When tech giant Honeywell International sued startup thermostat maker Nest Labs earlier this year, alleging the young company had infringed Honeywell patents, Nest decided to do whatever it took to fight back. In addition to filing a strongly worded answer to the complaint in Minnesota district court in which it called the lawsuit “a bald effort by Honeywell to inhibit competition” Nest, which is run by former high-level Apple Inc. executives, took its case directly to the U.S. Patent and Trademark Office.
It asked the PTO for a formal re-examination of the seven Honeywell patents asserted against it, submitting piles of prior art to challenge the patents’ validity. And after reviewing that art, the PTO agreed to conduct a re-examination of six of them. The move puts the district court case on hold until the PTO issues a ruling a process that will take at least a year. Nest, in the meantime, is free to sell as many of its popular “smart” thermostats as it can.
So how did the small company arm itself so quickly with the prior art it needed to convince the PTO a re-examination was necessary? It got help from another startup the crowdsourcing company Article One Partners. “Important pieces of prior art that were pivotal to Nest’s case came from our community,” said Article One’s founder and chief executive officer Cheryl Milone.
Her “community” is comprised of 24,000 researchers from around the world who look for relevant material that might serve as ammunition to invalidate a patent (researchers are paid for their work using a reward model). Their ability to quickly find sometimes-obscure information even, at times, in other languages that can help a client fend off a patent suit has helped Article One become increasingly popular. Technology companies, which have been targeted more and more by competitors and nonpracticing entities (also known as “patent trolls”), are particularly drawn to the company’s services, although pharmaceutical companies and medical device makers are also clients, Milone says. In fact 18 of the top 25 companies most frequently targeted by NPEs are Article One clients, as are 30 of the Fortune Global 500, according to Milone.
Nest Labs, which was founded by Tony Fadell, who designed the hardware for the iPod and headed Apple’s iPod and iPhone division for years, won’t comment on its relationship with Article One. But Nest general counsel Richard “Chip” Lutton, who was formerly Apple’s chief intellectual property officer, said he was familiar with Article One from his days at Apple, and he has acknowledged that Nest approached Article One after Honeywell filed its patent suit. By using Article One, Lutton told The Wall Street Journal, “we can extend our reach.”
While both Article One and Nest say they cannot divulge details while litigation is pending, Milone said Article One’s researchers did dig up valuable prior art for Nest. “We asked our community for input, and they came back to us almost immediately,” she said.
Honeywell filed its patent suit against Nest in February. By April, when Nest filed its answer, the thermostat company had nailed down powerful prior art:
- One of Honeywell’s patents, for example on remotely controlling temperature setpoints is identical to a Honeywell patent that expired in 2004, Nest said in its answer to Honeywell’s complaint.
- Another patent, for displaying temperature setpoints on an LCD inside a rotating ring, was implemented years earlier by employees of Volkswagen who ultimately abandoned their own patent application because a search found “dead-on” prior art.
- And Nest had prior art for Honeywell’s patent that covers displaying “grammatically complete sentences” while programming a thermostat a technology, it noted, that is “not worthy of a patent.”
“Nest does not use the Honeywell patents; but even if the patents covered what Honeywell alleges, they are hopelessly invalid,” the company wrote. “They are retreads already invented by others years before, and in some cases by other teams at Honeywell that Honeywell hid from the Patent Office when pursuing the patents in this lawsuit.”
While Article One doesn’t name its clients, Milone said it is doing work for more than 130 companies now mostly in the technology sector.
Prior art found with the help of Article One’s crowdsourced studies is showing up in more attempts to try to invalidate claims of patent infringement. The PTO, for example, is currently conducting a re-examination of four patents owned by Helferich Patent Licensing Co. a re-examination requested after a company obtained relevant prior art through an Article One crowdsourced research study, according to Milone. (Article One said confidentially issues prevent it from disclosing the name of the company.)
At a time when patent battles are rampant in courts around the world and the entire U.S. patent system is coming under attack, the use of crowdsourcing as a way to fight back is growing in popularity. Even the PTO is encouraging the practice: It recently teamed up with Stack Exchange, a popular Q&A website for IT professionals and other experts, creating a website where they can view new patent applications, question whether a patent should be granted, and cite relevant prior art.
In Article One’s business model, successful researchers are rewarded for their work, receiving $5,000 to $10,000 for the prior art they dig up. In the three years it’s been in existence, Article One has awarded more than $3 million to its researchers, Milone said. The company, named for Article One of the U.S. Constitution, which includes the patent and copyright clause, also pays out 5 percent of its profits to community members.
Milone thinks that what her company really does is address questions of patent quality an issue that is receiving much scrutiny as public awareness of questionable patents rises. Small companies in particular, she said, are hurt by the huge expense of fighting patent suits, because they have to spend a larger portion of their revenue base on legal costs. “It’s nice when we can help smaller companies by giving them the best data as quickly as possible,” she said.
It remains to be seen whether Nest Labs can use the prior art to prevail at the PTO or in district court. Honeywell said it stands by its claims of patent infringement, and it is confident the agency will affirm the validity of its patents.
Patent reforms being instituted as part of the America Invents Act, meanwhile, are designed to protect and improve the quality of patents so this type of dispute can be avoided. But Milone doesn’t see this as a threat to her business. “The changes will lead to more proceedings and more validity arguments,” she said, “and that will give us more opportunity to help companies protect themselves while they innovate.”
Lisa Shuchman is a reporter with Corporate Counsel, a Recorder affiliate.
