April 15

Rackspace: Victim or Thief?

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“You’re a troll!” “You’re a thief!”

With billions of dollars at stake, emotions run high in the patent world.

The press is full of stories from Google, Cisco, and others decrying “patent trolls” who somehow manage to take a “tax” on “innovation.”

Cloud hosting company Rackspace recently decided to make its attack on “patent trolls” personal by filing a lawsuit against IPNav.  Rackspace then bragged about it on its blog:

Today we drove a stake into the ground in our dogged fight against patent trolls – we sued one of the most notorious patent trolls in America.

Patents and the protection of intellectual property are very complex issues with serious implications for business and society on both a micro and macro level.  Instead of engaging in name calling, in this post we will lay out the facts in our dispute with Rackspace – and you, the reader, can decide who’s a “troll” or who’s a “thief.” In due course a judge and jury will make the decision that counts.

The story of how Rackspace came to file a lawsuit against IPNav follows.  For those who want the blow by blow, an email chain started in 2010 is appended below.  The email chain is unedited (other than removal of phone numbers and email addresses). 

Late in 2010 IPNav sent Rackspace General Counsel Alan Schoenbaum a simple letter proposing that Rackspace and IPNav engage in discussions regarding patents owned by an IPNav client that we believed relevant to Rackspace’s business.  The letter included a one page forbearance and confidentiality agreement.

In response, Rackspace engaged Akin Gump (a firm with 850 lawyers). In December 2010 Akin Gump sent us an email refusing to enter into discussions unless the name of the client and patent numbers were first provided to Akin Gump.  This may sound reasonable, except if we had provided that information Rackspace could have immediately sued our client Parallel Iron, the owner of the patents.  After we pointed this out to Akin Gump, a one page agreement (which they heavily edited) was entered into.  The agreement made clear that IPNav was not the patent owner, but had authority to bind Parallel Iron. IPNav CEO Erich Spangenberg and Rackspace’s Schoenbaum signed the agreement.

In May 2011 we provided Rackspace and Akin Gump a 40+ page presentation on claim 1 of one of Parallel Iron’s patents.  The presentation described how we believed that the patents were relevant to Rackspace.  This was not a vague “pay up or else” letter—it was a 40+ page detailed presentation.  We reiterated what we said earlier, that if we were wrong we would gladly end the discussions. 

Rackspace’s response was typical of the dance in patent licensing efforts: one page (two if you include the signature line) summarily stating three reasons (each less than a sentence long) why they do not infringe. In a follow-up phone call attended by lawyers and an engineer from Rackspace there was no specific reference to any prior art that would have invalidated the patent.  Parallel Iron’s lawyers followed up with Rackspace’s lawyers and provided a detailed letter explaining why the three reasons were simply wrong and offering further dialogue.  On numerous follow up calls all the Rackspace lawyers had to say was “it is not how Rackspace does it.”  

Over the next year and a half IPNav provided additional information to Akin Gump and Rackspace showing that the patented technology is in fact “how Rackspace does it.”  The information we provided came from Rackspace’s own white papers, website content, marketing materials and public statements.  We asked Rackspace to show us how they were not infringing the patent, and even agreed to sign a non-disclosure agreement if it was based on proprietary technology.   No response.

Over 26 months had passed since we first contacted Rackspace and provided detailed information on how they were using Parallel Iron’s patented technology.  Having given Rackspace plenty of time to respond, on March 18, 2013 Parallel Iron finally filed an infringement action in Delaware.  Obviously Parallel Iron did not want to file a lawsuit—they are expensive and horribly inefficient.  The only people who come out ahead by suing are the lawyers. 

The US Constitution gives a patent owner the right to exclude others from practicing his invention. If someone (Rackspace) refuses to negotiate in good faith the only alternative is to file a lawsuit (dueling, even in Texas, has been outlawed), which will either bring them to the negotiating table or allow a judge and jury to figure out who’s right.

On April 4, 2013, Rackspace convinced Haynes & Boone (another big law firm, this one with over 525 lawyers) to file a lawsuit in San Antonio claiming that it was a victim and Parallel Iron and IPNav had violated an agreement with Rackspace.  Rackspace then put the press machine to work and published a pithy blog by Alan Schoenbaum saying “We aren’t going to take it,” explaining that Rackspace was going to stand up for its rights.  There is nothing wrong with filing a lawsuit—it is how our system works.  We would, however, note one thing: in 2010 we wrote and called Alan, whereas in 2013 Alan neither called nor wrote.  He just filed a lawsuit.

We understand Alan is busy—he spends a lot of time testifying on Capitol Hill about the “broken patent system” and he’s the top lawyer for a multi-billion dollar company.  But perhaps one of the thousand plus lawyers at the two mega-firms he had working on this could have called or sent an email.  Just a thought.

Knowing how busy Alan is, our CEO, Erich Spangenberg, sent him an email on April 9, 2013, providing a long email string that shows how the one page agreement they are suing IPNav on had expired and how even if he disagreed, IPNav was not the right party to be suing.  It’s long, but if you’re curious you can read the email below.  Erich encouraged him to drop the suit against IPNav and even tried to come up with a way for Alan to gracefully drop the case and avoid looking like Rackspace had pulled the trigger a bit early. 

In an extremely thoughtful 10 word (counting “sincerely”) response, Alan responded by saying “We disagree with the entire contents of your email.”  Since the email he was referring to included emails from his lawyers (Akin Gump) and some pleasantries, Erich emailed him back to ask if his disagreement included the pleasantries and the things his own lawyers had said in the email.

So what is going on here?  It would appear that Alan and Rackspace are seeking publicity.  This wasn’t just a simple blog post – it went “viral” and was picked up by many media outlets.  With Rackspace’s anti-patent mentality it’s clear it will use this publicity to fire up Congress to further weaken the patent system and to give sound bites to the press, which will accurately parrot what Rackspace tells them, without having the whole story.   Public records indicate Rackspace has two issued patents.  Based on this fact alone, it should not come as a shock to anyone that Rackspace is “anti-patent.”  If they were also anti- copyright, trademark and trade secret we might believe there was something else to their position. 

The rest of the story is going to come out.  We started here and this post provides more of the details.  Parallel Iron is not a “shell”—it is partially owned and managed by the lead inventor on the patents.  There is a “victim” here, but it is not Rackspace—it is the inventor who waited for over 26 months while Rackspace and its mega-firm lawyers dragged out negotiations.  Rackspace had years to show us how it was not using Parallel Iron’s technology or that the patents were junk.  We provided Rackspace with detailed presentations—and we got one liners back.

As to IPNav, now that Alan has refused to drop us from the lawsuit, we will exercise our right and pursue sanctions against Rackspace and Haynes & Boone for filing a truly “baseless lawsuit.” 

More as this develops since we think it helps if you have the whole story. 

 

See below for the unedited email chain, only email addresses and phone numbers have been removed:

From: Erich Spangenberg
Date: Wednesday, April 10, 2013 2:22 AM
To: Alan Schoenbaum
Subject: Re: Letter/Call

1.        Even the part about reconnecting?

2.        Even the parts your lawyers wrote?

3.        You are just so clever!

4.        Curious—how many hours did your lawyers bill coming up with this brilliant response?

 

From: Alan Schoenbaum
Date: Tuesday, April 9, 2013 9:50 PM
To: Erich Spangenberg
Subject: Re: Letter/Call

Erich,

We disagree with the entire contents of your email.

Sincerely,

Alan Schoenbaum
SVP & General Counsel
Rackspace Hosting, Inc.

 

From: Erich Spangenberg
Date: Tuesday, April 9, 2013 12:21 PM
To: Alan Schoenbaum
Subject: FW: Letter/Call

Alan--

1.        It is so good to reconnect again—you hired a fine firm (I use them for corporate work and estate matters all the time)

2.        You have adopted a new tact and made splashy blog posts/press reports saying nasty things about IPNav and filed a lawsuit against IPNav—that makes me laugh and angry all at the same time!

3.        So, a few things: (i) You remember the entire exchange below; (ii) you know that this agreement was terminated;  (iii) you know it was terminated because Larry and I exchanged emails extending it and we did not extend it again; and (iv) you know that your esteemed counsel Akin Gump (December 16—12:43 exchange below) specifically added language that specifically made clear that IPNav had authority to bind Parallel Iron and to make clear IPNav was not a "general agent" only a "licensing agent" (I want to thank Akin Gump for this—brilliant move)

4.        My dear Alan--now we all know you filed a baseless lawsuit (slightly curious: did you switch counsel to H&B because Akin Gump refused to file or because you knew they would refuse to file against IPNav?  We can get to this another day—but will admit, I am curious and will find out if you persist in being tedious)

5.        You can make a spectacle and make outrageous claims in the press—but filing the suit against IPNav gives me the opportunity to do things you and your new friends at H&B have not fully considered

6.        So here is the deal Alan:  I am in Paris and Dublin on business (why I am slow in responding to your silly posts and lawsuit) and really do not have time for this. You and I both know that you pulled the trigger too quickly on this one.  If you persist (your G-d given right), then I will redirect my focus (my G-d given right) and it will probably be an unpleasant experience for both of us—and this is not what I want 

7.        Here is what I propose (and if you think about it—it is what you should want): You send out a blog post (on your blog—just like the last one) along the lines of "As will sometimes happen, we made a mistake—IPNav did nothing wrong and we today have dismissed IPNav from the recently filed lawsuit.  I have known IPNav and Erich Spangenberg for a few years now—and while I do not like their business model—they have always been prompt, candid and direct in their dealings with me.  I spoke to Erich yesterday and we are going to meet soon to see if there is not some common ground—like discovery abuse, earlier summary judgment on key issues and other similar litigation abuse issues, where we may approach Congress together with some immediate workable solutions in the hopes of limiting abuse on both sides.  Perhaps something good can come from this after all!  We will keep you up to date as we make progress on this effort."   Then, dismiss IPNav from the lawsuit.

8.        Just so you know—I happen to like you on a personal level, but what you authorized H&B to do and the attention you have drawn to it was not prudent

9.        I will not negotiate with Lemont—just you

10.      Not really interested in extended exchange on this—I do not have time, but encourage to act before I redirect my focus and IPNav incurs  fees that will be significant and you will be on the hook for (fees are probably not the biggest issue you will face—but certainly an issue)

11.      Best

Erich Spangenberg   |   IP Navigation Group, LLC 

 

From: Alan Schoenbaum
Date: Monday, December 20, 2010 3:09 PM
To: "<Erich Spangenberg>", "Gulde, Karen"
Cc: Mary Stich, "Schoenbaum, Alan", "Macon, Larry"
Subject: RE: Letter/Call

Hi Erich.  Here you go.

Best,

Alan
Alan Schoenbaum
Sr VP and General Counsel
Rackspace Hosting

 

From: Erich Spangenberg
Sent: Monday, December 20, 2010 1:27 PM
To: Gulde, Karen
Cc: Mary Stich; Schoenbaum, Alan; Macon, Larry
Subject: RE: Letter/Call

1.        Attached is the executed Forbearance Agreement

2.        Please execute and pdf to my attention

3.        We will assemble the materials to be provided to you

4.        Thank you

 

From: Gulde, Karen
Sent: Thursday, December 16, 2010 12:43 PM
To: Erich Spangenberg
Cc: Schoenbaum, Alan; Macon, Larry
Subject: RE: Letter/Call

We accepted your changes, but because you removed the “agent” language, we added an additional sentence making it clear that IP Navigation has the authority to bind its client to the agreement.  Both redlined (v.2) and clean (v.3) drafts are attached.  Please return the Agreement after it has been signed by your client.

Thanks,

Karen Kroesche Gulde
Akin, Gump, Strauss,  
Hauer & Feld, L.L.P.

 

From: Erich Spangenberg
Sent: Wednesday, December 15, 2010 3:15 PM
To: Macon, Larry
Cc:  Schoenbaum, Alan; Gulde, Karen
Subject: RE: Letter/Call

1.       A few requested changes—redline attached

2.       Not sure why you took out the confidentiality provision—but I will assume we can quickly execute an NDA if you desire to share information indicating you do not infringe

3.       Please let me know if these work and I will get it signed

 Erich Spangenberg | IP Navigation Group, LLC

 

From: Macon, Larry
Sent: Tuesday, December 14, 2010 4:45 PM
To: Erich Spangenberg
Cc: ; Schoenbaum, Alan; Gulde, Karen
Subject: RE: Letter/Call

Please return to the enclosed Forbearance Agreement after it has been signed by your client. Rackspace will then sign it and we can begin review of the patents and claim charts.

Please include Karen Gulde of my office in any correspondence as I will be traveling.

Thanks,

Larry
R. Laurence Macon
Akin, Gump, Strauss, Hauer & Feld

 

From: Erich Spangenberg
Sent: Tuesday, December 14, 2010 1:14 PM
To: Macon, Larry
Cc: ; Schoenbaum, Alan
Subject: Re: Letter/Call

1. I think that is fair request--but will need to run by the client

2. Do you want to fix the doc to your liking and then I will get approval? One other company asked that our client sign within one business day after you sign, which is also fine

3. Thank you for the prompt response

4. FYI--I have not practiced law since the early 90's and am fully recovered now

 

From: Macon, Larry
Sent: Tuesday, December 14, 2010 01:11 PM
To: Erich Spangenberg
Cc: Mary Stich; Schoenbaum, Alan
Subject: RE: Letter/Call

Mr. Spangenberg,

Since you are a lawyer, you know that my client has no reason to give up its legal rights by signing agreements that restrict its ability to defend itself against your unspecified claims.

If you are willing to make your stand-down agreement mutual, then perhaps we can discuss it further.  If you’re sincere about wanting to avoid litigation, this should be of interest to you.

I am still willing to talk with you despite your insults.

Thanks,

Larry
R. Laurence Macon
Akin, Gump, Strauss, Hauer & Feld

 

From: Erich Spangenberg
Sent: Tuesday, December 14, 2010 7:12 AM
To: Macon, Larry
Cc: Mary Stich; Schoenbaum, Alan
Subject: RE: Letter/Call

1.       Good to meet you

2.       While this is a typical legal response, you know that if this client/patent information is disclosed now, it will simply result in you suing our client in San Antonio

3.       We are trying to avoid litigation--not to enrich Akin Gump

4.       If after we provide you with available information, your client does not infringe, our client will gladly move on and wish Rackspace well

5.       Please reconsider and agree to not sue our client while we have an open dialogue  … it is a simple one page agreement….I realize for lawyers this is difficult because it does not generate huge fees, but consider it

Erich Spangenberg | IP Navigation Group, LLC

 

From: Macon, Larry
Sent: Monday, December 13, 2010 8:59 PM
To: Erich Spangenberg
Cc: Mary Stich; Schoenbaum, Alan
Subject: RE: Letter/Call

Dear Mr. Spangenberg,

Mr. Alan Schoenbaum asked me to respond to  your letter dated December 8, 2010.  Please be advised that Rackspace always respect the patent rights of others—to the extent we know about them.  We, of course, cannot address unspecified patents of the anonymous “Client” of yours.  Please send me a list of the patents your client believes that our company “may benefit from,” together with detailed claim charts showing how you believe said patents “read on” on our products/services.  I will call you to discuss this further as Rackspace wants to be sure that  we understand your position.

Thanks,

Larry
R. Laurence Macon
Akin, Gump, Strauss, Hauer & Feld

 

From: Alan Schoenbaum
Sent: Monday, December 13, 2010 5:04 PM
To: Erich Spangenberg
Cc: Macon, Larry; Mary Stich
Subject: RE: Letter/Call

Hi Erich,

I have engaged Larry Macon at Akin Gump to represent us on this.  He will respond for us.  Thanks much,

Alan

Alan Schoenbaum
Sr VP and General Counsel
Rackspace Hosting

 

From: Erich Spangenberg
Sent: Monday, December 13, 2010 10:49 AM
To: Alan Schoenbaum
Subject: Letter/Call

1.       I received your voicemail regarding my December 8 letter

2.       I apologize for the delay in returning your call, but look forward to speaking with you at your earliest convenience

3.       My contact info is below—but best number is my cell at

 Erich Spangenberg | IP Navigation Group, LLC

 

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