Cheryl Beise, J.D.

Technology start-up company FindTheBest.com, Inc. (“FTB”) has filed a Racketeer Influenced Corrupt Organizations (RICO) Act lawsuit against Boston-based patent holding company Lumen View Technology LLC (“Lumen”), four other companies, and two individuals, who allegedly have formed a series of “shell” entities that file frivolous patent infringement actions for the purpose of extorting “licensing fees” or settlements. The complaint in FindTheBest.com, Inc. v. Lumen View Technology, LLC was filed September 16 in the federal district court in New York City.

The complaint describes the defendants as operating non-practicing shell entities that have an ownership, licensing, or assignment interest in patents covering abstract, fundamental business-related concepts. They file serial patent infringement lawsuits in bad faith against legitimate businesses—like FTB—without probable cause and without conducting proper due diligence and investigation into whether their targets are infringing the asserted patent claims, according to the complaint. The complaint alleges that the defendants use the legal process not to vindicate legitimate patent rights, but to extort licensing fees in exchange for dismissal of their frivolous patent suits.

Lumen was formed 18 months ago by defendants Eileen Shapiro and Steven Mintz. Since then, it has filed more than 20 patent infringement lawsuits, including one against FTB, asserting infringement of U.S. Patent No. 8,069,073 (the ‘073 patent), issued November 29, 2011, and entitled “System and Method for Facilitating Bilateral and Multilateral Decision-Making.” Shapiro and Mintz are listed as the inventors of the patent. The patent claims a process whereby two or more people enter and rank their preferences, and then a computer uses an algorithm to arrive at an optimal meeting point based on both parties’ input, according to the complaint.

The complaint asserts that the defendants’ modus operandi is to conduct a cursory internet search for vulnerable targets, file a form complaint in federal court, and then proceed to extract licensing fees by threatening prolonged litigation and adding the target’s customers as defendants, effectively threatening to put the target out of business due to lost business and escalating indemnification

The complaint appends a letter FTB received from Lumen in May 2013. The letter asserted that FTB’s “Assist Me” feature infringed the ‘073 patent. The letter enclosed a copy of the complaint Lumen filed and threatened that if FTB did not immediately pay a $85,000 licensing fee, it would use the litigation process to disrupt FTB’s business through “full-scale litigation” and “protracted discovery.” The settlement demand incorporated an escalator for each nondispositive motion FTB filed in the case.

FTB claims that it contacted Lumen to explain that its system could not possibly infringe the ‘073 patent because it did not use a bilateral or multilateral process. But FTB’s efforts were unavailing. Lumen temporarily dropped its settlement demand to $55,000 if FTB settled before filing its answer in the suit.

The complaint also alleges that counsel for Lumen threatened to file a criminal complaint against FTB for calling Lumen a “patent troll.” According to Lumen’s counsel, calling someone a “patent troll” is a hate crime in the Ninth Circuit.

FTB’s complaint includes federal RICO claims, claims for extortion, abuse of process, and malicious prosecution under California law, and violations of California’s Unfair Competition Law. The complaint seeks general, restitutionary, and trebled damages, interest, injunctive relief, and an award of costs and attorneys’ fees.

The case is No. 13 CV 6521.

Attorneys: Jeffrey K. Daman (Daman & Associates, L.L.C.) for FindTheBest.com, Inc.

Companies: FindTheBest.com, Inc.; Lumen View Technology LLC; Dalton Sentry, LLC; DecisionSorter, LLC; The Hillcrest Group, Inc.

News: RICO NewYorkNews