PanIP LLC continues with e-tail litigation filings

PanIP LLC, a San Diego, Calif.-based, corporation, has filed 40 more suits in U.S. District Court, alleging that each of the small businesses served with a complaint have infringed upon the e-commerce patents of Lawrence Lockwood -- also coincidently a principal of PanIP LLC.
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PanIP LLC, a San Diego, Calif.-based, corporation, has filed 40 more suits in U.S. District Court, alleging that each of the small businesses served with a complaint have infringed upon the e-commerce patents of Lawrence Lockwood -- also coincidently a principal of PanIP LLC.

Pangea Intellectual Properties (PanIP) LLC's patents, No. 5,576,951 and No. 6,289,319, cover, respectively, an "automated sales and services system," and an "automatic business and financial transaction-processing system." The U.S. Patent and Trademark Office granted the two patents in question in 1996 and 2001 to Lockwood, La Jolla, Calif.

SNEWS first reported on this issue May 6, 2002 -- see "Lockwood Sues Web-based Retailers for Patent Infringement." All of the original 11 retailers, including Snow Country Ski Shop and Backcountry Experience, have settled with PanIP after an initial round of talking tough.

In that first round of litigation, Kathleen M. Walker, the attorney for PanIP, dubbed the original $30,000 demand a "licensing fee," in an interview with SNEWS back in May.

Jon Hangartner, a lawyer with Sheppard Mullin who defended several of those original 11, told us that PanIP lowered its settlement demand to $5,000. Most of the defendants in the first group settled for that or a similar small amount, he said.

Even though the demand for settlement has been lowered, a significant number of current defendants have formed a defense fund officially dubbed "The PanIP Group Defense Fund Inc." and they intend to fight. Hangartner will represent them.

The group alleges that PanIP has systematically selected small web-based businesses that are located a long distance from San Diego -- thus, making defending a lawsuit more difficult and as a result a settlement easier to attain.

Hangartner does not disagree. "PanIP has a very well-thought-out approach to their strategy, selecting defendants based on their size and their location," Hangartner said.

"Why did PanIP choose not to go after any businesses in the state of California where PanIP is located?" asks the website constructed by Tim Beere of Indiana-based DeBrand Fine Chocolates. "Are there no small companies with e-commerce Web sites in California?"

Just as the last of the original 11 were settling or working toward a settlement, four more court filings, with 10 defendants in each, were made. The filings were made from late August to early October. Each defendant received a letter accompanying the legal complaint.

SNEWS obtained a copy of the letter which is reprinted below:

"Dear XXX;

In an effort to protect and enforce its patent rights, my client, PanIP LLC, has conducted due diligence which indicates that your company is engaged in selling your products via a computerized system for distributing a variety of information, goods and services and processing of business and financial transactions through your website. After thoroughly reviewing your website www.XXXXX.com, we believe that your company is infringing at least two of PanIP's patents. Accordingly, PanIP has filed a complaint against your company and several other companies in the Federal District Court for the Southern District of California.

Rather than engaging in expensive and time consuming litigation, PanIP will take this opportunity to offer you a lifetime license to its patent portfolio for a one-time payment. The enclosed license agreement is a standard agreement that PanIP uses for licensing its patent portfolio. Numerous other e-commerce merchants have accepted this agreement. The terms of the license agreement are very reasonable and non-negotiable.

I recommend that you consult with a patent attorney regarding the complaint for patent infringement that has been filed against your company. I have enclosed materials, which will assist you and your attorney in determining the best course of action regarding patent law questions, filing dates, and settlement.

As your attorney will advise you, your answer to the complaint is due within twenty (20) days from the date you were served. PanIP's offer to license its U.S. and Canadian patent portfolio, which is directed to electronic merchandising costs five thousand dollars if you take advantage of the offer within forty-five (45) days from the date of service of complaint. However, if this case does not settle within the first 45 days from service, the cost of the license will increase, as PanIP's legal expenses (as well as yours) will increase.

Thank you for your consideration to become a PanIP licensee. I hope that a fruitful relationship will develop between your company and PanIP and that your company will join other e-commerce merchants who have already taken advantage of PanIP's licensing program."

Beere is frustrated and angry. "It's no coincidence all the companies being sued are small businesses. It is clear to me that they (PanIP) intend only to go after small businesses that will cave in and pay the $5,000 licensing fee rather than face a potentially costly legal battle."

Defending a patent infringement lawsuit can be very expensive, Hangartner told SNEWS.
"It would not be unusual for the costs to rise above $500,000 and even go as high as $1 million. And PanIP is very aware of this fact. These kinds of cases are very lawyer intensive with drawn-out legal battles and complicated motions. Since these cases involve technology, the cases will require numerous expert witnesses as well as the time to educate both the judge and the jury," he said.

"I would speculate that PanIP feels they have hit the magic number at $5,000 because they figure they will get little resistance from small businesses thousands of miles away from San Diego -- the kind of businesses who'd much rather pay a small sum to make this go away than defend it," Hangartner added.

Of course, PanIP may not have counted on Beere. He is the inspiration and energy behind the website -- www.youmaybenext.com -- the official website of the The PanIP Group Defense Fund Inc.

Originally, Beere launched a website with PanIP in the Web address, but PanIP quickly threatened another lawsuit. He took that one down and, following an offer from TEK Interactive of Fort Wayne, developed a more sophisticated site, with a different URL, which is the one up today. Now it includes a background on the cases, a discussion board, PDF copies of the original lawsuit and online donation acceptance as the group begins building a war chest for fighting the case. Beere already has received checks through the mail from supporters.

PanIP has reportedly filed another suit against Beere and the Legal Defense Fund that is currently pendinig.

According to Hangartner, PanIP accuses the site of unfairly representing the situation. Hangartner also told SNEWS that Walker alleges she has received death threats, obscene voice messages and e-mails against PanIP. PanIP even took down the company website this summer, in response, Hangartner says, to a hacker attacking the site. The site, www.panip.com, is back up and running now.

While Beere absolutely does not condone any illegal action or harassment of any kind against PanIP, he is equally vigorous in his assertion that what PanIP is doing is bad for everyone.

"This is just wrong," said Beere of the patent claims by PanIP. "I absolutely feel like a bulldog hanging on to an intruder who is trying to steal from my house until help arrives. There is no way I can do this myself and it is my hope that when other companies, larger companies, see what is going on and get as disgusted by it as I am, they'll jump in to help."

What frustrates Beere almost as much as the legal action of PanIP is the lack of attention the various industry associations have been paying to this case.

"This case affects everyone and the longer it continues, the more difficult it will be to stop," Beere said.

Walker did not respond to repeated phone calls and emails from SNEWS seeking comment.

Indeed, PanIP is only the tip of the iceberg. Hangartner told SNEWS that other cases, similar to the one PanIP has brought, are being filed almost on a daily basis.

"Internet patents as a whole are a much larger problem than anyone realizes because starting last year, you have patents issuing on core Internet technologies that are very broad in their interpretation, which is, of course, the point," says Hangartner. "I am aware of one company suing websites that allow the download of audio or video over the Internet claiming the patent is theirs. Another is claiming a patent covering shopping cart technology…and the lists goes on and on."

SNEWS View: Why this is suddenly happening is very clear to Hangartner, and should worry us all. While in the old days you could certainly sue anyone who drove a GM car that infringed on a patent you claimed to own, it was much easier to simply sue GM itself. Now, because of the Internet, it is much, much easier and far more profitable to sue the ones driving the cars -- in this case, the ones using the Internet technology itself. Little wonder then that PanIP, which has a legal claim to the patents that were issued by the U.S. Patent Office, is choosing to sue the end users of their patented technology, rather than go after the ones who actually created the technology. What is even more frightening is that PanIP, along with many other companies, realizes most small businesses would rather pay than fight, simply because it is easier. Several businesses we contacted for this story told us without hesitation that they were very familiar with PanIP and several other pending cases and had already written into their business plan a fund to cover settling such cases -- because it is easier. SNEWS wonders if OIA, SIA and TAPS should not pool resources and draw a bit more attention, and perhaps some financial backing, in an effort to try to invalidate the patents. Either that, or prepare to watch as more and more companies are "served" with a choice to settle or fight. As Beere succinctly says -- you could be next.

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