What if we told you the Stupid Patent of the Month has a sponsor, but we don’t know who it is? That would seem shady, wouldn’t it?
This month’s stupid patent, U.S. Patent No. 9,986,435, was brought to you—to all of us, really—from the murky depths of the litigation finance industry. Originally assigned to a shell company linked to giant patent troll Intellectual Ventures, this patent was sold off and is now in the hands of Mellaconic IP LLC, a recently-created Texas shell company. Mellaconic has sued more than 40 companies over claims that a vast array of HR software infringes their patent.
Here is Mellaconic’s key patent claim:
1. A method to perform an action, comprising:
receiving, by a first device located at a first geographical location, one or more messages that indicate geographical location information of a second device located at a second geographical location, and
include a request for a first action to be performed by the first device, wherein the one or more messages are received from the second device, and wherein the geographical location information of the second device acts as authentication to allow the first action to be performed by the first device; and
autonomously performing, based at least on the received one or more messages, by the first device, the authenticated first action.
In other words: A device receives a request from a second device to take action. That action may or may not be performed, depending on the location of the second device.
Mellaconic’s lawyers say this applies to something hourly workers do every week: clock in and clock out of their jobs. Even though their patent doesn’t even discuss clocking in—and despite the fact that clocking in has happened since, well, clocks—they’ve sued a huge swathe of U.S.-based companies that market human resources and payroll software.
For instance, they sued Paychex, saying that the Paychex server is the first device, and the second device is a mobile user with the Paychex Flex app, which, like many HR apps, allows for clocking in and out of a job. Same thing for Hi Bob, a smaller HR company that Mellaconic sued in August. They’ve repeated this allegation—that clocking in (but with an app!) equals infringement of their patent, which means the companies owe money to the people behind Mellaconic.
Who’s Making Money From This Patent?
Mellaconic, like so many patent trolls, has been able to hide its true beneficiaries. Most of the 40 companies that Mellaconic sued have likely paid to settle, because their cases ended within a few months, before any significant hearings. That suggests many defendants settled for less than the hundreds of thousands (potentially even millions) of dollars that it would have cost to fight off this stupid patent.
Unusually in this case, a Delaware federal judge overseeing some of Mellaconic’s cases has insisted that the supposed owner come to testify in court. That’s what led Hau Bui, a Texas restaurateur and food-truck owner who says he owns Mellaconic, to travel to Delaware in November and testify under oath in federal court.
But Hau Bui has now said under oath (see transcript p. 87) that he hasn’t paid anything for Mellaconic’s patent, nor the other patents it hasn’t yet sued over. He hasn’t paid anything to Mellaconic’s lawyers (p. 96), or any other litigation expenses. And Bui said he only collects 5 percent of Mellaconic’s settlement money (p. 91), which has amounted to about $11,000 (p. 98).
Bui was promised this “passive income” stream by Linh Dietz, a person whose name has come up at every stage of the Delaware investigation, and is linked to IP Edge, a large-scale patent troll. Every supposed “owner” of the patent troll entities who have testified in Delaware acquired their patents, for free, by talking to Dietz and signing paperwork she provided.
Patent Trolls Have A Growing Network of Secret Funders
IP Edge is far from the only player in the vast world of patent trolling, which continues to account for the great majority of patent lawsuits against tech companies—more than 88% in 2022. Why do these lawsuits keep coming even while overall patent litigation is going down?
In part, it’s because there is nothing stopping aggressive litigation finance from paying out money to fund patent lawsuits, in the hopes that “investing” in a broad campaign of patent lawsuits will pay off a big return. Unified Patents, a company that sells patent defense services, recently estimated that about 30% of all patent lawsuits are now backed by third-party financing.
That’s one reason why EFF, along with other public interest groups, filed a brief stating that the Delaware investigation must be allowed to continue. The lawyers working for Mellaconic and related shell companies are doing everything they can to shut it down. They appealed to the Federal Circuit, twice, and were rejected both times.
The public deserves to know more about patent trolls that are using our public courts to seek rents for innovations they had nothing to do with. That’s especially true as litigation finance helps spread lawsuits over patented “inventions” like clocking in on an app.