A Big Blue Point for the Little Guy
When inventor Jeff Conklin took on IBM in a patent dispute, the tech behemoth played hardball, then blinked

APRIL 5, 2006
By Steve Hamm

Sometimes the little guy wins -- or at least walks away with a settlement. Boston inventor Jeff Conklin, who holds patents on technology for business-to-business Web sites, announced Apr. 4 that he had reached a settlement in a long-running dispute with IBM (IBM ). "I want to encourage others with vision to stick it out," says Conklin, whose one-man company, Sky Technologies, battled Big Blue since 2003. "You can beat the biggest and the baddest."

Conklin had accused IBM of patent infringement, breach of contract, and misappropriation of trade secrets. Under the settlement terms, IBM agreed to license Sky's technology, which allows buyers and sellers of goods to negotiate, exchange information about products, and order samples online. Financial terms weren't disclosed. The case was settled over a month ago, just days before a trial was to begin on Mar. 14.

IBM confirmed the settlement, but wouldn't give its reasons. "It's over," says an IBM spokesman. "IBM didn't admit any wrongdoing." The company is known for rarely settling intellectual-property cases.

PATENT CONCERNS.  Conklin had already won settlement of a related case against supply-chain software maker i2 Technologies, and the IBM outcome strengthens his hand if he presses similar claims against other companies. He's represented by Max Tribble of Susman Godfrey, a Texas law firm with many IP victories notched on its belt. "This is a vindication that Sky has real intellectual property that's valuable, and says that anybody who infringes against its patents does so at their own risk," says Tribble.

The settlement comes against the backdrop of increasing scrutiny of technology patents issued by the U.S. Patent & Trademark Office, as well as the companies that amass patents in hopes of extracting licensing fees. On Mar. 29, the Supreme Court heard arguments in a case pitting online marketplace giant eBay against small-fry MercExchange (see BW Online, 3/30/06, "eBay Takes on the Patent Trolls").

That followed the settlement between Research In Motion (RIMM ), the maker of the popular BlackBerry wireless e-mail device, and a small company that claimed ownership of crucial technology used in the devices. Critics have charged that USPTO procedures for awarding software patents are flawed, and they're calling for an overhaul of the agency (see BW Online, 1/13/06, "A Code Catalog for Software Patents").

DIGITAL PIONEER.  Conklin's patents seem to be on solid ground, however. While IBM challenged them in court, it says it didn't take its case against them to the USPTO. The patents include systems for online negotiations and data-sharing. A friend of Conklin's who's a corporate litigator says this was an unusual case. "This is one of those rare stories of the inventor finally getting his due," says Turner Smith of the New York firm of Curtis Mallet Prevost Colt & Mosle. "IBM and other big tech companies are prone to fight these kinds of claims, and they have deep pockets. It's unusual for an inventor to have the resources and dedication to prevail."

Conklin is no ordinary inventor. From 1979 to 1993, he was a legal counsel and technology strategist for Digital Equipment. Among other things, he structured and negotiated the first 64-bit semiconductor licensing agreements. He later co-founded a technology M&A advisory firm before starting TradeAccess. In 1996, he and the outfit's engineers came up with core technologies for online marketplaces. The company's name was later changed to Orzo and then Sky Technologies.

In the late 1990s, online marketplaces were all the rage, and many tech companies were building marketplace software. However, by late 2000, the air was going out of the dot-com bubble, and Sky was struggling to stay in business. According to Conklin's lawsuit, Sky and IBM began talking about a licensing agreement -- and an investment by IBM. In the summer of 2001, Sky showed some of its intellectual property to IBM.

WORST DAY.  Then, suddenly, the deal was off. On Aug. 1, Joel Farrell, a software architect for IBM, called and left a message on Conklin's voice mail telling him IBM had decided not to make the investment. According to a recording of the voicemail heard by BusinessWeek Online, he left open the possibility that IBM might still license the technology. He called the technology "strategic" but said IBM was concerned about the risks of investing in Sky.

IBM never called back, according to Conklin's suit, but negotiation technology later showed up in the company's WebSphere software. The suit claimed that IBM misappropriated information it had gleaned from Sky during the discussions.

Conklin describes the day of Farrell's call as the worst of his life. "I never heard from them again," he says. "It was a bitter pill to swallow." Because Sky was out of money and wouldn't be getting a cash infusion from IBM, Conklin had to fire the company's 45 employees -- without any severance benefits. During the company's liquidation, its venture capitalists took ownership of the patents. Conklin later bought them back, and spent the next four years pressing his case.

BATTLING ON.  He describes it as a torturous experience. IBM's outside attorneys deposed him for 94 hours over 20 days. "It was hell on earth. It was an inquisition. They accused me of lying, fabricating, and misrepresenting. They kept pounding on [my] company being a failure," he says. "It's a technique you would use to break somebody's spirit. It's unconscionable."

IBM denies that it looked at Sky's technology secrets. The spokesman says he doesn't believe there were any further discussions with Conklin after the message breaking off discussions. He denies that IBM's lawyers treated Conklin unfairly during the deposition process. Typically, in depositions of this type, different people from each side handle different parts, he says. In this case, Conklin himself answered all of the questions. "They could have selected other people, but they chose him," the spokesman says.

After the settlement, Conklin rewarded himself with an eight-day skiing vacation in Utah. He plans on pressing his cases against other tech companies and, perhaps, writing a book about his experiences.

"I believe in innovation and entrepreneurship, and think it's in short supply these days," Conklin says. In cases like this, the plaintiff gets the last word.

Hamm is a senior writer for BusinessWeek in New York

© 2006 Sky Technologies LLC Website by IX Interactive