Groklaw - Cognex Invalidates Acacia Patent '524; Next? Suing for Business Defamation

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Cognex Invalidates Acacia Patent '524; Next? Suing for Business Defamation

Monday, June 23 2008 @ 04:06 AM EDT

Do you remember back in 2005 a company called Cognex took on Lemelson Partnership and won, invalidating 14 of Lemelson's patents? Well, it turns out that after that, they took on Acacia Research, and they just beat them too. Acacia is now minus one of its patents. Here's the order [PDF]. Cognex is now aggressively going after Acacia for defamation, attorneys fees, and damages, including, or so they hope, according to a motion to amend their complaint, special and punitive damages.

I love this company. They take on patent trolls and win. What do they sell? "Machine vision sensors and systems"? Whatever that is, I'll take ten.

I'm highlighting it for another reason, brought out in the company's press release:

“We are very pleased with the court’s decision, not only because it means that our customers will be spared from deceptive licensing demands, but also because it shows that the courts can and do act decisively to stop organizations that enrich themselves by asserting questionable patents,” said Dr. Robert J. Shillman, Chairman and CEO of Cognex.

I've been seeing a fair number of comments recently about how the legal system is broken or, worse, corrupt, and it's all hopeless, blah blah. Imagine if Cognex had viewed things that way. It could have. The US patent system really is broken, after all. But Cognex knew it *could* work, if it tried. And it thought it mattered enough to try. Back in 2005, Shillman was quoted as to his reason for standing up to Lemelson, when so many others had folded:

Against the advice of his most trusted associates, Shillman decided to go forward with a lawsuit in September 1998. The suit, filed in Massachusetts, said the Lemelson patents were invalid, unenforceable and not being infringed by Cognex.
"If evil is being acted upon in the world, everybody has an obligation, especially if only you had the power. Only we understood the technology. Only we could defeat this guy," said Shillman.

Imagine if he had, instead, thrown up his hands, assumed there was no hope, said the patent system was a joke, the system totally corrupt, etc. and just paid for a license he knew, and as he later proved, he didn't need? Nobody needs it now. It's history. Thank you, Cognex. Cynics give up too easily, methinks. You may remember, incidentally, that Acacia is the entity that filed a patent infringement suit against Red Hat and Novell last October.

Finally, I thought it would be useful to take a look at the prior art that persuaded this judge that the patent in question was not valid, as part of our education in patent law. You can find out about that by reading the Order. You guys will understand that part better than I do, so do share what you learn with the rest of us.

The Cognex win in May isn't the end of the story. What about the defamation part? Here's a report on Law.com:

The company is also bringing business defamation claims against one of the companies for statements its officials made to Cognex's customers....
Cognex's in-house counsel, Todd Keebaugh estimated that Cognex has spent roughly $3 million to $4 million fighting Acacia, not including in-house employees' time....
Cognex claims that Acacia officials, who allegedly tried to get Cognex customers to buy licenses by threatening them with patent suits, also attempted to discredit Cognex by falsely claiming Cognex tried to buy the patent in question from Veritec for an eight-figure sum. Cognex also claims Acacia showed some customers a phony document as proof.

Cognex has filed a motion to amend its complaint, a 2nd Amended Complaint [PDF], and a motion for summary judgment [PDF] on Count V of the complaint, Business Defamation, both of which motions Acacia opposes. You can see some of its reasons in this Memorandum in Opposition [PDF]. One reason is that Acacia says it's too late to amend the complaint now, almost a year after the close of discovery. Litigation is only fun if you are winning. When you're in defensive mode, it's mainly scary. For Acacia, this may not be the fun part, and no doubt they hope fervently that the court agrees with them about the request being untimely. The proposed amended complaint asks for the following relief:

H. For an injunction permanently restraining Acacia, its officers, agents, attorneys and others in active concert therewith from defaming Cognex and/or engaging in any further deceptive trade practices in regard to Cognex;
I. For an award of presumed damages to Cognex due to Acacia's defamation;
J. For an award of special, general and punitive damages to Cognex due to Acacia's defamation; and
K. For an award to Cognex for such other and further relief as the Court may deem just and proper.

Acacia opposes adding special and punitive damages to the complaint, and so would you if you were Acacia, because it can add up to big bucks. We'll see how this ends. This is all happening this month. I gather the judge will rule on the papers, without a hearing. But the truth is, with or without those damages, Acacia has lost a patent, and that costs them in and of itself. Here's one example of a specific defamation allegation from the complaint:

25. Specifically, in an e-mail dated April 27, 2006 to a Proctor and Gamble representative, the Acacia representative, Tisha De Riamo, stated:
Your information regarding Cognex is very interesting. I hope their attorney told you that as recently as last summer, Cognex attempted to buy the '078 and '524 patents from Veritec for an eight-figure purchase price. In other words, they saw value having the patents back then. But now, as Veritec has emerged out of bankruptcy and is able to enforce its rights regarding the patents, Cognex alleges that the patents are invalid. It's incongruous. (emphasis in original)
26. Upon information and belief, Ms. DeRiamo also stated to at least one of these alleged infringers, Allison Payment Systems, a customer of Cognex for its data matrix symbol reader products, that Veritec was in possession of a letter of intent evidencing Cognex's alleged offer to purchase the '524 and '078 patents for an eight figure sum.
27. These statements made by Ms. DeRiamo are false. Cognex never offered to buy the '524 and '078 patents for any sum, let alone one with eight figures.

It's the '524 patent that Acacia just lost. The complaint goes on to state that Veritec, when it was in bankruptcy, offered to sell its entire company to Cognex, but Cognex didn't respond to the unilateral offer. Acacia doesn't seem to deny the allegations; they say Cognex should have brought them up sooner and they have legal arguments as to why Cognex should have no relief or at least why it should go to a jury. If I might just suggest for the future another possibility when a patent troll or troll-to-be offer patents for sale: please contact the Open Invention Network to let them know the patents are being offered for sale, just in case they might be interested.

I'll bet you anything that some "pragmatist" out there will suggest that Cognex should have just paid the 8 figures and avoided the litigation expense. First, that would have left others vulnerable to a patent that proved to be bogus, including Cognex's customers (the Supreme Court's Quanta decision recently has altered that picture, but back when Cognex was making those decisions, no one knew that would happen). And second, there is something fundamentally wrong with a system where your best choice is to buy a worthless patent.

The complaint alleges that Acacia recently produced a "rough draft of a letter that it indicated was obtained from Veritec." Cognex was typed at the top of the page "as if to simulate authentic Cognex letterhead." However, Cognex says the letter isn't authentic, but is "rather is a total fabrication prepared by Veritec and/or Acacia without any involvement by or input by Cognex."

Cognex alleges that the false statements were made for a purpose, "for the specific purpose of deceiving Proctor & Gamble, Allison Payment Systems and other companies to whom they were made into believing that Cognex has no intention of pursuing its meritorious declaratory judgment claims in this action through to a conclusion." A secondary purpose, according to the complaint, was "for the additional purpose of fraudulently inducing these companies to pay a fee for a license under the '524 patent notwithstanding the pendency of Cognex's claims." I gather that is a large part of why Cognex decided to do something about what was happening to its customers.

These issues are discussed in the Order, but the court felt there were issues of disputed facts, and the court pretty much encouraged Cognex to raise the Count V matters in a dispositive motion, "so as to minimize a delay in seeking appellate review", and so Cognex filed the motion. It's hard to get a complete picture, because some of the recent filings are sealed, but what is available gives us the big picture.

Patent trolls know now that Cognex certainly will pursue its claims to a conclusion, and they will protect their customers in situations like this. They have a history now of winning. The '524 patent is no more. It has been declared invalid and unenforceable.

Here's the complete press release about the patent win in May:

NATICK, MA, May 22, 2008--Cognex Corporation (NASDAQ: CGNX) today announced the U.S. District Court in Minnesota has ruled in favor of Cognex in its patent lawsuit against Acacia Research Corporation, Veritec, Inc., VCode Holdings LLC (a subsidiary of Veritec, Inc.), and VData LLC (a subsidiary of Acacia).
The ruling by Judge Joan N. Ericksen, issued on May 19th, held that U.S. Patent No. 5,612,524, which claimed to cover a system for capturing and reading 2D symbology codes, is both invalid and unenforceable due to inequitable conduct by the defendants during the procurement of the patent. The court also denied Acacia’s summary judgment motion seeking to dismiss a business defamation claim brought by Cognex against Acacia for representations Acacia made about Cognex after the lawsuit was filed.
Cognex, a leading manufacturer of devices used to capture, verify, read and decode 2D symbology codes, filed its original declaratory judgment complaint on March 13, 2006 after receiving information that Acacia Research Corporation had contacted Cognex customers to demand licensing fees relating to the ‘524 patent.
“We are very pleased with the court’s decision, not only because it means that our customers will be spared from deceptive licensing demands, but also because it shows that the courts can and do act decisively to stop organizations that enrich themselves by asserting questionable patents,” said Dr. Robert J. Shillman, Chairman and CEO of Cognex.
Dr. Shillman continued, “Companies and individuals certainly have the right to seek licensing fees for their legitimate, patented inventions. In fact, patents provide an important incentive to the process of innovation by granting inventors the exclusive right to profit from their inventions for a certain period of time. However, abusive patent trolling…the activity of purchasing highly questionable patents from patent holders and then asserting them against well-respected and ethical corporations in the hope of extracting large monetary settlements (which are often calculated to be a bit less than the cost of litigation)…has unfortunately become a growth “business” in America over the past decade. But, unlike other growth businesses that help our economy, patent trolling hinders our ability to innovate and costs our economy hundreds of millions of dollars each year, costs that are passed on directly to consumers.”
Dr. Shillman concluded, “Patent trolls are like neighborhood bullies; they can only be stopped by standing up to them, refusing to settle, and then challenging their patents in court as Cognex did in 2004 when it succeeded in invalidating 14 patents asserted by the Lemelson Partnership, and as it did it once again in this case against Acacia and Veritec."
About Cognex
Cognex Corporation designs, develops, manufactures, and markets machine vision sensors and systems, or devices that can "see." Cognex vision systems are used in factories around the world to automate the manufacture of a wide range of items, and to assure their quality. Cognex is the world's leader in the machine vision industry, having shipped more than 400,000 machine vision systems, representing over $2 billion in cumulative revenue, since the company's founding in 1981. In addition to its corporate headquarters in Natick, Massachusetts, Cognex also has regional offices and distributors located throughout North America, Japan, Europe, Asia, and Latin America. Visit Cognex on-line at http://www.cognex.com.

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