IBM and Groupon Trade Final Blows as Patent Case Goes to Jury

(Bloomberg) -- Groupon Inc. is trying to portray International Business Machines Corp. as claiming to have patented the Internet, but that’s “a smoke screen,” IBM’s lawyer told jurors as a two-week court fight over four patents related to e-commerce neared completion.

A lawyer for Groupon, meanwhile, had a word of his own to describe IBM’s approach -- "extortion."

As they began the trial, IBM’s lawyers said Groupon built its online coupon business on the back of IBM’s e-commerce inventions without permission. At stake is as much as $166.5 million in damages if IBM prevails. A Groupon victory, on the other hand, could have lasting impact on the value of IBM’s hefty portfolio of patents.

IBM spends $5.6 billion a year on research and development "to make our lives better," the company’s lawyer John Desmarais told federal jurors in his closing argument in Wilmington, Delaware, Thursday. He cited IBM’s investments in artificial intelligence and quantum computing. "We put astronauts on the moon," he said.

"That research costs a lot of money," Desmarais said, "and all we ask is that people who use it ask to take a license."

But the patents at issue don’t protect IBM’s products or services, said David Hadden, Groupon’s lawyer. IBM never used the patents and instead relies on its huge portfolio to extract money from other companies, he said.

Most Patents

IBM, which has won the most U.S. patents in each of the past 25 years, reported $1.19 billion in intellectual-property licensing revenue in 2017.

"Not paying someone for something you don’t use, that’s not being reckless," Hadden said. "That’s not being an upstart. That’s just standing up for what’s right."

Two of the patents, one of which expired in 2015, came out of the Prodigy online service, which started in the late 1980s and predated the web. Another, which expired in 2016, is related to preserving information in a continuing conversation between clients and servers. The fourth patent is related to authentication and expires in 2025, the latest among the case’s patents.

IMB stressed throughout the trial that a range of companies have paid for licenses to use its patents. Tech giants such as Amazon.com Inc., Alphabet Inc.’s Google, Facebook Inc., Twitter Inc. and LinkedIn Corp. have paid from $20 million to $50 million each in cross-licensing agreements, allowing them to access to IBM’s cadre of more than 45,000 patents.

Groupon Intervenors

The Groupon case has been closely watched in the online advertising and marketing sector. At least 10 companies -- including Go Daddy Operating Co. LLC, LinkedIn and Twitter -- intervened asking that information related to their prior IBM patent deals not be made public.

Hadden said the 42 companies that paid for licenses did so "because IBM came at them." IBM didn’t have anyone from those companies testify at the trial, he said. That’s because they were coerced, he said.

Amazon paid, Hadden said, because "they’re afraid." IBM, he continued, leverages the fear that "a jury like you will be confused" and return a "big verdict that gets it wrong."

Groupon, he said, isn’t afraid, and believes that "somebody has to stand up."

Armonk, New York-based IBM reached a confidential settlement in December 2017 with Priceline.com, part of what now is called Booking Holdings Inc., on three of the same four patents. U.S. District Judge Leonard Stark, who is also presiding over the IBM-Groupon trial, ruled in October that Priceline didn’t infringe the fourth patent. IBM appealed.

High Margin

IP licensing contributes less than 2 percent to IBM’s revenue, but is a high-margin business for the company, according to Matt Larson of Bloomberg Intelligence. He views the case as a proxy for failed licensing discussions dating to 2011.

A Groupon victory, Larson said, "could challenge IBM’s ability to renew existing deals once they expire." The case’s outcome, he said, "could have implications for the intervenors listed or others that IBM may try to work with moving forward."

IBM won a record 9,043 U.S. patents in 2017.

The case is International Business Machines Corp. v. Groupon Inc., 16-cv-122, U.S. District Court, Delaware (Wilmington).

©2018 Bloomberg L.P.