Overstock.com, Inc. (NASDAQ: OSTK) recently announced that plaintiffs in two patent infringement lawsuits dismissed their cases against the company without any settlement or any money paid.
“They just walked away,” said Patrick M. Byrne, Overstock.com chairman and CEO. “Patent trolls find us unappetizing. While we have the highest respect for intellectual property rights, we don’t settle abusive patent suits—we fight.” Byrne added, “You can’t fork over your lunch money today, and expect a bully to leave you alone tomorrow. Patent trolls understand a bloody nose and in the long run, it’s the asymmetrical response that pays off. It is only right that we take this opportunity to make explicit this litigation strategy. As Dr. Strangelove says, ‘What’s the point of having a Doomsday Device if you don’t tell anyone about it?'”
Mark Griffin, Overstock.com senior vice president and general counsel, underscored the company’s policy: “In abusive lawsuits, we spend our legal budget in defense, not on unjust settlements.”
Over and over again I have written that the solution for companies who are being sued by patent trolls is to simply fight rather than settle. See, for example, Fighting Patent Trolls is the Real Solution. Yet, most companies naively choose to settle frivolous troll cases and at the same time aggressively litigate patent infringement lawsuits where the patents are strong and evidence of infringement real. This is exactly backwards. If more companies followed the Overstock model the industry would rid itself of frivolous extortion-like cases once and for all in just a few years.
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That there are bad actors is hardly surprising, particularly given the lucrative nature of the business model and the fact that many district courts simply do not police their courtrooms as much as they should early on in the process. I know that the law and process is set up to believe that bad actors will not abuse the process, but where there is overwhelming evidence that inefficiencies in the judicial process are being routinely exploited that means that some judges within the federal judiciary is allowing the courtroom to be used as center stage in what can only honestly be called a shakedown. Of course, district court judges possess considerable powers that can be exercised to stop the bad behavior, see Judges Can Make Patent Trolls Pay, but judges cannot stop the bad actors alone. All too often companies settle frivolous cases for a few thousand dollars and then naively proclaim that it is better business to settle than to fight.
As litigators of a certain vintage will remember, during the 1980s the auto insurance companies would settle everything, just like most tech companies do today when faced by bad patent infringement cases. They would dispose of the case for nuisance value and feel confident in the believe that they had saved money doing so because, after all, they could pay their attorneys and ultimately lose.
It doesn’t take a rocket scientist to figure out what happened as a result. Every attorney signed up every client they could who had been in an auto accident, even if the client was at fault. There was easy money to be had because insurance companies would settle bad cases. It wasn’t until about the early 1990s that the gravy train was over and auto insurers figured out that they had to fight and stop settling specious claims. And fight they did. And the tide turned completely in favor of the insurance companies. The lesson was and is clear: If you don’t fight you make yourself an easy target.
Griffin noted that the most recent plaintiff to dismiss first proposed a “no-money” settlement, but insisted on confidentiality to keep the walk-away quiet. Overstock.com flatly refused. “We want everyone to know they left empty-handed,” Griffin said. Good for Overstock! Fighting is only half the battle really. As Justice Brandeis once said “sunlight is the best disinfectant.” The troll industry could certainly use some disinfecting.
Griffin also said that Overstock.com redoubled its defenses in that case, and last week the plaintiff, Execware, LLC, called Overstock.com’s lawyers saying, in effect, it had had enough and was dismissing the case. In February, another patent troll, Eclipse IP, LLC, came to the same conclusion and dismissed its case.
Jonathan Johnson, executive vice chairman of Overstock.com, and its former president and general counsel said, “Many companies settle frivolous suits because it is much cheaper than fighting. That’s shortsighted. The best practice is to never settle frivolous troll suits at all.”
And as that word gets out what you will see is that over time Overstock will not be the defendant in frivolous patent infringement cases. The owner of a bad patent where there is no infringement simply has too much to lose to sue a company like Overstock that has a zero tolerance policy.
So the question remains, will other tech companies see the light, or will they keep settling frivolous patent lawsuits brought by patent trolls? The more they continue to pursue an obviously flawed and rather ridiculous strategy the more it seems like the tech elite want to perpetuate the patent troll problem so that they have a bogeyman to vilify on Capitol Hill in an effort to get the so-called reforms they want enacted into law, most of which would only destroy the patent system and make it exponentially more difficult for start-ups and small businesses to succeed.