Patent ruling may stem shotgun lawsuits; judge orders Refac to pay bills for baseless litigation.

Patent ruling may stem shotgun lawsuits

Refac International Ltd. has kept a lot of patent attorneys busy in Southern California - and now the bill is coming due.

On May 31, U.S. District Court Judge Volney Brown found Refac had violated rules against baseless litigation in bringing a massive patent infringement suit against 118 California companies. That suit created a pile of legal filings six feet high.

The New York patent holding company, which has gained a reputation for broadbased, shotgun lawsuits aimed at companies large and small, was ordered to pay all court costs for many of the 50-some law firms involved in the case, which by some estimates could range upwards to $1 million.

"We will respect the ruling of the California judge and we will profit from the expensive lesson we learned," said Eugene Lang, president and founder of Refac's parent company, Refac Technology Corp. in New York.

Refac lost the original case in appellate court last October, when it failed to respond to a judge's demands to show exactly how the allegedly offending products violated Refac's patents on basic logic circuitry for liquid crystal displays.

But the Rule 11 violation finding last month by Judge Brown may have been an even more significant victory for manufacturers and retailers which have been the targets of Refac's litigiousness over the past several years, said attorney Breton A. Bocchieri of Poms, Smith, Lande & Rose in Los Angeles. Bocchieri defended Irvine-based Kawasaki Motors Corp. U.S.A. and filed the Rule 11 motion that may have knocked Refac out of the box.

The ruling slew the dragon by requiring that patent holders closely inspect allegedly infringing products before filing lawsuits in the first place, Bocchieri said. "This might be the death knell to this type of litigation," he added.

"I think this is going to stop people from trying to file these types of massive lawsuits," said attorney, Steve Strauss, an attorney with Fulwider, Patton, Lee & Utrecht in Long Beach. "This tells anyone in the future, particularly in the patent infringement area, they better investigate thoroughly."

In this case, Refac took on dozens of retailers that were selling hundreds of products with LCD displays. In some instances, Refac's research entailed little more than looking at pictures of products in catalogs, attorneys said. Refac argued all displays with blinking colons and other features violated its patents and that close inspection was not necessary.

Attorneys opposing Refac claimed Refac's strategy in recent years has been to file a slew of lawsuits over a patent, with hopes that most defendants will settle for relatively small sums rather than face expensive patent litigation. A number of small settlements add up to lucrative gains, the attorneys said.

Refac's Lang, while admitting the company learned an expensive lesson, said the significance of the Rule 11 finding was being blown out of proportion. He rejected the idea that the ruling would inhibit future lawsuits by Refac or anyone, if patents were infringed.

"The Rule 11 decision was largely a matter of our procedural approach to litigation, and I regret that it developed that way," Lang said. "It has given us new experience in litigation, which our conventional business of licensing never exposed us to."

The ruling, however, has apparently prompted Refac to change its legal strategy, which Lang said had been guided by company vice president Philip Sperber, who died a year ago December in a car accident.

Lang said the company had operated for 27 years as a patent licensing company without ever getting embroiled in litigation - until Sperber joined the company in 1979. He said he preferred to negotiate license agreements on behalf of inventors and small companies, which are Refac's main clients.

Attorney Joe Price of Price, Gess & Ubell in Irvine, another law firm involved in the case, read less significance into the Rule 11 ruling than did the other attorneys. He said the judge's ruling was in line with previous cases and was aimed more at the circumstances of Refac's litigation strategy.

The judge could have found Refac's attorneys, Eric Chung and Greg Stein, liable but didn't, Price said. "Really, it was uniquely slapping Refac."

In the end, one of Refac's biggest mistakes may have been bringing its shotgun legal strategy to California, where discovery rules are stricter and where insurance companies pick up more legal costs - making it more likely that companies will litigate cases, Price said.

"Back East, they've done this a number of times, and even had some adverse decisions," Price said. "But back East, the discovery rules have not been as strictly enforced."

Longwell is a staff reporter for the Orange County Business Journal.