OpenText vs. Box in a Collaboration Patent Brawl

Software patents have been in the news of late. Just this week, the Supreme Court of the United States (also known as SCOTUS) has taken up the subject once more with Alice Corporation v. CLS Bank International. In the world of collaboration, there was also a significant announcement regarding software patents, in this case patent infringement. As part of their ongoing litigation with Box, going back to June of 2013 related to a group of 12 groupware, marketing messaging, and file synchronization patents, OpenText revealed that they would be seeking damages of US$268M. That sounds like a big number but that’s only in addition to forcing Box to stop selling its products. $268 million dollars is nothing to sneeze at but putting a halt to sales is much worse. But wait, there’s more. According to the complaint, OpenText doesn’t just want Box to stop selling their products. They want to them to “recall and collect from all persons and entities that have purchased any and all products”, “destroy or deliver all such infringing products to OpenText”, and “disable all applications providing access to all such infringing software; and destroy all infringing software that exists on hosted systems. Basically, they say they want Box to stop operating.

The defense that Box lays out in publicly available documents is thus: the patents are invalid hence there is no infringement. They claim that the file synchronization patents are invalid due to prior art which means that the technology existed before inventor came up with the idea described in the patents. They also claim that the groupware patents are just ordinary invention and that any competent software engineer could have come up with the idea of combining collaboration applications with a browser delivery model over the Internet.

There are risks here for both parties. A court may find that all of the OpenText patents are either prior art or obvious combinations of prior art. This would invalidate the patents and make for a big win for Box. It would also be a big win for many other cloud technology companies that market similar products. Document collaboration is becoming a major feature of office productivity, enterprise social network, and online file sharing software. Businesses constantly collaborate on content creation, editing, and publishing, and the development of software to facilitate this is on the rise.

It may also be found that all the OpenText patents are valid and that Box is infringing on those patents. If this happens, the OpenText wins big and the court will determine how to compensate OpenText and what to do about the software that Box is selling. OpenText has asked the court to tell Box to stop selling the products it thinks are infringing, effectively shutting down either important features or even the entire business. With so many patents and claims in the mix, however, it’s also possible that the court will decide that Box is infringing on some but not all of the patents. That’s still win for OpenText. They can still claim harm and demand compensation and an order to keep Box from continuing to sell infringing products.

The devastating demand that Box stop selling their product is pretty common language in patent infringement suits. The complainant demands death for the competitor but they end up with a settlement of some sort, often a cross-licensing deal or an on-going royalty payment. A fair monetary settlement that comes short of beating Box to death with a club is in the interest of both parties. In that instance, Box would likely pay royalties in the short term until they could change their product enough that they no longer infringed on the patents. If other technology patent infringement suits are a guide, this is the most likely outcome. On-going litigation, including appeals, only burn cash and harm the market for everyone. It’s in neither company’s interest to have this continue on, especially now that it’s in the open.

The real effect on Box will be to, once again, call into question their viability as a business ahead of going public. They are losing money and now they are getting pounded with an expensive lawsuit. That’s not going to boost their stock price after IPO or raise customer confidence in the enterprise market. That’s a pity since the Enterprise Box product is excellent, combining the kind of features that facilitate document-oriented collaboration. For OpenText,the lawsuit coulr prove to be a distraction both internally and externally. Instead of journalists and analysts talking about their new Tempo line of collaboration products, the news will about this lawsuit. It’s also likely that lots of other companies will start to look for prior art to invalidate the patents if they think OpenText might prevail. A settlement with a royalty stream attached, however, will bolster OpenText’s ability to extract the same compensation from Box’s competitors if they use the same methods. They can effectively slow their competitors’ penetration of the enterprise collaboration market while funding their own entry with the money of their competitors.

That would be a strategic use of their intellectual property portfolio and not just a reflexive move. It might be worth seeing what else OpenText has in its portfolio…