Doug Lebda, the chairman, CEO and founder of Charlotte-based LendingTree.com, made a curious statement after losing a patent infringement case against three of his competitors, the most prominent of which is Zillow.
“It has zero impact on our business,” he told the Charlotte Observer.
Lebda’s company has spent four years and millions of dollars litigating the case. Its docket sheet on Pacer has more than 600 entries, which is a lot. Then there are the stakes: LendingTree was seeking more than $150 million in damages from Zillow and its co-defendants, NexTag and Adchemy.
Also, an attorney for the defendants said Lebda broke down on the stand and wept several times during the jury trial. And LendingTree has filed a notice of appeal.
An online exchange where banks compete for borrowers seeking home mortgages, LendingTree sued the defendants in 2010, alleging that they had infringed on Tree’s patented method of using the Internet to distribute borrowers’ electronic credit qualification forms among lenders.
A jury convened at the U.S. District Court in Charlotte returned a verdict in favor of the defendants in mid-March. Not only did they reject Tree’s infringement claims, they found that the two patents at issue weren’t valid in the first place.
The jury concluded that the patents, which were issued in 2002 and 2003, failed to identify the correct inventors.
“Any time you file suit the worst thing that can happen is that your patent is found invalid,” said Justin Nifong of NK Patent Law in Raleigh, who did not play a role in the Tree case.
He added, “I think this speaks toward the general trend that so-called software patents have very serious validity concerns when they’re litigated. They’re getting held invalid for all kinds of reasons and this is just another example in that line of cases.”
An attorney for Tree, Corby Anderson of Nexsen Pruet in Charlotte, declined to discuss the case, and the company’s spokesperson did not respond to a phone message and email requesting an interview with Lebda or a statement on the verdict.
Local counsel for the trio of defendants, Mark Henriques of Womble Carlyle in Charlotte, says Tree’s patents only protected a now-antiquated online lending process, not modern lead generation in which a borrower with an Internet connection contacts lenders simply by clicking on a Zillow ad.
“The way the court defined the patent is based on the fairly narrow process that (Tree) originally envisioned, which is you go online and fill out a complete lending application,” he said. “LendingTree doesn’t even do that anymore. The market has changed since the patent was issued. I don’t think there’s an enormous significance to the patent anymore.”
That could help explain Lebda’s “zero impact” comment. He also told the Observer that the strength of his business lies in its reputation and marketing savvy, rather than its patents.
“If our patent went away tomorrow,” he said, “our business would go just like it has.”
Unfinished business
After its loss, LendingTree filed a pending motion to be allowed to go back and correct the flaws in its invalid patents. The problem, according to Henriques, is that a key inventor’s name was left off the paperwork while a relatively minor inventor’s name was wrongly included.
He and his clients are trying to convince Chief U.S. District Judge Frank Whitney, who is overseeing the case, to deny Tree the opportunity to correct the patents because the verdict does not explain what needs to be fixed. Jurors were simply asked whether the patents failed to identify the correct inventors.
“We don’t know whether the jury invalidated it because one was left off or one was included and wasn’t supposed to be or both,” Henriques said. “We don’t think there’s any way to correct it now.”
He added that LendingTree’s attorneys asked for clarification of the verdict after it was issued but Whitney denied the request, saying that it was too late and they should have sought a more specific jury form earlier.
Both sides also are still fighting over attorneys’ fees, which are significant – the defendants’ fees total about $10 million, according to Henriques.
“It’s been a long, hard-fought case,” he said.
In late April, about a month after the jury verdict, the U.S. Supreme Court tossed aside federal precedent dealing with attorneys’ fees in patent cases. For fees to be awarded, a case must be deemed “exceptional” and it is now up to individual trial judges to make that designation.
Henriques said both sides have petitioned to file new briefs on the fees issue in light of the recent development out of the Supreme Court. He added that Charlotte’s federal court “will probably be one of the first in the country to issue a ruling applying this new standard.”
‘LendingTree’s misleading conduct’
In a post-verdict order, Whitney dealt another blow to LendingTree when he found that the company believed NexTag was infringing on its patents as early as 2004, but had made a tactical decision to sit back and wait another six years to sue.
“In reliance on LendingTree’s misleading conduct,” Whitney wrote in his order, “NextTag sold millions of mortgage leads from the accused system from 2005 through 2010” and invested nearly $100 million marketing its website.
His order bars Tree from recovering on its infringement claims against NexTag, regardless of the outcome of its appeal or whether it is allowed to correct its patents. The order does not apply to Zillow and Adchemy.
- Follow Phillip Bantz on Twitter @SCLWBantz