Firm Uses Crowdsourcing to Help Big Company Clients Fight Off Patent Suits

The rise in patent litigation has led to all kinds of interesting business models.

Some of the best known companies are those that have built up huge war chests of patents and then go after companies that refuse to license their technologies. In this group of “non-practicing entities” are companies like Nathan Myhrvold’s Intellectual Ventures; and NTP, the company that successfully sued Research In Motion.

There are other patent-collecting companies that use their patent power to help companies that are already the target of patent litigation. And, of course, there are the armies of attorneys to litigate all the various disputes.

One lesser-known approach is the one taken by Article One Partners, a firm that helps companies being targeted for attack by seeking to invalidate the patents being asserted. Article One does this by tapping a global network of contributors that search for similar ideas that predate a patent — so-called “prior art.” Article One gets a flat fee or subscription from those who seek its services, while contributors that find prior art are given a monetary reward.

While Microsoft has publicly said it is tapping Article One’s services, most of the company’s more than 100 clients prefer not to advertise their association with Article One. That said, the demand for its services is huge, according to Ray Felts, who is president of the company’s North America practice.

“We are assisting clients in the middle of just about every major litigation out there,” Felts said in a recent interview.

To expand its practice and be closer to the majority of its customers, Felts has relocated to Silicon Valley, and Article One has opened an office in Palo Alto.

Although the company’s clients tend to be in high-tech circles such as Silicon Valley, Felts said those that that ferret out prior art have come from all over the world. Some $2 million in rewards has been paid out, he said, with one person in the Southeast U.S. having taken in more than $100,000. The privately held company has been doubling its revenue year over year, Felts said, without disclosing numbers. Its backers include Marshall Phelps, the lawyer that built up the intellectual property licensing businesses at Microsoft and IBM.

Much of Article One’s work is around protecting the makers of products against suits by the nonpracticing entities, such as Lodsys. However, more and more, the company is seeing disputes from one manufacturer suing another.

“You have what we call the circular firing squad of operating companies killing each other,” Felts said.

The mobile industry in particular has seen a surge in such litigation. Of the 250 patent studies that Article One has done for clients, more than half have been in the mobile and wireless areas.

“It’s driving our growth,” Felts said.