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Scientigo Claims Patents on XML
Saturday, October 22 2005 @ 06:39 PM EDT

We have a SCO wannabe. Except this one has patents. Dubious patents, apparently, but patents nonetheless. Dubious claims, as we have seen in the SCO litigation, are no barrier to entry into the litigation lottery.

SCO had better not rest on its laurels. We have a competing contender for most annoying plaintiff of all time, judging from the ZDNET article. Of course, the field is packed with companies forcing the world to do the patent dance, so they will have an uphill fight to reign as king of annoying. Remember JPEG?

I think they call that dance the Patent Hustle, but I'm not positive, not being much of a dancer myself. The steps go something like this, although there are variations:

1. Get a patent. (Ideally, get them from a company that never enforced them and then goes out of business, so that no one can accuse you, the new owner, of bad faith in any standards process.)
2. Wait until the tech is in widespread use. Extra points if it is a standard.
3. Reevaluate your assets and discover this wonderful opportunity to "monetize" your portfolio. Hold up everybody in the industry, particularly the deep-pockets companies.
4. Profit.

Remember JPEG's owner's priceless answer to the question about whether it was fair to demand licenses so many years after JPEG had become a standard?

"It wasn't until we went through a restructuring in 2000 that we started to look at the patent portfolio and realized we had this great opportunity," said Noonan. When asked if it was fair to begin a licensing push so long after the fact, he said, "It's not question of fairness, it's a question of, this is what we have."

Ah, yes. Exalted US business ethics. I hope Europe is paying attention to this little patent tale. There is a new organization, the European Software Association, with some old players, including Microsoft. I'm hearing rumors it may be used to push for software patents there. Yes. Again. Speaking of Microsoft, they claim a patent on XML-related software too.

Now to the new patent claims. Scientigo, a 340-employee company that hasn't been doing so well, with an IP portfolio some say is of dubious merit, would like to monetize its assets at the expense of the rest of the inhabited earth. They claim patents on XML. And just after Massachusetts chose OASIS OpenDocument XML, too. Go figure. And so, once again, the world has to stop being productive and take a detour to deal with patent craziness. Could somebody please do something about patent highwaymen?

From the ZDNET article:

A small software developer plans to seek royalties from companies that use XML, the latest example of patent claims embroiling the tech industry.

Charlotte, N.C.-based Scientigo owns two patents ( No. 5,842,213 and No. 6,393,426) covering the transfer of "data in neutral forms." These patents, one of which was applied for in 1997, are infringed upon by the data-formatting standard XML, Scientigo executives assert.

Scientigo intends to "monetize" this intellectual property, Scientigo CEO Doyal Bryant said this week.

Rather than seek royalties itself, Scientigo has forged a tentative agreement with an intellectual-property licensing firm that will handle contracts with third parties, Bryant said. A final agreement could be announced early next week, he said. . . .

The standard itself is developed at the World Wide Web Consortium, which published an initial draft of XML in late 1996 and proposed XML version 1.0 in December 1997. . . .

As part of the restructuring, company executives decided to try to draw revenue from its patents--including the two in question that came through Scientigo's acquisition of the assets of a Texas company called Pliant Technologies.

Bryant does not dispute the company's interest in potentially huge revenue from these patents. A multimillion-dollar annual royalty from, for example, would not be onerous to Amazon and yet would help revitalize Scientigo, Bryant said.

Scientigo says it met with 47 companies in the last few months, including Microsoft and Oracle. So, they have a list of potential victims. "Microsoft declined to say whether it has spoken to anyone from Scientigo." Uh huh. Right. I know several, including a Microsoft spokesman and Andy Updegrove of OASIS, are quoted by ZDNET as saying that the claims are questionable and will be challenged. Many patent claims are questionable. But the only way to know is by means of incredibly expensive litigation, with an uncertain outcome. What kind of system is that?

Remember the ridiculous jury award to Kodak over Sun? Remember Michael Anderer indicating that Microsoft's strategy would be to make sure FOSS is hit with one patent lawsuit after another until it lies down and dies? Remember Andrew Orlowski writing about Ballmer's speech in Asia, which he later tried to clarify, that Microsoft's weapon of choice is not patent infringement lawsuits, but rather the *threat* of them, or to put it plainly, FUD? That success for Microsoft would be in the *bringing* of lawsuits (or having someone bring them), one after another, whereby the ultimate outcome doesn't matter so much as being able to tie up everyone in costly litigation, so it can herald the "news" that FOSS is dangerous to use in the enterprise? More SCO, anyone?

So, could OASIS or somebody please explain to us again why it's acceptable for standards policies to permit patents? How is that working out, guys? The very thorough David Berlind provides some background on the OASIS controversy and the discussion on all this.

Let's get back to Scientigo. I've done some research, and I'll share with you everything I have found so far. The company sold off part of its business recently, the article tells us:

"The company, once known as Market Central, went through a complete overhaul this year after the arrival of Bryant as CEO. It sold off its call center business, eliminated debt, and focused its product development on content management software."

Here's the press release from April of 2004, which tells about Market Central acquiring Convey Systems, and with it Mr. Bryant:

Market Central, Inc., a provider of Customer Relationship Management (CRM) services and solutions, today announced that the Board of Directors has approved a letter of intent to acquire the assets of Convey Systems, Inc., including patents, intellectual property, software, and certain other assets, from Convey's parent company, The Tag Group, Inc. (PNK: TGGP).

Effective immediately, the Board has entered into an interim management agreement naming Mr. Doyal Bryant, President and CEO of Convey Systems, to serve as the President and CEO of Market Central, Inc., pending the consummation of the transaction. . .

The addition of Convey Systems' OnDemand(TM) product line to Market Central's current operations will enable Market Central's contact centers to operate as sophisticated, multi-media customer contact centers on an outsourced basis.

Additionally, Market Central intends to combine its SourceWare(TM) software with OnDemand(TM) in a new software licensing division that will provide more sophisticated data search capabilities to its contact center clients. SourceWare(TM) is a powerful next-generation search engine application that captures, integrates, cleanses and organizes back office and customer data for data mining. . . .

Prior to Convey, Mr. Bryant held senior management or ownership positions in companies that provided financial and technical due diligence services for major investment banking firms with transactions valued at over $300 million. He played an integral part in the growth and development of major telecommunication companies such as ZTEL, Premiere Technologies, CommSouth, Talk.Com, PrimeTec International, and ATMNet. His companies have developed international joint venture agreements and investment transactions for Voice, VoIP, and Internet related services in Canada, Mexico, Australia, Japan, Hong Kong, as well as several European and South American countries. . . .

About Market Central

Headquartered in Atlanta, Market Central, Inc. is a full service Customer Relationship Management (CRM) provider. The Company has developed a next-generation suite of CRM solutions that include proprietary, patented software for data capture, cleansing, mining, integration, search, and intelligent document recognition. The Company is also a Microsoft development partner for MS CRM solutions. Market Central provides other CRM services, such as campaign management, and operates a 900-seat contact center to support the software line of business and provide outsourced contact center services to select clients as part of their overall CRM effort.

So, they were a development partner of Microsoft. Well. Here's another description of what they used to do:

Market Central, Inc. operates as a global technology management company. It specializes in solutions that enable businesses to store, categorize, and retrieve information. The company develops a suite of solutions that include software for search, intelligent document recognition, data capture, cleansing, mining, and integration. Its subsidiary, Ecommerce Support Centers, Inc. (ECOM) provides outsourced contact center solutions and customer relationship management (CRM) services. ECOM offers inbound technical support, sales, and customer service; outbound presales and sales; data mining; campaign management; and CRM integration. Market Central was formed in 2003. The company was formerly known as Paladyne Corp. and changed its name to Market Central, Inc. Market Central is headquartered in Charlotte, North Carolina.

And who are the people behind the company? Aside from a new CEO, Doyal Bryant, the company also has a new COO, Cynthia White, as of September 22, 2005, the date James McGovern "resigned as a member of the Company's Board of Directors because of other pressing time and business commitments," according to the company's 8K filed on the 28th. Here are some Yahoo financials on the company, and insider transactions.

Also in September, Scientigo and Ribstone Systems announced they "are jointly developing and will offer solutions to help companies gain a competitive advantage through automated coding & indexing of photo copied documents and the ability to search and find documents, enterprise wide. As part of the partnership agreement, Scientigo has agreed to license its patented search, automated coding and indexing applications to be integrated with Ribstone's Canon Compatible(TM) document scanning and processing engine." So, at least one company has licensed their patents.

You can get the best feel for the company by reading a a Taglich Brothers research report [PDF] that clearly explains their patent portfolio in plain English. I hadn't heard of Taglich Brothers, not being a financial person, but I'm very impressed at their ability to read a patent claim and understand it. I confess I read them and wonder what they are saying most of the time. Lawyers write them that way on purpose, another argument against the current patent system, a system where no normal person can possibly know in advance if they are in danger of violating someone's patent. Writing software in the US is now like doing a cannonball into a muddy lake you've never swum in before. You can't know what you'll hit under the water's surface.

On page two of the report, it tells us this:

Market Central, Inc. (OTC BB: MKTE), which was formerly known as Paladyne Corp., is headquartered in Charlotte, North Carolina and currently doing business as Scientigo, Inc. The Company was formed through a March 1999 merger with Synaptx Worldwide, Inc., a Utah corporation. Investors should be aware that according to public filings with the SEC, the Company anticipates shareholder approval of the Scientigo name by the end of October 2005.

Oh, lordy, another Utah corporation. I see XML co-inventor Tim Bray was interviewed by David Berlind and points out that XML is a subset of SGML, and that SGML has been around since way before the patent was filed:

The notion that an application filed in January 1997 can cover a technology whose first public draft was in November 1996, and which was based on a then-ten-year-old ISO standard, seems ridiculous on the face of it. So one assumes that they're not trying to put a tollboth on XML itself, it must be some particular B2B application of it or some such. There are no specifics of what they're claiming on their Web site.

Here's a document describing SGML, dated 1986. The problem with prior art, as Bray said, though, is this: it's not a matter of when XML was first invented. It's a question of exactly what Scientigo's specific claims are. There must be a reason why they are mentioning Amazon as being a likely target of their licensing efforts, aside from the fact that Amazon uses Linux. For example, on page 3 of the report, they claim their two patents include 35 claims:

"According to Management, the Company's overall mission is to leverage its intellectual or outright sale, as well as the creation of technology offerings that are intended to improve products and services of its partners for the ultimate benefit of their clients. . . . The Company believes that its issued patents related to XML (Extensible Mark-up Language) have commercial value. The patents are entitled Method for Modeling, Storing and Transferring Data in Neutral Form, with one issued in 1998 and the second issued in 2002. Collectively, these two patents include a total of 35 claims."

Finding prior art would involve finding prior art for all of the 35 claims. The report also says there are pending patents, to "automatically categorize information based on the topics contained in the documents content. A technique to determine topics associated with, or classifications for, a data corpus uses an initial domain-specific word list to identify word combinations that appear in the data corpus significantly more often than expected. Word combinations so identified are selected as topics and associated with a user-specified level of granularity."

They seem serious about heading for patent infringement claims in the real world. Page 10 says this:

"The Company has been transitioning to become focused on providing customers intelligent Business Process Automation technologies through the growth and development of its intellectual property portfolio. This has led to changes in the financial structure as follows: All the assets and stock in the Company's call center were sold.... During May 2004, the Company sold its U.S. Convergion, Inc., subsidiary to Sylvia through a stock purchase agreement. The sale resulted in that business segment being accounted for as a discontinued operation...."

The financial picture looked bleak in 2004, with operating losses in the previous two years noted in their Form 10-KSB filed August 31, 2004. The independent public accountants said there was "substantial doubt about the Company's ability to continue as a going concern" at that time. The report notes that management "believes that the raising of capital over the past few months has mitigated the doubts about its continuing as a going concern." But the report expresses some continued doubts. You don't want to miss the legal history on page 15.

The Economist, in a must-read article providing a bleak overview of the current patent mess we all find ourselves in, quotes what it wrote about patents in 1851:

The granting [of] patents "inflames cupidity", excites fraud, stimulates men to run after schemes that may enable them to levy a tax on the public, begets disputes and quarrels betwixt inventors, provokes endless lawsuits. . . The principle of the law from which such consequences flow cannot be just.

Amen, brother. In modern English, it's saying that patent law encourages greed, fraud, schemes to set up tollbooths on the public's use of common and universally used technology, and endless litigation, and that any law that has such unpleasant results can't be just. Everyone used to know in the 1800s that patents were dangerous and should be granted only sparingly. Now, in a twist on the 90's headstrong greed bubble, the new moneymaker is patents and patent litigation, what Mark Webbink of Red Hat, quoted in the Economist, calls a "patent bubble". Is that a basis for a sound economy? How did the madness play out?

I hope standards bodies take very seriously their responsibility to protect the overarching public interest by insisting on unencumbered standards. And the UPTO needs to seriously revamp its policies or someone needs to rewrite the law so it achieves a better and more rational result. As the Economist reminds us, the original purpose of patent law was to benefit the public:

Before the 18th century, innovations were mainly kept secret through trade guilds. Sometimes monarchs capriciously granted indefinite exclusive rights to someone they favoured. Intellectual-property law was meant to remedy this by requiring the invention to be vetted by experts, limiting the right to a set period and making knowledge more widely accessible through public disclosure. Its development was part of the drive towards democracy and capitalism and the abolition of royal privileges and monopolies. . . .

But when talking to executives in the technology firms themselves, the language you hear most often is that of “the arms race” and “mutually assured destruction”. Companies amass patents as much to defend themselves against attacks by their competitors as to protect their inventions. Many technology companies have recently championed reform of the patent system to deal with spuriously awarded patents, licensing extortion and massive lawsuits. “There is a broad recognition in the US that the patent system, if not reformed, will...begin to impede American competitiveness around the world,” says Bruce Sewell, general counsel of Intel, the world's biggest chipmaker.

Scientigo is just a symptom. But like any symptom, it reflects an underlying disease process. Whether or not Scientigo represents anyone's strategy beyond its own inflamed cupidity, I think the bottom line is this: loopholes in the law that allow something like this to happen need to be closed. Scientigo's CEO is quoted in the ZDNET article as saying:

"We're not interested in having us against the world. We're just looking for ways to leverage an asset; we have pretty concrete proof that makes us feel comfortable saying it is an asset," Bryant said.

But that's just it. It *is* Scientigo against the world, because we have competing interests. And while I hope for a cure for the underlying disease, as a person with a really nasty flu today, I can say categorically that symptomatic relief will do when no immediate cure is at hand. I hope others will build on this research I've done, so that at least the symptoms can be dealt with appropriately, while we longingly await a complete cure.

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