Groupon, Yelp Sued by Patent Troll
On November 7, a little known company called Mobile Commerce Framework (MCF) sued both Groupon and Yelp for patent infringement. Groupon, of recent IPO fame, sells coupons for use at local shops, restaurants, even doctors’ offices. Yelp has become something of a democratized Zagat guide, providing information and reviews of local establishments across the U.S. MCF, a vague enterprise based in California, appears to be a patent troll, or in politically correct terms, a patent-holding entity that does not produce any products. MCF alleges in its respective Groupon and Yelp complaints that both of the young, internet-based companies infringed upon Patent Number 7,693,752, owned by MCF. While patent wars among technology developers is nothing new, what is of particular interest in these cases is the breadth of the patent itself and the mobile device industry at large.
MCF’s patent lies square in one of the burgeoning areas of technological development: mobile device-based business-to-consumer communication. MCF’s patent provides them the right to exclude others from business methods that “involve [a subscription-based system for] receiving mobile device user information relating to a geographic location to locate one or more merchants within a subscription-based shopping network . . . .” Simply put, if you have used a smartphone app such as Groupon’s or Yelp’s to locate a merchant in your area, you have relied on the patented technology owned by MCF. The complaints specifically call out Groupon and Yelp for making available applications for a variety of platforms including iPhone, Android, and Blackberry devices.
While Groupon and Yelp are the latest companies to come under attack, they were not the first. In March of this year, Foursquare, a location-based social networking website for mobile devices, was served with a complaint by MCF for violation of the same patent. Most recent news reports on the suit note that Foursquare responded to the complaint on May 13, denying infringement and arguing that the patent is invalid and unenforceable.
How the patent ended up with MCF is unclear from online sources available to this blogger. The patent had been filed on May 26, 2005 by another poorly known company called Hothand, Inc. Hothand’s website indicates that it received this patent on April 6, 2010, the patent itself being titled “Mobile Commerce Framework.” It is important to note that this patent had been filed at an early point in the development of mobile device business methods. In Michael del Castillo’s blog post on Portfolio.com, he points out that the filing of the patent was three years before Groupon existed, four years before Foursquare came to life, and one year after Yelp launched. The patent was awarded well after the launch of each organization.
The issue in this patent battle sets the stage for what may become a vast war of litigation. Here, we find that a surprisingly broad patent owned by what appears to be a non-producing entity can essentially tax the efforts of those who fabricate, perfect, and disseminate a completed product such as Groupon or Yelp. But the breadth of the patent and the trolling of MCF are only the beginning. As PCWorld’s recent article on mobile device patents explains, the sheer vastness of both the number and scope of patents in the cell phone industry make the area ripe for litigation.
Layered in this war is a very lucrative industry with application creators, large and small, contending with trolls and cell phone manufacturers who own a variety of patents over the products and processes of cell phone functionality. For those with deep pockets such as Groupon and Yelp, the odds are good that they can weather the legal and monetary storm against trolls like MCF. Major competitors should also be able to fare better when they attack one another’s patent rights, as their resources can float the investment in these attacks when necessary. Who will end up losing is the next innovator that may want to connect business to consumers via mobile device.
In his October 2nd interview with Maria Bartiromo on CNBC, Google CEO Eric Schmidt said, “We still have a problem in our industry. Too many overbroad patents are being used to shut down other companies. A large company like Google can afford to buy a company like Motorola. But what about a small start-up that finds itself not able to enter a market and create innovation because it’s so patent-full?” Well when it’s MCF versus the innovator of the next mobile consumer device, that innovator may be quite simply out of luck.