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The Once-Company

By Troll Tracker

I have used the expression "once-company" in some of my posts. Let me explain. Sometimes a company has a really great idea, builds products, hires people, files patent applications. Due to some factor -- maybe it's just the right product at the wrong time, maybe it's just poor sales and marketing -- the company doesn't make it. It goes out of business, shuts its doors, or sells its assets to the highest bidder.

Some of those times, the company says "ho, what do we have here, some patents?" Then they decide, "well, we couldn't make any money selling products to consumers, so let's make money the old-fashioned way: sue our competitors who are successful selling products to consumers." You know, because even though our business selling products covered by our patents was a complete and total failure, our competitors' success is entirely based on our patented technology.

That was a little tongue-in-cheek, but this accounts for a large chuck of the patent litigation I see. So now when you see the phrase "once-company," you know what I'm talking about. If you need an example, consider the case filed a couple of weeks ago, SMDK Corp. v. Creative Labs, and 10 other defendants. Even though SMDK is from Florida, and all of the defendants are either from California, New York, or overseas, the case was filed in Marshall, Texas, of course. SMDK used to be known as SmartDisk Corporation. SmartDisk actually had a pretty good product - not a complete failure. They sold all of their assets to a subsidiary of Mitsubishi last July. Why? According to the former company's explanation, financial losses and cash shortages made the business untenable. Oh, and their struggle to maintain market share due to "infringement of SmartDisk's intellectual property by unlicensed third parties." So they morphed from SMartDisK into SMDK, for the stated purpose of having the "company's primary business" be "generat[ing] income from its patent portfolio."

SmartDisk's chairman of the board was Addison M. Fischer, who is the head of Fischer International in Naples, Florida. Fisher is well-known in the computer security industry, having been a founder of VeriSign. SmartDisk was a spin-off from Fischer International. It is unknown but I suspect Fischer has some financial stake in SMDK (he had a nearly 40% stake in SmartDisk).

From the Smartdisk disclosure, we also learn that the company had asserted its patents before, against Archos. In that case, filed in the Eastern District of Texas with Judge Ward (2:05-cv-101), the claims of the two patents-in-suit (6,658,202 and 6,987,927) were construed on November 28, 2006. Based on that Markman ruling, Archos moved for summary judgment of noninfringement on each patent in April 2007. But the case settled over the summer of 2007, before Judge Ward ruled on the motions.

And that is the story of the once-company, SmartDisk of Florida, now a shell whose purpose is to do nothing but sue others and get money. And they hired good attorneys to do it: Ward & Olivo and McKool Smith. There are plenty of other companies of similar ilk out there, in various stages of unwinding. As I try to categorize cases as either "competitor" or "shell corporation" patent lawsuits, the once-company is the most difficult to pigeonhole.

Now, I know I'm going to get a bunch of email asking me why I hate failed or failing companies, and how dare I suggest they don't have a right to assert patents. To be clear: I have nothing wrong with a patent-holder from asserting its/his/her patents. I certainly think a failed or failing company has the right to do so (with qualifications I need not get into here, such as the founders didn't hoard the IP and hide it from the creditors to try to cash in on their own, etc.). I'm only making this post to point out a category of patentee I see a lot, and how hard it is to define this category of company.

That's it for me when I'm back with the January patent litigation statistics on Friday. Unless, of course, any cases pop up this week with scads of defendants or a request billions of dollars.

Full post as published by Patent Troll Tracker on February 05, 2008 (boomark / email).