Weaponizing The Patent System: A Tiny Startup Faces Financial Extinction

Ditto is a 15-person eyewear startup that utilizes remarkable software — a 3D modeling system that  replicates the buyer's face — to let customers try on glasses virtually before purchasing them. Unfortunately for Ditto, its innovative software has put the company in the crosshairs of Glasses.com

Glasses.com is owned by 1-800 Contacts, a much larger online eyewear retailer that recently purchased an old patent from a defunct company (U.S. Patent 7,016,824 covers selling glasses online based on 3D models) and announced its own version of 3D try-on software for glasses - while simultaneously filing a patent-infringement lawsuit against Ditto.  

1-800 Contacts claims that it plans to its own service as an iPad app sometime soon. But this plan was first publicized on April 17, 2013, while Ditto launched its version a year ago. 

David vs. Goliath

"It's a game-changing event, truly. It's terrifying," sighed Ditto CEO Kate Endress. "We've had to stop all marketing, every dollar has to go into this litigation." 1-800 Contacts refuses to license the patent to Ditto; instead it's seeking an injunction to stop Ditto from using the software. The only option, as Ditto sees it, is to lawyer-up and try and win the suit. 

Making things even more expensive, 1-800 Contacts is suing California-based Ditto in its home state of Utah. Whatever the outcome of the suit, the most likely result is the depletion of Ditto's cash reserves and the destruction of the company. 

That's because this battle is far from equal. 1-800 Contacts was founded in 1995 and took off thanks to a partnership with Wal-Mart started in 2008. In 2012 it was bought by WellPoint for close to $900 million. Yeah, that WellPoint, the largest for-profit, managed health care company in the Blue Cross and Blue Shield Association, with revenue in 2012 of $61.7 billion and more than 43,000 employees.

"If we win this infringement case, we're still out the millions of dollars we spent winning. That's why it has become punitive for companies to innovate," Endress said. "The patent systems is structured in a way where it lets corporations act like patent trolls where they can buy things they didn't invent." And in this case, "we are literally going up against a giant corporation," Endress noted. 

1-800-Not-Our-Fault

When reached for comment, 1-800 Contacts told ReadWrite:

1-800 CONTACTS and its Glasses.com division have invested significant time and resources into the development of the interactive try-on platform technology and acquiring the appropriate patent rights to protect it. However, we do not comment on pending litigation.  

1-800 Contacts released a more elaborate statement to the Electronic Frontier Foundation (EFF), which has defended Ditto online: "1-800 Contacts invested significant time and resources to acquire and license the existent patent rights needed to practice its technology. Clearly, Ditto did not do the same."

The EFF was not impressed: "1-800-Contacts says it is not a patent troll. Sure, the company is not a classic patent troll - a shell company that does nothing but buy patents and sue - but it's little better." 

What Makes A Patent Troll?

Could this entire issue be a misunderstanding, where 1-800 Contacts actually spent years pouring money into this concept, only to see a brash startup steal its lunch? Maybe, but 1-800 Contacts' history of aggressive litigation doesn't inspire confidence in that interpretation.

In 2002, the company pursued WellU.com over pop-up advertisements that displayed competitors' products. 1-800 Contacts was granted a preliminary injunction, but WellU won on appeal. In 2008, the company fought with Google over controversial search-related provisions of a Utah trademark law that were eventually repealed. And in 2010, 1-800-Contacts sued Contact Lens King, Inc. over key-word advertising. 

Despite the odds, Endress vows that, "We're going to vigorously defend ourselves. We're so proud of what we built. Maybe we can become cash flow positive and survive." The EFF is asking for help in trying to invalidate the patent in question, but no matter how the legal complications unfold, the road Ditto faces will certainly be long and expensive.

 

Images courtesy of Ditto.