Replies to post #82140 on e.Digital Corporation (fka EDIG)

[Cassandra]

LGJ: That is a "guest post" written by Paul Schneck on Eric Savitz's blog. Most of the posts on his blog were guest posts: http://www.forbes.com/sites/ericsavitz/. Savitz left Forbes over 3 months ago.

Paul Schneck is chairman of Rembrandt IP Management LLC, which is a PAE/NPE funded by Hedge funds. Of course he's going to defend what he's does. http://www.rembrandtip.com/about.php Hedge-funded PAEs are part of the upcoming FTC investigation. The FTC wants to see how much, if any, of the awards collected make their way back to the original inventors.

In April 2007, an actual Forbes article authored by a Forbes staff writer, called Rembrandt and other NPEs funded by hedge funds "patent pirates." An excerpt:

Paul Schneck has a more audacious plan, buying up patents and launching suits from scratch. A computer scientist who once worked for the National Security Agency, the U.S. Navy and NASA, Schneck heads up Rembrandt IP Management. His $150 million war chest has helped him pick up 200 patents; he is currently suing 15 companies and plans to go after more. “We are focused on obtaining jury verdicts,” he says. “That’s why we put our own money at risk, all the way from acquisition through appeal.”

First target: the cable industry. In 2004 Rembrandt spent $1 million for a patent portfolio from Paradyne, once a unit of Lucent Technologies, in order to challenge the most fundamental part of the cable business: how cable companies and TV networks receive and transmit digital broadcast signals. It has sued Comcast, Time Warner, Walt Disney ‘s ABC and others, all of which deny any infringement. Some defendants claim the technology was set by a group that included AT&T, which agreed in the early 1990s not to assert any patents and to license them for a reasonable fee. “The patent system is designed to allow people to protect the fruits of their invention,” says Daralyn Durie, a lawyer for Comcast. “But this seems to be a perversion of what the system was designed to accomplish.”

Schneck is also going after the vision business, laying claim to the treatment of contact lens surfaces, which determines the gas permeability of soft contacts. He bought the patents from inventor Sing- Hsiung Chang and last year sued Bausch & Lomb and Novartis ‘ Ciba Vision unit. Both companies say that Chang didn’t invent the technology. But Schneck has them seeing double–and tied up in court for years.

Source: http://www.forbes.com/forbes/2007/0507/044.html

Rembrandt is different than e.Digital in that they intend to go the distance to prove infringement and get as large an award as possible. They file bad-faith shake-down suits against dozens of defendants looking for quick less-than nuisance value settlements like e.Digital and Handal are doing. They also don't always win.

Rembrandt lost the cable modem suit: http://www.heavyreading.com/document.asp?doc_id=184209&site=cdn

But won the contact lens suit: http://www.forbes.com/2008/02/11/patents-legal-rembrandt-biz-cz_nv_0212patent.html

Related entity Rembrandt Socia Media, LP, sued Facebook over the "Like" button in Feb. 13 but Facebook's motion to dismiss was granted on June 12, 2013: http://www.law360.com/articles/450127

Ruling: http://scholar.google.com/scholar_case?case=14288467088581045460&hl=en&as_sdt=2&as_vis=1&oi=scholarr

[Cassandra]

PATENT ASSERTION AND US INNOVATION - Executive Office of the President - June 2013
http://www.whitehouse.gov/sites/default/files/docs/patent_report.pdf

FACT SHEET: WHITE HOUSE TASK FORCE ON HIGH-TECH PATENT ISSUES - LEGISLATIVE PRIORITIES & EXECUTIVE ACTIONS
http://about.bloomberglaw.com/files/2013/06/WHPatentFactSheet13Jun4.pdf

Quote from President Obama in bold:

Nevertheless, innovators continue to face
challenges from Patent Assertion Entities (PAEs), companies that, in the President’s
words “don’t actually produce anything themselves,” and instead develop a business
model “to essentially leverage and hijack somebody else’s idea and see if they can extort
some money out of them.” These entities are commonly known as “patent trolls.”
Likewise, the so-called “Smartphone Patent Wars” have ballooned in recent years and
today, several major companies spend more on patent litigation and defensive
acquisition than on research and development.

e.Digital is clearly a PAE/NPE/patent troll. The eVU does not practice the flash patents so does not make e.Digital a "practicing" entity. I find it ironic that the eVU was actually a concept stolen from a baggage handler who came up with the concept and believed e.Digital's good faith in signing a non-disclosure/non-compete agreement when he came to e.Digital to help him build it. He was simply too unsophisticated to know that he should have included which state law would govern the agreement.

Asy yourself- who has benefited from e.Digital's infringement settlements since the initiation of the "monetization" effort? Certainly NOT shareholders who saw the price drop after each settlement was realized. Why wasn't some of the settlement money distributed as a dividend?

By far the biggest individual beneficiaries have been the lawyers, followed by Fred Falk personally as he has been able to maintain a $185,000/year job despite not performing. Arguably the few people employed by e.Digital have benefited as they still have jobs, but I would guess that they could find other employment if e.Digital folded. Allen Cocumelli has benefited by receiving a $5,000/mo retainer to "manage the outside attorneys." Lastly, e.Digital's creditors benefited.

The EDIG stock price came out of the $.03 gutter when the patent monetization efforts were renewed last year and the approval of the Nunchi patents was announced, but it has already substantially re-traced and will likely continue back to the same gutter when it is realized that the settlements in the CA suits are inconsequential.

The share price could severely tank if the patent extortion scheme ever results in sanctions by having been deemed an exceptional case. Watch out for Newegg's motion in the Creative case.

The next business strategy is to monetize Nunchi, probably in the same manner with lawsuits filed solely with the intent of extracting a settlement regardless of whether there is any infringement.

The promise the company appeared to have many years ago when most shareholders first invested hasn't existed for a very long time. Just because the doors are still open doesn't mean shareholders have benefited by being able to maintain hope that someday there will actually be some real value to the company. The stock is so illiquid that exiting is difficult at recent prices. I see EDIG investors as hostages.

The sad reality is that e.Digital is a failed company that resorted to patent-trolling by asserting its patents against companies that don't infringe with shake-down extortion suits. There is nothing to be proud of in that business model.