(Bloomberg)— Groupon Inc. built its online coupon business on the back of International Business Machines Corp.’s e-commerce inventions without permission, lawyers for IBM said at the start of a federal trial seeking damages for patent infringement.
IBM is asking jurors to award the company $166.5 million for using four patented technologies. That figure is expected to be a point of contention throughout the trial in U.S. District Court in Wilmington, Delaware.
John Desmarais, a lawyer for IBM, said Chicago-based Groupon arrived “relatively late” to e-commerce and piggybacked on existing technologies. Many companies, including Amazon.com Inc. and Facebook Inc., have bought licenses to use the company’s patented technology, while Groupon hasn’t, he said.
“The new kid on the block refuses to take responsibility for the technology it’s using,” Desmarais said. “IBM spends literally billions of dollars every year on research and development to make our lives easier.”
David Hadden, a lawyer for Groupon, said IBM doesn’t use the patents in question, which he says are invalid. IBM uses its “huge stock” of patents “as a club” to ensure that any company doing business on the web must go through IBM, he said.
“We are here because IBM has another business, a business it doesn’t talk about in its TV commercials,” Hadden said.
The case will be closely watched in the online advertising and marketing sector. At least 10 companies — including Go Daddy Operating Co. LLC, LinkedIn Corp. and Twitter Inc. — intervened in the suit asking to protect information related to prior IBM patent deals.
Two of the patents, one of which expired in 2015, came out of the Prodigy online service, which launched in the late 1980s and predated the web. Another, which expired in 2016, is related to preserving information in a continuing conversation between clients and servers. The fourth patent is related to authentication and expires in 2025, the latest among the case’s patents.
Armonk, New York-based IBM reached a confidential settlement in December 2017 with Priceline.com, part of what now is called Booking Holdings Inc., on three of the same four patents. U.S. District Judge Leonard Stark, who is also presiding over the IBM-Groupon trial, ruled in October that Priceline didn’t infringe the fourth patent. IBM appealed to the Federal Circuit. IBM is appealing.
IBM has won the most U.S. patents in each of the past 25 years, including a record 9,043 in 2017. The company reported $1.19 billion in intellectual-property licensing revenue in 2017.
IP licensing contributes less than 2 percent to IBM’s revenue, but is a high-margin business for the company, according to Matt Larson of Bloomberg Intelligence. He views the case as a proxy for failed licensing discussions dating to 2011.
The trial “will likely serve as an important bargaining chip to arrive at a larger licensing deal,” Larson said. The dispute “tests the value of IBM’s patent portfolio,” and with relatively flat licensing revenues over the last three quarters, he said “a deal with Groupon could go a long way in growing that high-margin business.”
A Groupon victory, Larson said, “could challenge IBM’s ability to renew existing deals once they expire.” The case’s outcome, he said, “could have implications for the intervenors listed or others that IBM may try to work with moving forward.”
The case is International Business Machines Corp. v. Groupon Inc., 16-cv-122, U.S. District Court, Delaware (Wilmington).