The link to original story no loner exists.

A string of questionable intellectual property suits is wreaking havoc among online small businesses

October 21, 2002 -- Tim Beere and his wife, Cathy, are the proprietors of DeBrand Fine Chocolates in Fort Wayne, Indiana. Neither of them had ever heard of Pangea Intellectual Properties or Larry Lockwood. That changed overnight when they were dragged into a lawsuit that Mr. Beere calls "a form of extortion."

When last we reported on the activities of Lawrence B. Lockwood and his company, Pangea Intellectual Properties, L.L.C. (PanIP), he had brought patent infringement lawsuits against eleven small businesses around the country, claiming licensing fees of $30,000 a year from each of them for their use of allegedly patented e-commerce systems.

According to defendants, the suits claimed a patent on the "use [of] graphical and textural information on a video screen for purposes of making a sale" and the use of a system to "conduct automatic financial transactions via a telephone line & video screen." Some of the small business defendants had settled the case, but most of them seemed ready to let Mr. Lockwood take them to court.

Since our original report, the prospect for small businesses doing business online has grown increasingly grim. We have received reports that all of the original eleven defendants wound up agreeing to out-of-court settlements, including the group that had banded together to fight back. 

Apparently, although the original lawsuit sought $30,000 in licensing fees, Mr. Lockwood and his attorney kept making lower and lower settlement offers until eventually, faced with the prospect of a lengthy and expensive court battle, the small business owners capitulated when the price was right.

"It was purely a business decision," says Jonathan Hangartner, the attorney retained by five members of that group.

Hangartner was able to acknowledge that his clients had settled the case, but could not confirm the rest of the alleged settlements. Proprietors of the businesses involved are prohibited by the terms of the settlements from discussing them with the media.

Undoubtedly fueled to some degree by the proceeds of those easy victories, PanIP has filed four more lawsuits, each naming ten defendants and bringing the total number of small businesses sued to fifty-one. In more recent suits, the initial demand has fallen to a $5,000 licensing fee, and that seems to be making it even easier for PanIP. 

According to Mr. Beere, some defendants are legitimately concerned to discover that they are apparently violating somebody's intellectual property rights and pay without question. Others compare the relatively small licensing fee to the cost of a court fight, and simply shrug and reach for their checkbooks.

The suits appear to be tactically constructed to make them as painlessly lucrative for PanIP as possible. For example, they are always filed in the California Federal Court, where PanIP and its attorneys are located. However, not one of the defendants named in these suits is in California and only two of the fifty are even on the Pacific Coast. 

In addition, Mr. Lockwood has retained the services of a research firm to select and examine specific small businesses to find out whether they are "suitable" for suing. The prospective defendants are selected after having a credit report on them requested from Dun & Bradstreet. Typical small businesses that have been named in these suits earn between $1 and $5 million in annual revenues -- businesses making enough money to be worth bilking but not enough money to easily absorb the costs of a protracted lawsuit.

The behavior of PanIP and their attorneys seems to demonstrate that their real desire is to keep these suits out of the media (since their claims would be as applicable to Amazon as they are to DeBrand Fine Chocolates) and out of the courts (hence the pressure brought to bear against the defendants to settle the suit).

Among the forty lawsuits that are still pending, seven of the small business defendants have retained Mr. Hangartner to represent them. Hangartner appeared both understanding and frustrated with the capitulation of those first PanIP defendants. The initial motion he filed on their behalf, which sought to dismiss the case, was never heard because the businesses all settled before a date to argue the motion was set.

Mr. Hangartner is confident that PanIP doesn't have much of a case. In fact, he seems fairly certain that these patents will be rescinded once they have been brought under judicial scrutiny, as has happened to Mr. Lockwood with other patents. It would only take one small business owner who could "hang in there" until the matter could actually be heard by a judge to save the rest of the nation's small business from similar litigation.

It may be that Tim Beere will turn out to be Hangartner's ideal client, since Mr. Beere seems completely outraged by the suit, in spite of its relatively low-dollar demand, and determined to fight it out. "I feel like the pitt bull who's caught an intruder and I'm going to hang on until help arrives," he says.

And it does seem that help is arriving. Mr. Beere reports that media interest is "gaining significantly" and he is discovering that more and more small business owners are learning about Mr. Lockwood and the threat he poses to their e-commerce endeavors.

It seems pretty clear that the kind of patent racket that PanIP is running is not in keeping with the original intent of federal patent and trademark laws. So, is this the sort of abuse of the system that would best be solved in the courts or in Congress?

"I think it probably needs both," says Hangartner. "It needs to be brought to the attention of lawmarkers, and some of the defendants in this case are doing that. But I think it also needs judicial attention, because it just shows how potentially damaging the system can be."

The bottom line here is that small businesses are being victimized by a system that is good at helping inventors and creators to protect their intellectual property, but is not well structured to protect anybody from frivolous lawsuits.

"It's easy to file a lawsuit. All you need is a little money, but the defendants who are victimized by this kind of thing will have to spend a lot of money to deal with it," says Hangartner. "This is the kind of thing that makes the whole system look bad."

The PanIP defendants have a new web site to tell their story, having been threatened for using "panip" in their previous URL. The new URL is http://www.youmaybenext.com. Considering how this game has played out so far, that's pretty accurate.