Patent Troll SLAPPs Lawyer For Saying His Shell Companies Never Pay Up, Loses, Now Owes Her Money

from the will-he-pay-up? dept

With everything else going on in the world, it’s been a while since we’ve dug into a good old-fashioned patent troll story or a bogus defamation SLAPP. Today we’ve got a two-for-one. Leigh Rothschild is a patent troll of some renown — his entities have been connected to over 1,300 patent lawsuits — who regularly sues companies over questionable patents and plays the standard patent troll shakedown game of offering to “settle” for less than it will cost to defend the lawsuit.

We’ve mentioned Rothschild in the past on Techdirt for his patent trolling ways. Like many patent trolls, Rothschild is known for setting up a number of separate companies that control the various patents he holds or controls. Rothschild’s trolling is covered widely all over the internet, and it’s not difficult to find one of dozens of people calling out his trolling techniques:

The Rothschild Modus Operandi is to obtain a fairly bogus patent (in this case, patent 9,936,086), form a limited liability corporation (LLC) that only holds the one patent and then sue a load of companies with vaguely related businesses for infringement. A key element of the attack is to offer a settlement licensing the patent for a sum less than it would cost even to mount an initial defence (usually around US$50k), which is how the Troll makes money: since the cost to file is fairly low, as long as there’s no court appearance, the amount gained is close to US$50k if the target accepts the settlement offer and, since most targets know how much any defence of the patent would cost, they do.

Anyway, back in 2022 Rothschild apparently acquired a very sketchy patent, US Patent 8,799,083, on a “system and method for managing restaurant customer data elements.” The patent describes a series of blatantly obvious methods of letting a restaurant customer share some information about their preferences and track their orders. Plenty of prior art exists showing that this patent never should have been granted.

Rothschild took the patent he claimed he acquired and (as described above) put it into a dedicated shell company, Analytical Technologies, then sued at least twenty food-ordering businesses in Marshall, Texas (because, of course). The playbook worked about as well as it usually does: Subway, Darden, Denny’s, Cracker Barrel, Five Guys, and Dairy Queen all settled or stipulated to dismissal within a few months.

Starbucks did not.

Suing Starbucks was perhaps a strategic error, because rather than fold and settle, Starbucks hit back hard, accusing Rothschild, personally, of fraud, claiming that Analytical Technologies was “a sham shell entity to shield himself from personal liability” and claiming that there’s a “pattern and practice of [Rothschild] underfunding (or not funding) his shell entities” with the implication being that doing so was to avoid having to pay out legal fees if he lost the lawsuit.

It also pointed out that records show that the original named inventor on the patent, Andrew Silver, who had supposedly sold the patent to Rothschild… had already sold the patent earlier and engaged in other sketchy behavior, such that he probably no longer retained the rights to the patent when he “sold” it to Rothschild:

On April 14, 2008, Table Top Media (“TTM”) purchased the application that would mature into the parent ’007 Patent and said patent’s progeny, including the application that would mature into the Asserted ’083 Patent.

During the prosecution of the parent ’007 Patent, the application was abandoned because Silver failed to respond to an office action (a Notice of Abandonment dated 04/13/2010 stated that there was no reply to the Final Rejection mailed on 02/04/2009).

Silver and Gostanian revived the abandoned ’007 Patent by telling the USPTO that Silver’s former patent agent, Steven McDonald, had “unexpectedly passed away”. ’007 PxHx, 11/9/2010. But Steven McDonald was still alive and assisting Silver with the ’007 prosecution when the patent went abandoned as the privilege logs on the TTM litigation demonstrate…

There’s a lot more in the filing regarding the supposed “death” of McDonald who somehow kept helping Silver with his patents. But more importantly, there’s the issue of who actually owned this particular patent:

On February 19, 2014, Gostanian told the USPTO that Silver was the “100% owner” of the Asserted Patent in order to file a terminal disclaimer and obtain issuance, even though Gostanian and Silver understood that TTM had an “existing contract” and was the owner of the ’083 Patent application.

At the same time that Gostanian submitted the terminal disclaimer to the USPTO stating that Silver owns 100% of the ’083 Patent, Silver and Gostanian were preparing a lawsuit to sue TTM for specific performance because Silver sold the Asserted ’083 Patent family to TTM in 2008.

Mr. Silver submitted a sworn declaration in his lawsuit against TTM stating unequivocally that TTM bought the ’083 Patent family in 2008:

It then shows a bunch of documents, including ones signed by Silver showing that he knows that TTM owns the patent that he later claimed to sell to Rothschild. Oops!

If that wasn’t enough, there was the fact that the patent had expired before Rothschild ever filed. And because the asserted claims were method claims describing things a customer does — ordering, paying at the table — Starbucks couldn’t be a direct infringer at all. The only theory left was indirect infringement, which requires that Starbucks knew about the patent while it was still alive. Which is why Rothschild needed a pre-suit notice date, and why his lawyers’ explanation for the one they used is such a problem. Because it turns out they didn’t actually notify Starbucks while the patent was still valid:

Neither AT nor its counsel has provided to Starbucks or its counsel any support for AT’s Actual Notice Allegation.

On August 2, 2024, counsel for AT emailed counsel for Starbucks and stated, “We can agree to remove that statement [the Actual Notice Allegation] if we cannot provide you proof on Monday [August 5, 2024].”

But counsel for AT did not provide proof of AT’s Actual Notice Allegation on August 5, 2024. And counsel for AT did not remove the Actual Notice Allegation.

On September 5, 2024, counsel for AT admitted in an email that the Actual Notice Allegation was a “misrepresentation” and the result of a “typo/cut and paste problem”

That seems like quite an admission! So the patent expired in November of 2023. The troll claimed that it had notified Starbucks of its alleged infringement in March of 2023. Starbucks claimed they heard nothing until June of 2024. And when Starbucks asked for proof of the supposed notice, Rothschild’s lawyers promised it, didn’t produce it, didn’t withdraw the load-bearing allegation, and eventually admitted it was a “misrepresentation” due to a cut and paste “problem.”

Yikes. And yet, all those other fast food joints settled.

The filing from Starbucks resulted in an article on Bloomberg Law, entitled, “Starbucks Levels Fraud Claim in New Tactic to Fight Patent Suit.” In it, lawyer Rachael Lamkin, who is one of Starbucks’ lawyers and a long-term fighter against patent trolls, is quoted calling out Rothschild’s shell games:

Lamkin said she’s tussled with the prolific inventor for years and has been particularly frustrated by the early settlement offers from Rothschild, which she called “obnoxiously low.”

“The settlement amounts are so low that companies aren’t going to pay attorneys the thousands of hours it takes to catch him at his game,” she said in an interview. “And with Leigh Rothschild, we never get the money because the shells go bankrupt.”

This claim appeared to particularly annoy Rothschild, who turned around and sued Lamkin and Starbucks… for defamation. In Florida. The complaint goes on for a while about what an amazing “inventor” Rothschild is and how important his various patents are… and also about how he’s involved in various charities, claiming that the statement about shell companies and bankruptcies was defamatory. Also, Rothschild claimed that this one quote in a random Bloomberg article caused him — a guy who has been involved in over 1,000 lawsuits — to require special new medication for high blood pressure. Really?

Neither LMR nor any of the companies he is involved with, however, has ever owed any of the Defendants any money for them to “get.”

Moreover, none of the companies LMR is involved with is a “shell” (i.e., a company with no significant assets or operations); instead, each of the companies is a lawful corporate entity with assets, bank accounts, and operations appropriate for its purpose, which in most cases is to own and license valuable U.S. patents.

Further, none of the patent companies LMR is involved with has ever “go[ne] bankrupt.” Acknowledging this fact, Defendant Lamkin stated recently to LMR directly that “before I’m done with you I’m going to bankrupt you,” which evidences her own knowledge contrary to any “bankrupt” entities, and evidences her own bad faith and malevolent intent.

Be careful who you tussle with, however. Lamkin’s answer to the complaint (which includes counterclaims against Rothschild) has some fun statements:

Attorney Lamkin denies that Rothschild “has been an inventor his entire life.”

The answer also argues that the final paragraph above in which Rothschild claimed Lamkin had told him she would bankrupt him was “a fabrication.”

Attorney Lamkin denies that she has told Rothschild, “before I’m done with you I’m gong to bankrupt you.” That allegation is a fabrication. Attorney Lamkin denies the assertion that no patent company owned or managed by Rothschild has ever “go[ne] bankrupt.” Attorney Lamkin denies that she has knowingly made a false statement in connection with the facts at issue in this lawsuit or that she has exhibited “bad faith and malevolent intent.”

Later, in the counterclaims, Lamkin points out the factual basis for her original claims to Bloomberg, detailing multiple cases in which Lamkin represented a company sued by a company controlled by Leigh Rothschild, where, during discovery, it came out that the company had basically no working capital or funding, including examples where Rothschild was ordered to pay fees to the companies Lamkin represented and did not do so.

The most telling is the last one, of a shell company that only had $5 in its bank account:

Similarly, in RCDI, RCDI responded to post-judgment discovery admitting it only had “five dollars ($5.00)” in its bank account….

In short, by Rothschild’s own averred admissions based on his personal knowledge, multiple entities owned and/or controlled by him had little to no assets to satisfy judgments against them. This matches the definition of a “shell” entity that this Court has routinely applied….

The filing also highlights how this defamation lawsuit was clearly ridiculous, given that it included Starbucks as a defendant, even though the only statements mentioned were from Lamkin:

As further evidence of Plaintiffs’ improper motive in using this matter as leverage to settle the E.D. Tex. Litigation, Plaintiffs have sued Starbucks even though the statements at issue cannot be attributed to Starbucks.

The case was handed over to a magistrate judge, who recommended ruling against Rothschild on the defamation claim, finding that the statements by Lamkin were clearly not defamatory.

As framed within the context of the Bloomberg article, the statement is consistent with Rothschild’s reputation within the relevant PAE community. The undisputed facts show that, according to other online publications, Rothschild was described as a “patent troll” who asserted patent litigation lawsuits through his numerous shell companies, and that he utilized shell companies for the purpose of evading fees and penalties…. It is also undisputed that numerous articles, other internet posts, and judicial documents referred to Rothschild’s companies as “shells.”… Based on the undisputed facts, Rothschild’s reputation before Lamkin made her statement was that he created “shell” companies and that he was a “patent troll.” The Court agrees with Lamkin that her statement was consistent with Rothschild’s reputation, so Lamkin’s statement concerning Rothschild’s conduct with respect to PAE litigation does not support a defamation claim.

Imagine being such a patent troll that a court has to say, in effect, “dude, come on, everyone knows you’re a patent troll with shell companies for your trolling” and also “your reputation is such shit already that calling you a troll couldn’t make it worse.”

The court also rejected the argument that saying his companies go bankrupt was defamatory, in part because there’s nothing inherently disgraceful about bankruptcy:

The Court must determine whether Lamkin’s statement concerning Rothschild’s company “tends to” subject Rothschild to “hatred, distrust, ridicule, contempt, or disgrace.”… This Court finds that it does not. Bankruptcy is viewed as a helpful, oft-used tool for individuals or entities experiencing financial difficulty.

And even if both of those rulings were wrong, the court found, Lamkin’s statements were still protected under the First Amendment as rhetorical hyperbole, because you have to read the quote in the context of the whole article it appeared in. Rothschild wants to separate out specific minor inaccuracies (such as whether any of his companies was technically a shell or technically declared bankruptcy). But as the magistrate judge points out, that’s not how any of this works:

… the Court cannot disregard the context in which Lamkin’s statement was made in determining whether Lamkin’s statement was one of fact or one of opinion or hyperbole…. The broader context of Lamkin’s statement within Lamkin’s interview—which was subsequently republished in the Bloomberg article—is that Lamkin and Rothschild (and the entities connected with Rothschild) have long been engaged in PAE legal struggles and that Rothschild’s entities have failed to pay attorneys’ fees in PAE lawsuits. Lamkin and Rothschild have a history of litigation, and Lamkin’s statement that “we never get the money because the shells go bankrupt” stems from Lamkin’s experience in litigating cases against Rothschild, resulting in frustration from the low settlement offers and the inability to collect fees. …These facts are included in Lamkin’s quotes to the Bloomberg reporter. It is clear from the context of the Bloomberg article as a whole, as well as from the context of Lamkin and Rothschild’s litigation history and related experience with each other, that the statement is an opinion and hyperbole…

Indeed, the magistrate’s recommendations were for finding that Rothschild ran afoul of Florida’s anti-SLAPP law and that he should have to pay Lamkin’s legal fees:

In sum, Rothschild’s defamation claim was without merit and arose out of Lamkin’s free speech in connection with public issues. Moreover, Rothschild did not shoulder his burden to show that the defamation claim was not primarily based on First Amendment rights and was not without merit. Thus, Lamkin is entitled to an award of attorneys’ fees and costs against Rothschild under Florida’s Anti-SLAPP statute

Lamkin’s own counterclaim, for abuse of process, didn’t survive either — the court found it barred by Florida’s litigation privilege, and noted that simply filing a harassing lawsuit isn’t “abuse of process” without something more. So the scorecard is technically split, but the part that mattered went Lamkin’s way, along with the fees.

The Article III judge on the case has now accepted the magistrate’s recommendation and thus ordered Rothschild to pay the legal fees (still to be determined).

Under patent law, a judge can award reasonable fees in “exceptional cases.” Indeed, Rothschild was hit with such fees in the past for his trolling. But if you follow that link, you’ll see that the entity in question was RCDI, the company mentioned above that claimed it only had $5 in its bank account. A fee award against an entity that claims to only have $5 is worthless.

That’s what Starbucks was trying to route around by going after Rothschild personally for fraudulent transfer. We’ll never find out if it would have worked: the Texas case ended almost exactly a year ago, with both sides stipulating to dismissal and each eating its own costs. Rothschild then kept the Florida defamation case going for another full year after the fight that produced it was over.

Which means the one thing in this entire mess that looks likely to actually cost Rothschild money is the lawsuit he chose, entirely voluntarily, to file himself.

Filed Under: defamation, florida, leigh rothschild, patent trolls, rachael lamkin, slapp suit, texas

Companies: starbucks