Troll Roads

Stephen Korniczky conquered a patent troll—and then made it pay

Published in 2016 San Diego Super Lawyers — February 2016

Growing up, Stephen Korniczky and his brother were close. They competed against one another in wrestling, and squared off in the semifinals of a national judo competition in 1980. Paul, the elder brother, won.

“Our careers are very similar,” Korniczky adds. “We both went to engineering school and then went to law school.”

In 2012, the Korniczky brothers again found themselves in a battle, but this time in the courtroom and on the same side.

Stephen, an intellectual property attorney at Sheppard, Mullin, Richter & Hampton, was defending HTC Corporation, a mobile phone company, from a patent infringement suit brought by Intellect Wireless, which was represented by Niro, Haller & Niro. His brother served as local counsel in Chicago. “I think we were the fifth lawsuit to be filed,” says Korniczky, adding that the earlier suits had all settled with Niro.

The patent in question was for a device that could wirelessly receive pictures and caller information. The purported inventor, Daniel Henderson, CEO of Intellect, filed declaration with the U.S. Patent and Trademark Office in 1993.

“He said in a declaration that he built a working prototype of the invention, and that it was on display at the Smithsonian Institute,” Korniczky says. “This was in every complaint Intellect had filed, yet it looked to us like none of these other defendants had even looked at the prototypes.”

Just three days after Henderson submitted his original declaration, he filed another with some changed specification.

“In litigation I could see filing two declarations, but with the patent office you have a duty of absolute candor,” Korniczky says. “There should be no reason to file a second declaration.”

So Korniczky had the Smithsonian send the prototypes to the four-day trial in 2012.

“What they delivered were a prototype that didn’t work and two mockups, which were hollow boxes with his picture printed on top of it. He had a device that could transmit a signal, but it was akin to a garage door opener; it wasn’t sending pictures or caller ID.” The patents were rendered unenforceable by U.S. District Judge William Hart.

After Intellect lost its appeal in 2013, Korniczky’s firm found out that the attorney who had written Henderson’s patent applications was being investigated by the patent office. He was ultimately disbarred.

“Through the Freedom of Information Act, we sought the discovery of all the documents that his attorney had submitted to the patent office, and there was email correspondence where [Henderson] said his declaration is false,” says Korniczky. “Later, we pursued discovery with the Niro firm. … One of the documents was an email from [Henderson] to the lawyers that says, ‘My invention doesn’t work.’

“Based upon that, they never should have brought the lawsuit.”

Judge Hart ruled that Niro and his partners knew the patents were unenforceable before filing suit against HTC Wireless. In July 2015, they were ruled liable for $4.1 million in attorney’s fees and expenses.

With the case so weak, why did so many companies settle?

“Companies under attack want certainty,” Korniczky says. “They want to focus on their business and are willing to spend money to obtain certainty that they will not be enjoined from manufacturing and selling their products. When a patent troll can keep the price of extortion close to what will be spent in litigation, a settlement can be an attractive business decision.”

That’s why he counsels early, case-by-case assessments and a long-term strategy for companies that are regular targets of patent trolls. “Hindsight is always 20/20 and different companies have different risk tolerances,” he says. “But when I look at the Intellect Wireless case, it seems that a lot of the defendants rolled over too quickly without assessing the merits of the defenses that were available, and missed a major opportunity.”

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