Shopify, in its fight against ‘patent trolls’, has filed an objection to the magistrate judge’s rejection of their motion to compel. Filed on July 21, Shopify again pleaded federal judge of the United States District Court for the Western District of Texas to allow for the disclosure of third-party interests in the case of patent infringement against it.
Shopify General Counsel Jess Hertz argued that the magistrate and presiding Judge David A. Ezra lacks sufficient information and details on the case. The original motion filed in the first week of June 2023 urged the court to order Lower48 IP LLC to publicly disclose investors backing its lawsuit. The first motion filed by Shopify indicated the connection to IP Edge, which “has been in the crosshairs of US District of Delaware Chief Judge Colm F. Connolly’s investigation into litigation funding in a series of patent lawsuits,” according to a report published on bloomberglaw.com.
While filing a lawsuit, corporate litigants must disclose their publicly traded corporations with large ownership stakes and parent corproration in federal courts.Lower48 identified its parent company to be dealing with oil and gas but according to Shopify, records reveal a different story. Shopify stated that records related to Lower48’s patent acquisitions indicate its secret ties to IP Edge LLC, a prolific Houston-based patent monetization company. Meanwhile, Lower48 responded by arguing that Shopify was trying to gain an unfair advantage in the litigation by attempting to gauge its funding sources.
Patent trolls stealthily orchestrate hundreds of patent litigation cases yearly, with no accountability. They often target small businesses and start-ups and stifle innovation and entrepreneurship – especially in emergent technologies. What’s worse, these patent trolls can actually deter small businesses and entrepreneurs, who can’t afford to fight or lose a legal battle.
Jess Hertz, General Counsel, Shopify
ALSO READ: Shopify vs Patent Trolls: All You Need to Know About The Ongoing Battle
The decision on the motion to compel was referred by Ezra to Magistrate Judge Derek T. Gilliland, who denied it on the grounds that federal judges of Texas have not earlier needed such heightened disclosure and reasoning “that it was sufficient that Shopify had publicly highlighted IP Edge’s connection to the case”.
The decision was also approved by Judge Alan D. Albright, who himself is a former patent litigator. Gilliland was chosen by Albright in late 2021 as a magistrate judge focussing on patents.
“Albright said in a March interview that he was “not even slightly interested” in adopting Connolly’s approach of requiring heightened disclosure around civil litigation funding,” the report further stated.
Shopify’s Arguments
According to Shopify, documents available in public “indicate that Lower48 may be receiving funding from a third party for some or all of Lower48’s attorneys’ fees and/or expenses to litigate this action.” According to a report published on sourcingjournal.com, Shopify claimed that the submitter of the complaint is connected with IP Edge, a firm with specialisation in patent monetization. Documents available also show Lower48’s affiliation with the U.S. Innovation Fund (USIF).
In its initial motion, Shopify argued that it has the right to more information regarding entities and individuals with vested interests in the case. “Shopify entrepreneurs are builders and innovators. Patent trolls stifle that innovation, burying hard-working entrepreneurs in piles of legal paperwork. They quietly orchestrate hundreds of patent litigation cases every year, with no accountability. In many cases, we don’t know who’s funding these lawsuits. We are no longer willing to accept this as the status quo. Litigants and judges need – and deserve – to know who they’re litigating against,” wrote Shopify’s General Counsel in a LinkedIn post.
In Motion to Compel, Shopify also mentioned that in early May, the e-commerce giant sent a letter to Lower48 requesting it to disclose the third parties involved so that it can decide whether conflicts of interest exist. However, Lower48 didn’t respond and later during a meeting on May 30, Lower48 refused to provide the requested information.
Lower48’s Claims
Lower48 claims to own tech tools that have been developed using GraphQL query computer language. They solve technical problems that are built within database systems, thus helping them to perform efficiently, increase data processing speeds and boost ease of use.
The company said that it has not provided a license to Shopify to use any of these tools. As per its claims, its tools are being used across important functions starting from its Logo Maker, QR Code Generator, Business Name Generator, Domain Name Generator, Terms and Conditions Generator, Slogan Maker, Wholesale Marketplace, Purchase Order Template, Business Card Maker to Invoice Generator.
Who Are Patent Trolls
Patent trolls are usually shell companies that exploit their intellectual property for financial benefits. Generally, they make patents with the sole purpose to sue rivals and get hefty license payments. Their patented technology hit the market or becomes part of the innovation. Patent trolls target small businesses that cannot meet the expenses of a legal battle.
“Patent trolls stealthily orchestrate hundreds of patent litigation cases yearly, with no accountability. They often target small businesses and start-ups and stifle innovation and entrepreneurship – especially in emergent technologies. What’s worse, these patent trolls can actually deter small businesses and entrepreneurs, who can’t afford to fight or lose a legal battle. According to Harvard Business Review, companies settling or losing patent troll cases reduce investment in R&D by an average of more than $160 million over the next two years,” Hertz further wrote.
Shopify Vs Patent Trolls
The Linkedin post by Jess Hertz further read, “We often know who is behind patent trolls – US Innovation Fund, IP Edge, and Acacia Research. But these groups’ funders, interests, and decision-makers hide cowardly in the shadows. In a majority of cases, they achieve their ultimate goal: a quick payout. In fact, 90% of patent litigation cases filed each year are abandoned or settled, making “winners” out of the patent trolls, and victims of the forward-thinking businesses who put in the work to create and innovate”.
“We’ll continue to support legislation to expose patent trolls as well as the numerous organizations shedding light on this issue: LOT Network, Unified Patents, Open Invention Network, Computer and Communications Industry Association and BSA | The Software Alliance. And, we’ll keep amplifying the voices of our millions of merchants so more elected officials take action to protect the businesses driving our economy forward,” she wrote.
While Daignault Iyer LLP and Mort Law Firm PLLC represent Lower48, Douglass & McConnico LLP, Wilmer Cutler Pickering Hale and Dorr LLP and Scott represent Shopify.
