Why is Steven Anderson of Culver Franchising testifying on patent reform in front of Congress?

By Steve Brachmann
July 6, 2017

Steven Anderson, VP and general counsel, Culver Franchising System

Recently, we published coverage of the House IP subcommittee, chaired by Rep. Darrell Issa (R-CA), and its recent hearing of the impacts of the U.S. Supreme Court’s decision in TC Heartland v. Kraft Foods Group Brands. Among the panel of witnesses was Steven Anderson, VP and general counsel of Culver Franchising System, Inc., a Wisconsin-based quick service restaurant chain which licenses its restaurant brand to a large number of franchisees. According to statistics published by the International Franchising Association, only seven of the 559 Culver’s locations across the United States are owned by Culver Franchising; Anderson’s testimony during the hearing indicated that Culver Franchising actually owns eight locations of a total of 624 Culver’s locations.

During the June 13th House IP subcommittee hearing, Anderson voiced dismay over “patent trolls” and the deleterious effects such entities have on Culver’s business activities. He voiced his encouragement at the Supreme Court’s decision in TC Heartland only to “realize the limited impact it would have on businesses like ours.” Brick-and-mortar locations exist in multiple jurisdictions and Anderson reasoned that this would continue to enable forum shopping among entities asserting patent rights. As recently as this April, Culver Franchising was sued by an entity asserting a patent which covered “nothing more than the abstract idea of sending promotional offers to a mobile device. The claims recite no special programming, computer, hardware, or other physical components.” (Interesting to note that this acknowledgment of the Alice standard handed down in 2014 by the Supreme Court comes just a few paragraphs after Anderson noted that Culver’s is not an expert in technology or patent law.)

Anderson described the entity suing Culver Franchising as a shell company whose principal place of business in the Eastern District of Texas was nothing more than an unidentified empty office space and was simply “an address from which to sue other companies.” Despite the fact that the three Culver’s locations within Eastern Texas contribute less than one-third of 1 percent of the company’s total revenues, Anderson’s written testimony notes that Culver Franchising was forced to litigate in Texas:

“Truly unbelievable, but here we are again, being forced to use our time and resources to defend another patent infringement suit over something that we do not feel should have be approved for a patent in the first place, more than 1,000 miles from our home office, in a court that is known to be friendly to patent trolls, with high priced defense attorneys, instead of using those resources to drive business to our independently owned and operated franchisees’ businesses.”

Since January 1st, 2001, Culver Franchising System has been a party to a total of four district court cases involving intellectual property according to data pulled from Lex Machina’s legal analytics service. Only two of those cases involved patent assertions and Culver Franchising was a defendant both times. The particular case filed against Culver this April by Mantis Communications LLC asserted a series of seven patents covering claims which solved the technical problem of initiating a communication between an organization and a user of a mobile device triggered by an initial request or interaction by the user in a way that improved the use of wireless channels to reach customers. “For example, although the wireless channel theoretically provided marketers a new ability to reach individuals in a time-sensitive way, there was a lack of standardization, and there was no practical way for a user’s non-mobile-device interactions to trigger timely intercommunications with their mobile devices,” the original complaint reads. The patents asserted in the case include:

  • U.S. Patent No. 7403788, titled System and Method to Initiate a Mobile Data Communication Utilizing a Trigger System. First filed in July 2003 and issued in July 2008, the patent covers a system for enabling targeted content delivery to a mobile device having a device address in such a way that addresses a problem that brand marketers had in obtaining address for the large number of cell phones in the U.S., a country with multiple wireless channel standards.
  • U.S. Patent No. 9092803, same title as the ‘788 patent. It claims a similar system having a message application server in communication with a trigger system with a client component that generates a trigger signal containing user content request data and a unique identifier used to derive a mobile device address, and then a web server component which receives and sends the trigger signal to the message application server to derive the address and send generated content, such as a coupon or promotion, which is sent to the mobile device.

Mantis’ first amended complaint filed in late June goes into far more detail as to the context in which the invention was conceived and why it was valuable to industry. For example, a unique feature of the telecommunications industry as it has developed in the United States is the existence of numerous mobile public network operators such as Verizon, AT&T, Sprint and T-Mobile. This is due to U.S. public policy encouraging competition among network providers. While there are different network operators, there are features which are common to the mobile service provided by each, such as short message service (SMS) text and multimedia message service (MMS) multimedia messaging. A Verizon subscriber can text an AT&T subscriber because both providers have an SMS center which processes the message data.

While this is effective for communicating from person to person, there are inconveniences when it comes to businesses needing simultaneous interaction with a wide array of consumers in a way that distributes messages with multimedia content in a high-speed and high-capacity way. Interfacing across multiple SMS centers at once requires harmonizing different protocols for routing traffic, methods for premium billing, protocols confirming messages are sent and read, various cellular standards including 4G and code division multiple access (CDMA) smartphone standards, among other issues.

For businesses attempting to use wireless channels to market promotions or offers to customers, these interfacing issues required the expense of purchasing various technical components to interface with the various SMS centers to send messages without the use of a handset. Otherwise, a business looking to market itself through SMS or MMS would have to purchase thousands of handsets and subscription plans to coordinate mass-customized message marketing campaigns. Prior to 2002, there was no viable system which could be used by businesses to implement a mobile messaging platform reaching consumers across multiple network providers in the U.S.

The original assignee of the patents, m-Qube Inc., was founded in 2001 as Proteus Mobile and developed a proprietary computer infrastructure marrying a business marketing channel to the SMS messaging platforms of wireless carriers. The set of components networked in a particular way, including a trigger system and message application server, are covered by the patents asserted by Mantis Communications. By 2006, businesses were using m-Qube’s infrastructure to reach as many as 200 million subscribers throughout North America. In addition, m-Qube received a total of $42.4 million in venture capital funding over the course of four years. Over the years, m-Qube’s infrastructure had been used in American Idol voting, American Red Cross donation gathering and by a wide array of businesses including Sony Pictures, Major League Baseball, Reuters, Procter & Gamble and Viacom. In 2003, m-Qube won a Best Wireless Advertising Campaign award from Ad:Tech. In March 2006, m-Qube was bought for $250 million by American network infrastructure developer VeriSign; at the time, m-Qube had 200 employees. According to the Google Patents entry for the ‘803 patent, at least that patent was transferred from m-Qube to Mantis between December 2014 and June 2016.

Despite Culver executive Steven Anderson’s contention that Mantis Communications operates as nothing more than “an address from which to sue other companies,” there is no evidence of this. The case appears to be in the very early stages, and it is not likely that Culver has pursued any discovery. In fact, Mantis attached representative claim charts to its complaint for pleading purposes. The representative claim chart for the ‘788 patent shows the various points of interaction of the website, mobile app and point-of-sale system provided by Culver’s which are covered by the patent claims. They include a website sign-up page for the Culver’s text club; SMS text message-based offers for in-store offers; a privacy policy for the alert system which indicates the wireless providers compatible with the service as well as an acknowledgment that data collected by Culver’s will be used for targeted delivery of promotional offers on mobile devices; and a receipt from a Culver’s location showing redemption of an SMS text message offer.

The particular Culver’s where the receipt showing offer redemption was located in The Colony, TX, a suburb of Dallas, squarely within the Eastern District of Texas. Regardless of the reason why the patent owner chose to form Mantis Communications as a limited liability company in Plano, it could be the case that at least one of those three Culver’s franchised locations in Eastern Texas contributing less than one-third of one percent of Culver Franchising’s total revenue is infringing on 100 percent of the claims asserted by Mantis.

The fact that Culver Franchising’s VP and general counsel is citing this case as a reason why Congress needs to create stricter venue provisions is confusing given the fact that Culver hasn’t filed a motion to transfer venue in the case. The company has only filed a motion to dismiss based on invalidity of the asserted claims under 35 U.S.C. Section 101. In fact, Culver filed an answer with affirmative defenses three weeks after the Supreme Court decided TC Heartland which notes that “Culver’s does not contest whether personal jurisdiction over it properly lies in this District in this case… Culver’s admits that venue may be proper, but denies that venue is convenient in this District as to Culver’s. Culver’s admits that it conducts business in this District.”

It’s not as if such motions to transfer for improper venue haven’t been filed by other defendants against Mantis. Indeed, a motion filed by Edible Arrangements (also a franchise) on May 30th in a different Mantis suit included claims of improper venue under Federal Rule of Civil Procedure 12(b)(3). So it seems that, a week after the Supreme Court decided TC Heartland, it wasn’t necessarily a given that a few franchised brick-and-mortar locations within a district create proper venue for a patent case. Indeed, Judge Gilstrap’s June 29 decision in Raytheon v. Cray confirmed a multi-factor test in determining if a non-resident defendant maintains a regular and established place of business for purposes of 28 U.S.C. § 1400(b). These factors are, in short: (1) physical presence, (2) defendant’s representations, (3) benefits received, and (4) targeted interactions. And yet, Culver Franchising’s VP and general counsel feels the need to ask Congress for additional help in avoiding infringement suits rather than file a motion to transfer or a motion for improper venue at the district court, options that are readily available to Culver and require no new legislation. Further, there may be some question as to whether Mr. Anderson has waived attorney-client privilege by testifying about the Mantis case and might have actually exposed himself to deposition and other discovery.

And this isn’t the first time that Anderson has testified in front of Congress. Back in March 2015, he testified in front of the Senate Judiciary Committee on behalf of Culver Franchising to speak about the effects of abusive patent litigation practices on the U.S. economy. But Culver’s has only been a defendant in two patent cases going back to January 1st, 2001. Anderson has testified in Congress about abusive patent litigation as many times as Culver Franchising has been sued for infringement. Why is the experience of Culver Franchising particularly relevant to the overall debate for patent reform when the company won’t even raise arguments about venue at the district court level?

If you haven’t been to a Culver’s, you really should go sometime because it serves some great food. The ButterBurger with its trademark buttered bun is delicious and the Wisconsin Cheese Curds are a Midwest-style treat which will make you forget all about your typical mozzarella cheese sticks. Anderson raises a great point in his testimony before the House IP subcommittee: Culver’s is not a technology company. But that raises the question of why Congress is listening to an anti-patent viewpoint when that view is proffered by someone who hasn’t faced much litigation and may actually be guilty of infringing a U.S. patent. Obviously, the efficient infringer lobby on K Street scores a huge win against patent owners every time Anderson is able to present misleading information while sitting on a Congressional witness panel.

The Author

Steve Brachmann

Steve Brachmann is a writer located in Buffalo, New York. He has worked professionally as a freelancer for more than a decade. He has become a regular contributor to IPWatchdog.com, writing about technology, innovation and is the primary author of the Companies We Follow series. His work has been published by The Buffalo News, The Hamburg Sun, USAToday.com, Chron.com, Motley Fool and OpenLettersMonthly.com. Steve also provides website copy and documents for various business clients.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 4 Comments comments. Join the discussion.

  1. Bemused July 6, 2017 11:44 am

    Excellent reporting Steve! Can you reach out to Mr. Anderson to see if he has any response to this story?

    Having been a defendant in two patent cases since 2001 hardly qualifies one to be a subject matter expert in patent disputes. Even worse, Mr. Anderson admitted that his employer is not even a technology company making his testimony about the validity of the patents asserted against Culver’s very suspect (and I didn’t see anything in Mr. Anderson’s background which suggests that he has any technical degree or technology background).

    Of course, I didn’t check whether Culver’s has been a campaign contributor to any of the members on the House IP subcommittee…

  2. Ternary July 6, 2017 3:12 pm

    As always a great article Steve. My recollection of Mr. Anderson’s testimony and comments is that he promoted specifically Alice to invalidate patents that he thought were bothersome to Culver. He testified explicitly that he wants to maintain Alice to prevent inventors to have patents that can be asserted against Culver.

    I consider Anderson’s inclusion in the witness panel as a strategic move by Reps Issa or Goodlatte to pre-empt or address comments considering 101 issues, which were to be expected in this atmosphere of patent destruction. Witness Adam Mossoff highlighted the ongoing squeezing of patent owners, including Alice, to the visible irritation of Chairman Issa.

    The key to Anderson’s testimony was his explicit (and non-expert) support for Alice: just don’t give them a patent. That solves at least Culver’s issues.

  3. staff July 7, 2017 11:39 am

    ’empty office space’

    Unfortunately, that is largely what inventors and small entities have been reduced to as a result of legislative and judicial changes to the patent system since the 2006 eBay SCOTUS decision. We no longer have a fair chance to commercialize our inventions. When we have to fight to get or keep our patents we go out of business, or end up as a shell of what we hoped to become. Patents are simply too hard, expensive and slow to get and enforce. Infringers (thieves), especially large multinationals, are mostly able to take what they want without being held accountable.

    It’s interesting that a franchising company that only has to offer a trade name and business plan chooses to attack a small business that at least has a business based on a technology. We wonder how Culvers would feel if a competitor used their name and copied their business plan and began operating in their markets? Hypocritical, no? If Culvers didn’t regard the technology in question as being useful, they wouldn’t be USING it. Yet they claim a patent should never have issued for it. Are they suggesting the government issue patents only for inventions that are NOT useful??

    Curiously, some in Congress continue the charade of parading infringers before committees while completely disregarding inventors -always the thieves and never the truly ‘disenfranchised’. Hmmm.

    For our position and the changes we advocate (the rest of the truth) to truly reform the patent system, or to join our effort, please visit us at https://aminventorsforjustice.wordpress.com
    or, contact us at aifj@mail.com

  4. Night Writer July 9, 2017 5:42 pm

    Basically, the big corps have gotten what they want. If you develop something they want, then they can take it. And, if you develop something that they have a patent on, then they can harass you. So, they have figured out how to use their superior cash position to win.

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