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July 28, 2014

Defunct Hartford firm sues tech giants over patents

HBJ Photo | Matt pilon Ziplink’s home, court records say, is in this Woodland Street building in Hartford, owned by Zachs’ limited liability company.
As of July 21, Ziplink had sued 17 Internet and telecom companies.
By Matt Pilon

From a brick-sided building on Hartford's Woodland Street, a company that ceased operations nearly 14 years ago is taking on the tech world.

Ziplink — a dotcom-era provider of wholesale dial-up Internet services that shuttered its doors in 2000 — has sued 17 of the largest U.S. Internet and telecom companies since late 2011, court records show.

Led by businessman and philanthropist Henry M. Zachs, the company has sued the likes of Google, Verizon, AT&T, Earthlink, Microsoft, and Cablevision, accusing nearly all of them of infringing on two closely related patents, the oldest of which Ziplink filed for in its final year of operation.

Ziplink said its patents cover the technological processes and methods by which an email client detects and filters unwanted messages, or spam. Its lawsuits accuse the companies of offering email services that use the same process and methods.

Financial settlements for the suits have been kept secret, but Ziplink said in a February 2012 press release that one case resulted in an approximately $100,000 payout.

That 2012 announcement, which included an offer from Zachs to purchase Ziplink's remaining shares at the time, was made one week after a judge dismissed the company's first lawsuit, against Microsoft, court records show.

Zachs and his family trust owned 86 percent of Ziplink at the time.

Reached by phone, Zachs declined to disclose his current ownership stake, and would not comment on how much money, if any, has changed hands in any of the other suits.

Ziplink's lawyer, Andrew Ryan of Hartford intellectual property law firm Cantor Colburn, also would not say if any of the nine other dismissed suits have resulted in financial payments. Any settlements, he said, have non-disclosure agreements.

Ziplink, which once operated an Internet network that it said reached customers in some of the U.S.' largest metro areas, is one of many Internet-boom era companies whose name has been mostly lost to memory. But the firm, which filed its two most recent lawsuits on July 21, has come back to life, in a way, to cash in on the often-controversial and complex world of patent litigation.

A strange revival

In its heyday, Ziplink provided network access to Internet service providers and Microsoft's WebTV Network, one of the earliest products that enabled consumers to access the Internet through their television. Ziplink was co-founded by Zachs and his son, Eric Zachs in 1995, and was later based in Lowell, Mass., with an office in Hartford. The company consistently lost money before a major customer defaulted on payments, forcing Ziplink in 2000 to close and lay off most or all of its nearly 100-person staff, according to U.S. Securities and Exchange Commission filings.

At that time, Ziplink said it would sell assets to pay off creditors, and never filed for bankruptcy.

The closure came just months after Ziplink filed for a patent that is now at the center of its tech-giant lawsuits.

After Ziplink closed, its shares were delisted from the Nasdaq National Market and traded as an over-the-counter stock on the pink sheets. Companies that trade there don't need to meet specific listing requirements or file disclosures with the SEC.

Ziplink languished there until 2007, when a strange event happened: A group of business entities, including a Nevada company that owns a Las Vegas gentlemen's club, took control of and merged with Ziplink's Delaware shell corporation, transferred some of its own liabilities to Ziplink, and sought to issue shares, court records show. Ziplink's share price spiked on the news, but plummeted after the company sought to clarify to shareholders what happened.

Ziplink sued D.R. Entertainment and its affiliates a year later in Delaware, arguing the takeover was fraudulent because its sole director, Zachs, never authorized it. Ziplink alleged that the defendants were trying to use the shell to take Minxx Gentlemen's Club public.

Ziplink eventually won back control of the shell company. In 2011, Ziplink sued the same group of companies, seeking damages for their fraudulent takeover attempt. A Nevada judge awarded Ziplink $112,000.

Not long after in Dec. 2011 Ziplink filed its first patent infringement suit against Microsoft, with others soon to follow.

One of Ziplink's patents (No. 8,271,596) was filed with the United States Patent and Trademark Office in 2010 and granted in 2012. The other patent (No. 7,672,998) was filed in 2000 and granted in 2010. Robert D. Haskins, of Amherst, N.H. and Dale P. Nielsen of Amherst, Mass. are listed as the inventors of the technology behind both patents.

It's unknown for certain if Ziplink's lawsuits — beyond the approximately $100,000 announced in the 2012 press release — have resulted in financial settlements.

But signs indicate they likely have, said Stephanie Kennedy, creator of the blog IP Troll Tracker.

The Texas blogger and IT professional is not an attorney, but she tracks the industry closely. Kennedy has built patent lawsuit databases for a Houston firm and has also worked as a product consultant for a patent licensing company called RPX Corp.

Kennedy said it's not unusual to see cases dismissed when private settlements are reached. It may indicate that lawsuit targets think “this guy's not worth fighting,” Kennedy said. “It doesn't necessarily mean his patent is valid, but it means there is enough risk not to fight it,” she added.

Judges have dismissed 10 of Ziplink's 17 suits, either at the request of Ziplink or both parties, court records show. In many cases, Ziplink requested more time from the judge to hash out settlement negotiations, the results of which aren't disclosed in court records.

Big names sit out court fight

Ziplink's lawsuits are strikingly similar in both content and result. All allege infringement of one or both patents and they target tech and telecom companies that offer email services. Only one case — against Earthlink — lasted longer than a year.

None has made it to the discovery stage, where the two sides argue over how or if a patent was actually infringed upon.

That's likely because defendants know it would cost more to fight than settle, said Daniel Nazer, a staff attorney with the Electronic Frontier Foundation, which has advocated for legislation that would, among other changes, require patent lawsuits to be far more specific up front in explaining infringement allegations.

“Even if you think the patents don't infringe, or are invalid, it will cost you about $1 million to prove that,” said Nazer, who has not been involved in any Ziplink suits, but reviewed several cases at Hartford Business Journal's request.

GoDaddy.com, which was one of the few lawsuit targets to put up any fight in court, argued in April 2013 that Ziplink's patents were invalid because they “do nothing more than describe a well-known, abstract idea (i.e., that it is useful to verify an email sender's authenticity and impose limits on sending emails) and apply it using conventional computer technology and the Internet,” court documents said.

GoDaddy and Ziplink jointly asked a judge to dismiss the case two months later. It's unknown how much, if any money, changed hands between the parties.

A GoDaddy spokesperson did not respond to a request for comment.

Earthlink, which also argued that the patents were not enforceable, joined Ziplink in Dec. 2013 in asking a judge to dismiss the case. Again, the result is unknown.

“EarthLink's policy is to never discuss litigation with the media, and if settlements are made, it would be confidential,” Earthlink spokeswoman Pamela O'Connor wrote in an email.

A Cablevision spokeswoman declined to comment on her company's suit, which was dismissed in May. Representatives of Google and Lycos did not respond to emailed questions.

Lawsuits reveal gray areas in “trolling” debate

Among patent law reformers and companies that find themselves the subject of an infringement suit, the term “patent troll” has gained traction.

Generally defined as an entity that exists solely to enforce often broad or vague patents, patent trolls use the high cost of defending a lawsuit in court as leverage to force legal settlements, according to Nazer, the Electronic Frontier Foundation attorney.

Nazer and the EFF make no secret of their opposition to the patent-troll business model.

Based on its lawsuits, patents, and the fact that it appears to operate for no other purpose, Nazer said he would classify Ziplink as a patent troll.

“It's sadly a typical story that now so many failed companies are sort of having these death throes later of asserting patents,” Nazer said.

Asked if he believed Ziplink was patent trolling, Zachs said: “I know what patent trolling is, but this is not that.”

Ryan, Ziplink's attorney, said critics typically use the term “troll” to refer to companies that buy up patents for the sole purpose of asserting them. Ziplink isn't doing that, he said. From the beginning, Ziplink was the sole owner of the patents.

“They were developed on Ziplink's time, so to speak,” Ryan said. “They put sweat equity into this technology. Now, they're engaged in what is typically called a licensing program, which is not uncommon at all across a number of industries.”

Indeed, Ziplink isn't breaking any laws. And courts don't recognize troll terminology.

Kennedy, the blogger, said Ziplink's 17 lawsuits are a small number compared to well-known patent trolls. And generally, not every company that sues over a patent — even one that never resulted in a product — is automatically a troll, she added.

“Maybe society wasn't ready for that product, or they couldn't get the thing funded,” she said. “At least they made a go of it [as a company].”

Kennedy said the pedigree of companies Ziplink is suing also tells her something. A troll would tend to sue a weak or vulnerable entity. But Ziplink is taking on big companies flush with cash to pay attorneys for as long as they want.

“It matters who they're suing,” she said. “It's not some random [companies]. They're suing big companies.”

Nazer said that a provision in the Innovation Act of 2013 — a federal bill that passed the U.S. House of Representatives, but stalled in the Senate — may have made it harder for Ziplink to file its suits. The bill aims to force plaintiffs to detail up front exactly how their patent was infringed upon, as opposed to doing so during a case's more expensive discovery stage.

In the most recent legislative session, Connecticut lawmakers also considered tighter regulations on patent demand letters under consumer protection statutes.

But the state bill did not pass.

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