Innovatio Case: Victory for Cisco Customers Makes the Case for Patent Reform

We’re pleased to announce today that we’ve achieved full protection for millions of Cisco customers from the overblown and specious claims of a very aggressive patent assertion entity.

Once upon a time a company called “Innovatio” set out to force retailers and small businesses to pay over two thousand dollars per location for use of WiFi patents.  They did this knowing they were obligated to license the patents under reasonable and nondiscriminatory terms and, even worse, that the majority of the businesses they were targeting were already licensed to use the patents.   Innovatio targeted over 170 million Cisco devices that Innovatio claimed could be taxed by their scheme. They sent over 14,000 letters in the first wave of an attack through which they hoped to eventually suck close to $4 billion out of the productive part of the U.S. economy by threatening innocent entrepreneurs with costly litigation.

We, together with Netgear and Motorola, intervened on behalf of our customers and accused Innovatio of running a racket, and we demanded a trial on the true value of those patents.  We also demanded damages for the breach of the contractual obligations to license standard-essential patents on fair terms.  Although Chief Judge Holderman in the Northern District of Illinois did not allow the racketeering claim to move forward, he determined that the patents had a collective value of approximately 10 cents per WiFi device.  “Innovatio” later admitted that over 100 million of the devices they targeted were already licensed, and taking into account our strong breach of contract and other claims, they agreed to license the remaining 85 million devices for a total of $2.7M, or less than 3.2 cents apiece.

We spent $13 million on this litigation, not including the $2.7 M settlement.  I’m proud that we stepped up for our customers and appreciate the great job that our counsel at Kirkland and Ellis did for us.  But that expenditure would not have been necessary if Innovatio had met its obligations to license on reasonable and non-discriminatory terms, and had come to Cisco seeking a reasonable license first rather than targeting our customers and those of other manufacturers.  And, if our laws included provisions requiring those who target innocent third party users of products to register their claims at the FTC and make sure users know they can take their claims to manufacturers like Cisco, it seems unlikely Innovatio would have engaged in its letter-writing shakedown against end users.  And if they thought they might be on the hook for the $13M we had to spend, they might have thought twice about the way they approached their licensing scheme.  Provisions to deal with this problem, and with the problem of lawsuits that target users of products rather than those who develop and sell the products, were included in legislation that overwhelmingly passed the U.S. House of Representatives recently.   We hope the Senate will act quickly as well.

In the meantime, we hope the “Innovatio” outcome will cause others who are undertaking similar efforts to step back and rethink their strategy.