Net-a-Porter is not just making headlines this week for tapping Hearst Magazines' former head of PR. The e-commerce site caught our interest because it is trying to take down a patent troll. In a rather interesting new proceeding, Net-a-Porter, the New York-based fashion e-commerce giant, filed a declaratory judgment action against Eclipse IP, LLC, asking the court to hold that an array of Eclipse's patents are invalid and that it is not infringing any of Eclipse's patent by way of the online e-commerce platform it uses. For those who don't know, patents are a form of intellectual property that grant a limited monopoly whereby the patent holder is granted the exclusive right to make, use, and sell the patented innovation for a limited period of time. Utility patents, as opposed to design or plant patents, are at issue here and cover the invention of new and useful processes, machines, manufactures, or compositions of matter, or new and useful improvements thereof.
So, what exactly does any of this mean? Turns out, Eclipse IP sent Net-a-Porter's CEO Natalie Massenet a cease and desist letter in early October, stating that Net-a-Porter is infringing a number of its patents. In the letter, Eclipse's attorney warned that the company “aggressively litigates patent infringement lawsuits,” and gave Net-a-Porter a deadline of November 11, 2014 as a cutoff date to either accept its offer to license the patents at issue for $45,000 or to stop using programs that involve the patents or else Eclipse would sue. At issue, according to Eclipse, are patents that are involved in the “electronic messaging features of [Net-a-Porter's] online ordering system."
Another important question: How do we know that Eclipse is actually a patent troll, as opposed to a business suing for patent infringement (a distinction that Buzzfeed epically confused earlier this year when it very inaccurately labeled Lululemon a patent troll)? Generally speaking, a patent troll, or non-practicing entity, is a company that purchases groups of patents without the intent of marketing or developing a product in connect to such patents (hence, the "non-practicing" language), and in most cases, then targets other businesses with lawsuits alleging infringement of those patents. In a lawsuit that UPS filed against Eclipse, the shipping service alleged that "Eclipse is a non-practicing patent entity and does not manufacture, produce and/or sell any products or services.” Eclipse admitted to that allegation. In addition, a quick look at Eclipse's litigation history is quite telling. Over the past two years, Eclipse has filed over 120 patent infringement lawsuits, which is not a small amount of cases.
Moreover, a string of relatively recent lawsuits suggest that Eclipse's claims are, in fact, frivolous and based primarily on a strategy of getting the defendants to pay up and settle the case - another rather clear sign of a patent troll. Overtsock.com, for instance, which aggressively defends itself against lawsuits by so-called patent trolls, filed a declaratory judgment action against Eclipse last year. The result: Eclipse moved to have its lawsuit against Overstock dismissed. And in other instances, in which neither Eclipse nor the defendant has agreed to settle the case, Eclipse has lost. McKinley Equipment Corporation, for instance, filed a motion to dismiss the patent infringement lawsuit that Eclipse filed against it, citing that the patents that Eclipse was suing over were, in fact, invalid. McKinley won that lawsuit, with the court striking down the patents at issue, describing them as claiming the abstract steps of “asking someone if they are available to perform a task and then either waiting for them to complete it or contacting the next person.” The Court observed that these steps have been performed for decades using telephones and went on to conclude that the performance of the same steps on a computer did not render those steps patentable.
As Inside Counsel wrote earlier this year, "In patent wars, it's seldom you see the bigger companies filing litigation claims at the aggressors," and yet, that is exactly what is happening here, marking a bit of a trend directly in connection with Eclipse, but also on a larger scale, as well. In addition to Overstock.com, FedEx, UPS, Incase Designs, Comcast, Thrillist Media (which is being represented by Harley Lewin, who served as counsel for Louboutin in its case against YSL), and a number of other companies that have been sued by Eclipse for patent infringement, have filed actions for declaratory judgement in return.
The short answer for why defendants generally choose to pay the licensing fees that the patent trolls demand in lieu of filing a lawsuit of their own is two-fold. First, the defendant in any given case usually is not 100% sure if the patents that the patent troll is claiming are valid or not. Secondly, if those patents are, in fact, valid, the defendant often is not entirely sure if it is are actually infringing them. And often, the answer to both of those questions requires time and resources. Due to the complicated nature of patents and the already costly and time-consuming nature of litigation, it often makes more sense (in terms of the defendant's bottom line) for it to simply pay up the licensing fee than to go to court to prove that the patents are invalid and/or that its activities are not infringing.
More to come …