Sleazy software company plays the extortion game

Sometimes you bring disaster on yourself. Other times, the horror comes out of nowhere, and by the time you realize you’re in trouble, there’s nothing you can do about it. My year of the living dead began midmorning on Dec. 7, 2003, a day that will certainly live in infamy in my small company. That was the date we fell victim to a fraudulent patent infringement lawsuit.

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I’m the IT director (and software architect) at a small company. We sell a document management system based on software I developed about 12 years ago. Early last year, the officers of a smaller company that offers an e-mail platform with superficial similarities contacted us to ask if we wanted to partner with them. We declined.

It turns out that this company (let’s call it SimiDMail) had acquired the software and patent of a failed competitor. Shortly after rejecting SimiD’s offer, we heard through the grapevine that they were planning to sue us for patent infringement. This came as a shock, since the execs hadn’t mentioned anything about patents during our meetings.

I reviewed SimiD’s patent, and found very little overlap with the software we were selling, but neither friendly e-mails nor patient phone calls to its technical VP made a dent. Finally, with expensive lawyers in tow, we sat down with SimiD’s CEO to sort things out. He proved to be technology-challenged, particularly in the areas of technology most pertinent to the lawsuit. At one point he asked us what a “message digest” was, even though this term was critical to the patent SimiD had purchased.

Toward the end of the meeting, the CEO and his attorneys demanded that we provide financials, marketing plans, sales collateral, software specs, customer lists, and so on. It felt like legalized extortion, but our lawyers told us that we’d save ourselves time and trouble if we gave in. Apparently, although a company is required to conduct “reasonable” research before filing a patent infringement lawsuit, there’s little legal recourse if they don’t. During the months that followed, as we exchanged expert reports, I reached the conclusion that SimiD was insisting on this information mostly to acquire competitive intelligence.

After a year of high stress (and tens of thousands of dollars in legal fees), we met in mediation. By now we had figured out that ultimately, most patent infringement lawsuits are a form of financial warfare in which right and wrong have very little importance. At one point SimiD’s CEO actually pointed out that it would be cheaper for us to license their “technology” than to fight and win in court. Our lawyers agreed; it would have cost a huge chunk of change to go through a trial, and even more if SimiD appealed. Patents granting legal rights use language so unclear it can cost hundreds of thousands of dollars to learn exactly who owns what.

Fortunately, SimiD’s CEO understood that he had a weak case. We finally arrived at a fairly painless settlement, but in the meantime our small company had to eat huge legal expenses, and we wasted a lot of time preparing our defense. The only silver lining was that SimiDMail was finally out of our hair.

Lesson learned: Justice may be blind, but it can also be mean, expensive, and slow. And it doesn’t care a whit about right and wrong.