IBM Wallops Groupon With a Vintage Patent
(Bloomberg Businessweek) -- International Business Machines Corp. v. Groupon Inc.
① The Origin
Remember Prodigy, the online service that flourished in the 1990s before flaming out a decade later? Turns out, IBM was one of its original partners and owns Prodigy patents on some of the foundations of e-commerce. You might think they wouldn’t be worth much by now, but you’d be wrong. A few years ago, IBM claimed Groupon andPriceline Group Inc. were violating some of them and demanded millions. Priceline Group, now known as Booking Holdings Inc., settled for $34 million. Groupon decided to fight it out in court.
② The Case
Groupon’s first reaction was to laugh off the lawsuit. “They finally got me—I stole the idea to sell goods and services at a discount from Prodigy,” tweeted Groupon founder Andrew Mason. Its argument, to put it bluntly, was that IBM was a patent troll: “IBM uses its huge stock of patents as a club to get money from other companies,” declared Groupon’s lawyer. For its part, IBM sought $167 million from the company—and argued that the infringement was “willful,” meaning it could claim treble damages.
③ The Trial
In late July, two years after the case was filed, the two combatants engaged in a two-week trial. IBM’s killer point was that a raft of other companies were paying fees to access these same patents: Amazon.com, $49.8 million; Google, $35 million; and Twitter, $36 million. Its lawyer told the jury that Groupon, “the new kid on the block,” was refusing to “take responsibility for the technology it’s using.” The jury needed only six hours to agree, awarding IBM half of the damages it claimed: $82.5 million.
④ The Result
Groupon has said it’s reviewing its options. The chances of winning on appeal are slim—better to pay up and move on. Lucky for Groupon, the judge has said he’s unlikely to triple the payout. As for IBM, one suspects the trial was more about sending a message than reaping a financial reward. IBM has 45,000 patents, which generated $1.19 billion of its $79.1 billion in revenue last year. If you’re not willing to pay up when IBM comes calling, it won’t hesitate to go to court.
● Oldies But Goodies
How can patents so old they predate the consumer internet be worth money today? The trick to writing patents is to make them so broad they can be enforced no matter how far technology advances. Whoever wrote those Prodigy patents deserves a cut of IBM’s winnings.
● Bleeding Them Dry
Lawsuits sure can be expensive! When it reported its second-quarter earnings, Groupon disclosed a $75 million litigation charge related to the IBM trial, contributing to a net loss of $92.3 million on continuing operations. No wonder the stock is down more than 15 percent for the year. —Nocera is a business columnist for Bloomberg Opinion
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