Why defeating patent trolls matters

Hello, everyone, and welcome to This Week in Net. It's the October the 11th, 2024 edition. And this week, we're going to talk about patents, patent trolls, and why combating them is important for innovation and for the tech industry. I'm your host, João Tomei, based in Lisbon, Portugal. And with me, I have Emily Terrell, Senior Legal Counsel of Litigation, and Patrick Nemeroff, Senior Director and Legal Counsel. Hello, Emily. Hello, Patrick. How are you? Great, thanks. Good to be with you. First, let's start with the where are you based part. Let's start with you, Emily. Where are you based? Sure. I'm based in Washington, DC. And you, Patrick? I'm also in Washington, DC. Makes sense. Usually when I have in the show folks from policy, legal, usually they are based in the Washington, DC area. So let me start there. Why is the Washington, DC area, for those who don't know, so relevant in terms of policy, legal perspectives? Why is it important? Sure. I mean, we have lawyers really, you know, spread out across the country and around the world. DC is where our policy team has always been centered, because of course, there's so much government here. And also, you know, civil society, and sort of all the things that surround government in terms of figuring out policy on these issues. On the legal front, I mean, I just think there are a lot of lawyers in DC, for better or worse. So it's fertile hiring ground. But we lawyers in San Francisco, Austin, sort of all of our offices. Originally, are you also from Washington or other parts of the US? I myself am from the DC area, Maryland, specifically. Emily has a more interesting background. I'm from a little bit of all over New York, Indiana, California, settled here in the DC area about 15 years ago. For those who don't know, we're going to talk about patents, patent trolls, specifically. But this is a very interesting area, very important area for a tech company to have legal consults, have a very focused perspective on the legal side for the US, as you were saying, but also globally in different geographies. For those who don't know, give us a bit of your background. Let's start with you, Emily. Sure. I have been at Cloudflare a little over a year. And before coming to Cloudflare, I was in private practice with a law firm here in the DC area. And my practice was mostly actually in intellectual property litigation. So patent litigation, trade secret, things like that. And you, Patrick? Sure. I joined Cloudflare at the end of 2019. So I'm approaching five years here. I had actually been a government litigator for many years, doing sort of civil appellate litigation. I had one patent case once where I had sort of a side role. So the patent world was relatively new to me when I joined Cloudflare. Interesting. The matter that brings us to this segment in particular is the patent troll. The blog post that was written earlier in October is patent troll Sable pays up, dedicates all its patents to the public. That's news right away. Of course, it was all of a process, several months, I think, of work there. But that's news by itself. But before going there specifically, why would you both think this area in general, not only patents, but in general, the legal area is so relevant in this day and age? And why are you so passionate about this area? Let's start with you, Patrick, now. Sure. Well, I mean, just there are so many interesting legal issues when you're at a sort of company like Cloudflare that is constantly moving into new services, sort of providing services all around the world. And sort of policy around Internet issues is always evolving. So it was super interesting. On the patent front specifically, I think it's an incredibly important area for any tech company. And Cloudflare has a really sort of unique and I think principled position that makes it a lot of fun to be here as a litigator. But Emily, I'll turn it over to you. Yeah, no, I agree with all of that. I mean, for me, I love practicing in this area because I was an engineer before I went to law school. And I always have wanted to work with tech companies. And then when you get into the patent space, you realize pretty quickly that patent trolls drive a lot of patent litigation in the US. It's about 80 % of patent cases filed in the US are filed by patent trolls. And so getting to come and work for a company like Cloudflare that's willing to take a stand and actually fight with instead of quickly settling with patent trolls in order to take it to the end and to prove that we're not an infringer or to prove that a patent is invalid, that's a really worthwhile cause in my view. And it's great to get to be at a company that is willing to go the distance. Makes sense. Regarding this topic, you already joined the topic in a sense. For those who don't know why patent trolls exist, why are they successful in terms of their existence depends on taking money specifically in lawsuits. Why is that the case? I'm happy to start on that one. So there's a lot of patents in the United States. At this point, I think there's probably about three and a half to 4 million active patents in the United States. And over time, companies that initially will have innovated and will have obtained a patent from the US Patent and Trademark Office, sometimes they go out of business, their business changes, and they sell their patents because their patents are an asset. And when those patents go on the open market, they can be bought by anyone, including by someone that just wants to use them to make money. And that is fundamentally what a patent troll is. A patent troll is an entity that recognizes that patents as an asset have value and can be used to make money through licensing campaigns. And that usually involves litigation, doing companies that are in business in the space of the technology that that patent covers. And they're not innovating, right, in a sense. Yeah, they don't make anything. They haven't developed anything. They are just entering the equation in order to grab that asset that someone else innovated, that someone else invented, and try and make money off of it on the back end. Well, and just to add to that, I mean, from the company's perspective, litigation is just a giant headache. It's a lot of work, it costs a lot of money. And even if you know that you're right, you know that this claim is totally meritless, there's always going to be an incentive for a lot of companies to settle, because you can settle for, you know, a much cheaper amount often than the cost of litigation, the patent trolls know that. So that is why, and that's exactly what the patent trolls capitalize on. They know if they file as many lawsuits as possible, that it's always going to make sense, at least in the short term, for the company to reach some sort of lower dollar settlement figure. Makes sense. And that brings us specifically to this blog post and this win, in a sense. It goes back to February, where we celebrated another victory, a trial at the U.S. District Court for the Western District of Texas. And it was against the same patent trolls, Sable IP and Sable Networks. And that was like the culmination of two years, as the blog post says. What was the win here specifically at this time? Sure. So yeah, like you said, back in February, that's when we got our jury verdict. So we spent a week in trial in Texas, where we presented Cloudflare witnesses, as well as expert witnesses that we brought on to help explain our positions to the jury. And we went up against Sable and their witnesses. And the jury at the end of that trial found that we don't infringe the patent. So the claim of the patent that was asserted against us and the way that Sable said that Cloudflare's products and services allegedly infringed that patent, the jury did not agree with Sable. They agreed with us that we do not infringe the patent. And they also found that the patent itself is invalid, which is sort of an extra victory for us. That means that the patent never should have issued, that it was not new. It was not an innovation at the time that the patent office issued it. So that was the other part of this verdict, that not only do we not infringe, but the patent itself is invalid. And just to put this, because that's the trial, which is sort of largely the end of the case, but that followed, you know, I think over two years of litigation. I need to get the date right. It was right around two years of litigation. Three years, I think. Or three years. Oh, my gosh. Three years. Yeah. Time flies when you're litigating against a patent. And, you know, not just litigation in the district court, but also as we talked about in our blog post, litigation before the agency that sort of issues and can oversee patents, where we had some success in validating patents that this patent trial owned. And, you know, lots of motions practiced in front of the district court. And so going back to that earlier point, litigation is a lot of work. And we put in a lot of work here and had a lot of success and were able to narrow the case down to just one claim on one patent when they had initially asserted the plaintiff 100 claims over four patents. So that was great, but we still had to go to trial and sort of prove the case to these jurors who were coming in knowing nothing about our services, knowing nothing about the technology at issue. How difficult it is to explain to a legal, not technical audience or jury, or in this case, judge, these more complex topics, more technical topics? Yeah, it's not an easy feat. I mean, it really is an art and this is where it's great to have such a good partnership with really strong outside counsel. Those are the attorneys that actually, you know, represented us in court to help us prepare our witnesses and to present the case through our witnesses in a way that is understandable to a jury. You know, the topics here had to do with a patent that related to some old router technology and how packets were treated within the router. And Sable was trying to apply that to our, some of our products that are cloud based that are not using routers and that fundamentally treat packets differently as they're processed. And we had to explain all of that to the jury, but to a jury who maybe has never heard the word packet before, or at least has never heard it in the context of how routers or how a cloud-based software system is going to be treating packets. So you really have to start from ground zero and explain all of the larger concepts and then put them into the context of what this patent is versus what our product does and, you know, describe how the two are very different. And then in the midst of all of that as well, you need to explain why what we do is different. And that's really our invention story. And that's a part that's really fun to try and explain to the jury. And our witness, Eric Reeves, did a great job of explaining how our products, not only are different than what the Sable patents cover, but they're different for a reason. And that's because we were solving a different problem and we attacked that problem in a different way. And we ourselves are innovators in this space. That's interesting in terms of the witness part, how helpful it is to have witnesses that means technical folks from inside Cloudflare going there and explaining that technical part. These are not legal folks. They don't know anything about legal. They just know about the technicalities of this situation in particular. How great it is to have good folks as witnesses explaining that there. Yeah, we've been very lucky in all of our litigation matters. We get a lot of partnership with people at Cloudflare and we have just amazing product and engineer folks at Cloudflare who are able to both understand the services at a really detailed level, obviously, to make them work, but also can sort of step back and explain it in lay terms, both to us, because we often need that, and then to an external audience like the jury. So Eric Reeves in this case was phenomenal. And it was a huge investment of time on his part, but very much worth it. I'm sharing right now the blog post itself for those who want to read more about it. There's a parts of the background here. I'll say we'll see Cloudflare back in March 2021 in terms of what it was. I'm curious and want to ask you specifically how this integrates into Project Jengo, what it is, Project Jengo, and also how this relates to this project specifically. So let me start with the history on Project Jengo and then can pass it off to Amway to talk about this case. So it's worth noting, you know, Project Jengo predated this litigation against Sable. Cloudflare first launched it back in 2017 when we were sued by a different patent troll, Blackbird. And the whole idea of Project Jengo is really to flip the whole incentive structure that we were talking about on its head. So patent trolls have this incentive to file as many lawsuits as possible because defendants will just want to settle and not bear the cost of litigation. We want to create a risk or a cost to bringing those lawsuits by saying, okay, if you bring one of these meritless lawsuits against us, not only are we going to fight you on it and prove that it's meritless, but we'll actually bring in all of our great community of developers and everyone who sort of cares about this product and these services, and go out and look for prior art. And prior art, the reason that's important is because if something was already invented before the patent troll's patent was issued, well, then that patent should be invalidated. And, you know, there's a lot of patents that have been issued over time, so there's a lot of ground to investigate. And what Project Jengo does is really crowdsource everyone and say, hey, everyone, we all care about this issue. Let's work together. We'll make it fun. We'll incentivize you. We'll give prizes. And find the prior art that proves that this patent troll's portfolio of patents is, you know, should be invalid. I mean, there's more than I'm missing, so please expand. We're already- Yeah, no, I think- I call them rights to individuals, since it started. Yes, so far we've awarded $125 ,000 and we have another, I think it's about $30,000 to award in the final awards for the Project Jengo for the Sable case. What can we say more about Project Jengo? Especially, I'm curious about this part of these types of projects. How do they serve not only Cloudflare, but the industry, the tech industry, innovators, new startups that just started? How does it help? So, yeah, I mean, I think the overall awareness and engagement is great for the community as a whole. So, Project Jengo, like Patrick said, it puts it out there to the developer community, to people who are interested in this area of technology to help fund prior art. And, you know, prior art can be anything from papers, research papers, publications, to other patents. And so, it really brings together people who have knowledge in this space or who want to gain knowledge in this space and, you know, through their prior art searches, learn more about this area of technology. And that overall awareness, I think, helps the larger tech community in that, you know, it is not going to be a situation where patent trolls can bring these cases unchecked. The more people understand and know the risks and threats that are posed by dealing with patent trolls, the more young companies are able to think about how better to deal with them, so that they don't wind up in a position where, you know, they're being held hostage by a patent troll. And I've seen several situations of folks just being, even companies going out of business, because they were just starting very small companies, two people per companies, and they were out of business because they didn't have the power to go and litigate and combat those patent trolls, right, Patrick, you were saying? Yeah, I mean, as we were saying, litigation, obviously, is a big burden. Some companies don't yet have the resources to do that. The one thing I wanted to point out, I think we probably said this, but just to make clear, you know, the other great thing about Jengo is it's not just about the patents that were asserted against us Cloudflare, it's about sort of the entire portfolio of patents at issue. And so the purpose there is really to, so that if that patent troll moves on to the next company with the next patent, there is sort of this library of resources available for them. And in this case, it was around 100, something like that, right? It was 100 claims that they initially asserted against us, and patents can have multiple claims. They asserted four patents against us, but then 100 claims across those patents. But the portfolio itself of Sable patents, and these are patents that Sable bought from a company called Caspian, that was a router company that went out of business about 20 years ago. The portfolio itself was larger. And so like Patrick said, we opened up Project Jengo to prior art that would invalidate any of those patents. Regarding the five-day jury trial in Waco, Texas, back in February, I'm curious, for those who don't understand a lot of how these things work, how, what amount of work, and you, or we already said three years, what's the amount of work, the amount of external and internal teams, legal ones and not legal ones, that something like this needs to have to come to fruition, to come to this conclusion. In this case, favorable. So in this case, we won, the patent troll didn't won here, but how is that work of several years, different teams put together? Sure. Yeah. I mean, so obviously the technical teams are key in helping us understand and explain to our outside counsel, and then ultimately explain to the jury how our products work. So, you know, we worked with several different engineering teams. When this case started, when there were those hundred claims asserted against Cloudflare, there were a broader swath of Cloudflare products and services that were accused. So we had to do a lot of work to understand exactly how those products and services were working relative to the claims of the patent. We also have to, in litigation, do discovery, which means that we have to give the other side access to documents, to source code, to materials about how our products work. So we need to work closely with the engineering teams in order to gather all of those technical documents in order to produce them in the case. And then beyond the technical, damages are at issue in a patent case. And so that means that we have to do discovery into financial issues, sales, marketing. So we need to work with teams from, you know, those groups all across the company in order to gather the relevant information that we need in order to make our case. Well, and I'll just say, you know, the trial itself, no matter how strong your case is, sort of being able to present it clearly, concisely, and persuasively just requires a ton of work. A ton of like big, you know, team from outside counsel who represented us, Emily, Eric, and I obviously spent the time in Waco, but just a lot of preparation goes into presenting a case like this in a compelling way. And we spent about two weeks living out of a hotel in Waco, Texas, working together in the war room, trying to get everything ready to present. Makes sense. And we all seen the movies when there's a jury case in the U.S. of that type of war room of teams putting themselves together to try to do this. So I can picture it in my mind in a way. The blog post explains several parts of this process, including this document, right, of Koffler does not infringe claim specifically. Can you explain a bit of this slide deck presented to the jury during the trial? Sure. Yeah. And like you said, that's something we actually showed the jury. So what this shows is claim 25, that's the claim that was remaining to be asserted against us at trial. And each of those rows in the chart there, those are limitations of the claim. And in order to infringe this claim, in order for us to have been found to infringe, we would have had to do each and every one of those things, each and every one of those rows. And so, you know, in the converse, in order to show we don't infringe, we need to show that we don't do at least one of those things. And we had a couple of different non-infringement theories that we presented to the jury. These are reasons that we don't infringe. And this demonstrative here, this chart that we showed to the jury is summarizing the two of the main arguments why we did not infringe. And that had to do with how we handle and process packets, that we look at each packet individually, as opposed to routing them in micro flows, which is what the patent itself required. And also that our edge servers don't have line cards, which is a very specific type of hardware that the routers that were around back when this patent was first filed were using. And so you'll see those words there about line cards and micro flows crossed out. Makes sense. It also shows, and I bet you learn a lot about the Internet with this situation, but it also shows a bit of how the Internet works because there's a lot of explaining in terms of packets and routes. And there's several diagrams showing the specific case here, right? That's correct. Yep. You'll see right there, that's the line card that we don't have in our edge servers. It gets technical, but also visually technical in a sense, right? Yeah. I mean, that's a lot of the fun part of litigating patent cases or other cases at a technology company like Cloudflare is you've got to sort of dive deep and really understand the technology, but then you've got to try to pull out and how do you sort of explain this? How do you use analogies, like those cars driving on different roads so that people can kind of visualize and understand it, sort of how it relates to their daily life. And so they can really picture it. I'm curious, there's this subtitle explaining that Sable does not get its payday. And as we discussed earlier, these patent trolls really are after a payday. That's the main drive for them. In what way are patent trolls not getting their payday? And of course, they also have to pay for legal expense and all that. In what way that, in terms of industry, motivates others not to do that, not to go that path? Yeah. I mean, the goal here is to show that there's another way here. You don't have to just sort of settle with patent trolls. That might be the most cost effective approach in a single case. But in the long term, if you stand up and show that you will fight against meritless claims, then fewer patent trolls will come after you in the first place because they know that you're not an easy target. And so here, not only did Sable not get its payday, but we had a great result in the case. And we ultimately resolved the case, as the blog post talks about, with Sable paying us money for our costs in the case, with Sable not just granting us a license to their entire patent portfolio, but dedicating it to the public so they can't bring any more lawsuits against anybody else. So that is sort of a message that if you bring a meritless case against us, we'll fight and that will impose real costs on the patent troll for bringing that claim. Sure, makes sense. I'm curious because it was, I saw a lot of feedback from tech entrepreneurs on social media, first celebrating this win. So not a Cloudflare win, a wider win in terms of industry. And I saw folks telling a story that I didn't expect, to be honest, of problem they had in the past with patent trolls, how these types of things are important. One was the GitHub co-founder, Tom Preston Werner. And he was really joyful in terms of the outcome of this process. And also David Heinemeier Hansson, the creator of Ruby on Rails, also celebrating what he called the scummy and scammy patent trolls. In terms of feedback, you probably saw some of these feedback. In terms of feedback, how does this feedback also corroborates your work specifically, personally, but also Cloudflare's work here, insistence in a way of not letting this go? Emily, want to start? Sure. Yeah. So, I mean, I think that ties to something we were talking about earlier, which is why is this important? Why is Jengo important? Why is Cloudflare's willingness to take on patent trolls important to the larger tech community? And that feedback shows that it is in fact important. Like Patrick said, these cases cost tech companies a lot of money. There are estimates out there that it's like $30 billion a year in direct costs to companies by patent trolls. And like we talked about earlier too, if one of these cases comes in at the wrong time for a young company, it can really impact their ability to get off the ground. And so being in a position where we do have the ability to not just fold, not just capitulate, but to actually bring the fight all the way to the end through trial is huge. And that's something that we can do to help set an example and show paths forward for other companies and also to decrease the incentive for future patent trolls to try and bring these sorts of meritless claims. And the thing that Patrick talked about a minute ago, I think is really important to emphasize too here, which is that a trial isn't over when the jury hands in the verdict form. There's still appeals. There are fights to be had over motions that might still be pending or costs to be awarded to either side. And understanding that there was still litigation to happen even after we won, that's what brought Sable to us asking if we would be willing to settle. And that sort of exclamation point at the end of this long journey, I think it's really important to emphasize and is the source of a lot of positive feedback from the industry in that we held firm all the way to the very end and now have a final resolution where Sable paid us. And whereas Patrick said they've their patents to the public, this troll can never again sue someone on these patents and can't sue anyone, not just us, but anyone on these patents. Makes sense. Want to add something there, Patrick? No, I think Emily said it. It was a great outcome. It was exactly why we sort of take on the fight in these sorts of cases. And just personally, I think for both Emily and me, it's really gratifying and exciting to get to work on these sorts of cases and do this because there aren't that many companies who are taking this approach. We want it to be more, we're leading sort of a movement here, but it's great to be here and able to do that. For those who want to participate, help in these types of projects, we mentioned Project Jengo where folks can help us beat some of these patent trolls in a sense. What can they do? What are next steps for Project Jengo specifically? We have the website, software.com slash Jengo, but what can they do? What are next steps? Well, for Sable, even though the case is now done and we have been paid by Sable, there's still a little bit of Project Jengo left. And that is because according to the rules that we set up at the beginning of Project Jengo, we still have our final presence to award. And we are still in the grace period for final prior art submissions for Project Jengo. So there's still until November 2nd, people can submit additional prior art to be considered for the final prizes. And when we have finished that up, when we've received all of the submissions, we will look back at all of the prior art that we collected throughout this case. So far there's been I think over a hundred different people who've submitted prior art. So we'll take a look back at all of that and we'll award our final prizes. So that is one way that people can still contribute. The only other thing I'll say is, you know, I think Project Jengo and our approach to Sable and Blackbird certainly has discouraged patent rules from filing meritless lawsuits against Cloudflare. We've seen that in action. At the same time, there are a lot of patent rules out there and there are likely to be meritless cases again. So, you know, keep your eyes open for Project Jengo part three, because I'm sure we'll be doing that some other time as well. Makes sense. Last but not least, let me ask you a question. I typically do this question and it works for different areas. What's the main thing about what you do at Cloudflare, the legal side, that most folks don't realize, even external folks don't realize, but they should, about tech company, about the legal side. Why not start with you, Emily? Sure. Gosh, that's a good question. Yeah. Maybe when you're explaining what you do in a family dinner, someone doesn't understand, what typically is the analogy or the things you use to explain? Sure. You know, I think people may not realize how much so a legal department is reliant on and integrated with the technical folks within the company. You know, most of the cases that we see have at least something to do with the way our products work. And so, in order to do our jobs well and to help our outside counsel do their jobs well, we always need input and feedback from and education from the engineering and product teams. And so, that close relationship and how much of the technology we have to, ourselves as lawyers who are maybe not, you know, don't have that sort of background, have to onboard and understand, I think is something that people might not appreciate. Yeah. The other thing I'll say, I think that's 100% true. The sort of lawyer as translator between sort of the real technology folks and the external world is a big part of the role. The other thing specific to Cloudflare that I always tell people is that Cloudflare is, you know, we are a mission-oriented company. You know, we want to help make a better Internet. We have sort of a real perspective on a lot of the issues that then come up in litigation. And I think that sets us apart from a lot of other companies. And it makes the job really interesting and fulfilling because we do, you know, we sort of do take on some of these fights because we really believe in our positions. And so working, we work hand in hand with our policy team, for example, very closely to make sure the positions we're taking in litigation are aligned with sort of Cloudflare's broader position. And so that's a really sort of interesting part of the job as well. Makes sense. This was great. Learned a lot. Thank you, Emily. Thank you, Patrick. Thank you. Thank you so much for having us. This was fun. Yeah. And that's a wrap.