Groupon lawsuit calls IBM “a relic” but IBM R&D invests more than Groupon’s total revenues

“Groupon” by Mike Mozart. Licensed under CC BY 2.0.

Groupon Inc. (NASDAQ:GRPN), based in Chicago, IL, is a global e-commerce marketplace which serves as a digital platform for providing opportunities to purchase local goods, services or pay for entertainment and other activities. Currently, the company is embroiled in a legal battle with tech developer IBM (NYSE:IBM), which it is suing in the U.S. District Court for the Northern District of Illinois over a patent protecting a technology which lets businesses send offers to consumers based on their locations.

The patent-in-suit is U.S. Patent No. 7856360, titled System for Providing a Service to Venues Where People Aggregate and issued to Groupon in December 2010. It protects a system which involves the collecting data on attendees at a venue through a mobile device and communicating a reward available to a member for being present in a venue based on the member’s location and the demographics of the venue. This system allows a business to attract “desirable clientele” based on the “desired demographics that the venue wishes to achieve.”

Groupon definitely spoke its mind in its patent infringement complaint against IBM, which it filed in early May. Quotes from Groupon’s complaint and spokespersons have been widely reported that labels IBM as a “dial-up dinosaur” and “a relic of once-great 20th Century technology firms” that is now resorting “to usurping the intellectual property of companies born this millennium.” Strong words against a company who has earned the most U.S. patents each year for the last 23 consecutive years. In the days after Groupon’s suit, the company’s stock popped by at least five percent on news of the legal battle.

The complaint filed by Groupon is just the latest salvo in an intellectual property battle that IBM opened in early March after suing Groupon for infringing four IBM patents protecting technologies which are integral to Groupon’s business model. The patents-in-suit in that case are U.S. Patent No. 5796967, titled Method for Presenting Applications in an Interactive Service; U.S. Patent No. 5961601, titled Preserving State Information in a Continuing Conversation Between a Client and a Server Networked via a Stateless Protocol; U.S. Patent No. 7072849, titled Method for Presenting Advertising in an Interactive Service; and U.S. Patent No. 7631346, titled Method and System for a Runtime User Account Creation Operation Within a Single-Sign-On Process in a Federated Computing Environment. The earliest of these patents was issued in August 1998. These patents protect technologies related to presenting advertisements in applications, secure sign-on techniques for federated computing environments and individualizing advertisements based on user demographics and location.

We reached out to IBM for a comment and when asked to make a statement, a spokesperson said, “IBM filed a suit against Groupon in March for unauthorized use and infringement of IBM intellectual property. We believe this counter suit is totally without merit. IBM invests over $5 billion annually in research and development, and the company relies on its patents to protect that investment. Over the past three years, IBM has attempted to conclude a fair and reasonable patent license agreement with Groupon, and we are disappointed that Groupon is seeking to divert attention from its patent infringement by suing IBM. Our intent is to reach a fair conclusion under which Groupon acknowledges its obligation and compensates IBM for the use of IBM’s patented technology.”

That $5 billion annual R&D investment by IBM outpaced Groupon’s total 2015 revenues of $3.1 billion. It’s seems a tough argument to make that a tech firm that invests more money in R&D than the other company earns in a year is somehow a “relic” that is only “usurping” the innovation of this millennium.