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” 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.

providing a serviceThe 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.

presenting applicationsThe 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 interactive serviceProtocol; 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.

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8 comments so far.

  • [Avatar for Barry Graham]
    Barry Graham
    May 19, 2016 11:38 am

    Ron, you are right that prior art should not be patented. IBM has a rigorous process that affected me as an inventor (rightfully so) and that I participated in sometimes to ensure that patents were legitimate and original. Then it goes to the patent attorney and the USPTO. I know from my experiences that IBM takes a lot of pride in only issuing high quality original patents. With so many patents out there, of course it’s possible for duplicates to slip through IBM patent reviews, the patent attorney search and the USPTO search. I am only speaking for myself not for IBM however I know that every fellow inventor I worked with, including myself, would never want their name on a patent that turns out to be a duplicate of someone else’s idea.

  • [Avatar for Barry Graham]
    Barry Graham
    May 19, 2016 11:29 am

    If someone invents something at IBM then IBM should protect that investment. I was an IBM Inventor when I was there. My fellow inventors and I didn’t just invent so that IBM could be a patent troll. We invented because we wanted to do something useful and lasting with our ideas. IBM is in the game because it values creativity and because it wants to be able to make money from its employees inventions. There is nothing wrong with that. These are my own views. Even though I am not there any more, I still say that IBM is far from a relic.

  • [Avatar for Ron Hilton]
    Ron Hilton
    May 19, 2016 10:41 am

    My startup company PSI was sued by IBM for patent infringement, which was eventually settled when IBM acquired the company. I have spoken with other CEOs who have also been sued by IBM, one of whom even characterized them as a “troll”. I would not go that far, because I am pro-patent, but patent quality is a real problem, and IBM’s portfolio is no exception. I was shocked when I read some of the patents that IBM asserted against PSI, which covered well-known art that I would never have thought to be patentable.

  • [Avatar for Barry Graham]
    Barry Graham
    May 19, 2016 10:26 am

    In my last post I meant to say “IBM IS in the game because it values creativity and because it wants to be able to make money from its employees inventions.

  • [Avatar for Barry Graham]
    Barry Graham
    May 19, 2016 10:25 am

    If someone invents something at IBM then IBM should protect that investment. I was an IBM Inventor when I was there. My fellow inventors and I didn’t just invent so that IBM could be a patent troll. We invented because we wanted to do something useful and lasting with our ideas. IBM is not in the game because it values creativity and because it wants to be able to make money from its employees inventions. There is nothing wrong with that. These are my own views. Even though I am not there any more, I still say that IBM is far from a relic.

  • [Avatar for Night Writer]
    Night Writer
    May 18, 2016 02:27 pm

    I remember listening to a talk from the director of licensing at IBM in 2004 and he said that they never had to litigate. I guess things have changed now that there is no patent law just a judge that decides if they like your patent or not with no evidence.

  • [Avatar for Jim Ruttler]
    Jim Ruttler
    May 18, 2016 12:09 pm

    Interesting how IBM can escape the ‘patent troll’ moniker even though it is suing for patents that it doesn’t itself practice. All the big companies get away with this. Somehow, because they produce something, they can sue for other things that aren’t practiced and somehow that is different.

  • [Avatar for Bemused]
    Bemused
    May 18, 2016 11:38 am

    What’s somewhat interesting is that in years past you hardly ever heard of IBM being embroiled in patent litigation as a plaintiff. According to some colleagues in the tech industry, IBM has always been forceful in asserting its patents and obtaining licensing revenue. However, in years past, all it took was a few threatening letters from IBM’s legal department to get a recalcitrant purported infringer to pay up. I’m wonder it its been the significantly increased likelihood that a patent will not survive a validity challenge (AIA) that has lead tech companies to resist paying IBM patent royalties leading to an increase of lawsuits being filed by IBM. My memory is that several months ago IBM also sued Priceline for patent infringement.

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