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Suit alleges Limelight got licence from AST after filing a "frivolous and baseless" DJ action

Last year, Allied Security Trust was hit with a declaratory judgment of non-infringement action initiated by Arizona-based internet content delivery business Limelight. In its suit, Limelight claimed that AST had retained the services of a broker and was threatening to use it to assert patents against Limelight or to sell the patents to one of its competitors if it did not pay "demanded license fees or purchase the Patents-in-Suit”. A couple of weeks later the suit was settled after Limelight did indeed take a licence to the relevant patents.

I can reveal that in January 2011 the broker involved in the original contretemps, iLeverage, issued proceedings against Limelight in a San Francisco court accusing the company of “intentionally and maliciously” interfering “with iLeverage’s prospective business advantage arising out of its status as the exclusive sales agent for the Twister Patents, and breached its own Non-Disclosure Agreement with Twister’s owner Allied Security Trust I, a Delaware statutory trust (“AST”), of which contract iLeverage was an intended third was an intended third-party beneficiary”. The suit goes on to allege that, as a result, iLeverage suffered “at least $2,400,000 in damages resulting from the cancellation of an auction of the Twister Patents set for March 16, 2010, which auction was cancelled …”.

You can read iLeverage’s full case here, but in short as far as I can make out (and with plenty of detail omitted) it runs as follows:

iLeverage was engaged by AST to sell (not license) the Twister portfolio of patents relating to, among other things, proxy servers and content delivery networks. It was agreed by both sides that the best way to maximise the amount of money would be to hold an auction for the rights; iLeverage then set about contacting companies that it identified as potential bidders for the portfolio. Over 100 prospects were so identified, among them Limelight. Having received several emails from iLeverage about the various patents and having signed an NDA, Limelight expressed an interest in licensing some of the patents for $50,000; iLeverage put this to AST, which refused on the grounds that it only licenses to members and that Limelight was too small to become a member. iLeverage relayed this information to Limelight. Two weeks later, on 15th March, the day before the auction was due to take place, Limelight issued is DJ. iLeverage felt it had no option but to cancel the auction as a result.

That much is alleged by iLeverage as fact. The rest of the suit focuses on Limelight’s motivations. Basically, it seems that iLeverage believes that Limelight knew the DJ contained a number of false statements and stood no chance of being successful, but that it issued it anyway because it knew this could lead to the auction being called off. At the auction, iLeverage states, Limelight feared that “litigious competitors” would acquire the patents. Limelight did not have the money to compete in a bidding process that might reach as much as $12.5 million, so its only chance to do something about this was to stop the sale, make the rights less attractive to buy and negotiate a deal with AST. It achieved all of this by issuing the DJ, because it knew that AST could not contest it as to do so would be tantamount to enforcement, which is forbidden under AST’s rules. Instead, AST received a substantial payment from Limelight for a licence – even though this was also against AST policy. And at the end of the process, iLeverage did not get the commission it would have received if the auction had gone ahead.

There is a whole lot more than what is summarised in the two paragraphs above, but hopefully you get the picture. If you have the time the whole complaint is well worth reading. It is, of course, a version of events upon which a lot of speculation has been added, but it does give you an idea of many of the dynamics driving the patents transaction market in the US, as well as how smart and alert you need to be in order to get what you want. For here’s the hook: on 4th April, the San Francisco court agreed with Limelight’s request to strike out iLeverage’s action, so leaving Limelight in the clear. Thus, if what iLeverage alleged is correct, Limelight played the game and got exactly what it was after at much lower cost than would otherwise have been the case. I have to say whatever the rights or wrongs, that is pretty impressive!


Joff Wild
IAM Magazine
11 April 2011

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Comments

RE: Suit alleges Limelight got licence from AST after filing a "frivolous and baseless" DJ action

Without Limelight having been sanctioned by the Arizona court for bringing its DJ action, and given that Limelight & AST settled, and also given that there appear to be no declarations in iLeverage's record from AST - it would seemingly be difficult for iLeverage to independently argue that a litigation to which they weren't a party was so spurious as to lack subject matter jurisdiction ... hence application of the California anti-SLAPP statute along with an award of attorneys fees (which are far less common in the US than many other places but provided for in the anti-SLAPP statute).

Wonder how eager iLeverage will be to vend patents for AST in the future?

There is likely a lower limit on the extent to which a refusal to license a patent could be used as a basis for a credible DJ action, even if one is willing to sell the patent, given the case law. I suppose this might suggest more public forums for vending surplus patents so as not to put any one party theoretically on notice.

Thomas Ewing, Avancept LLC on 12 Apr 2011 @ 12:09

RE: Suit alleges Limelight got licence from AST after filing a "frivolous and baseless" DJ action

Tom,

The legal Catch-22 here is that the broker (In this case, iLeverage) had no opportunity to challenge DJ jurisdiction in the original (in this case, Arizona) case, because it was not a party, and the DJ defendant (in this case, the patent seller, AST) chose not to do so. Apparently, under the California anti-SLAPP statute (as interpreted by the California judge) this leaves the broker out in the cold. As you note, this could be a big issue for the patent brokerage business.

Ron Laurie

Ron Laurie, Inflexion Point Strategy LLC on 15 Apr 2011 @ 17:49

RE: Suit alleges Limelight got licence from AST after filing a "frivolous and baseless" DJ action

Hi, Ron. I also seem to recall that an element of the intentional interference tort is that the defendant must have also intended to bring about the result (e.g., busting up the relationship between the two parties) as opposed to the result ostensibly achieved (e.g., sparing itself from an infringement lawsuit).

Even Lord Kenyon of Tarleton v. M’Gawley fame (170 Eng. Rep. 153 (K.B. 1793; 2 Peake, N. P. Ca. 208 (1795))) one of the most famous tortious interference cases, could well have decided the case on similar grounds since among other things, the defendant not only didn't take the law "into his own hands" (like McGawley) he actually went to court and won a settlement.

Anyway, I suspect this incident will lead to a smidge of legal work in re-crafting unsolicited patent auction advertisements and possibly a bit more flexibility on terms, as well as some additional contract language between patent owners and their intermediaries - all the sorts of things that happen as a new business model develops.

Thomas Ewing, Avancept LLC on 16 Apr 2011 @ 11:55

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