Twitter accused of patent infringement by IBM ahead of IPO

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Twitter accused of patent infringement by IBM ahead of IPO
International Business Machines Corp's patent demand against Twitter Inc as it approaches an initial public offering highlights how few patents the social media company possesses compared with the established tech players.

IBM has accused Twitter of infringing three IBM patents, one of which relates to online advertising, according to a Twitter securities filing on Monday. Twitter said it has "meritorious defenses" to those claims, and IBM has not filed a lawsuit.

A Twitter spokesman declined to comment beyond the filing, and an IBM representative also declined to comment.

Long a prodigious stockpiler of intellectual property, IBM currently holds nearly 87,000 U.S. patents and published applications, according to a government database. Twitter, meanwhile, has only three. This suggests that the legal maneuvers involving IBM and Twitter will increase the pressure on Twitter to buy more patents, in order to build its leverage against older tech companies, patent experts say.

"It's not about the patents, it's about signaling to the market that you have a strong position so people don't line up to sue you," said Ron Laurie, a specialist in IP and investment banking for Inflexion Point Strategy.

Patent claims against companies approaching an IPO are relatively common, as plaintiffs hope the need for a target company to minimize risks might force a lucrative settlement. In September, Twitter was sued twice for patent infringement the same week it announced its plans to go public, according to records maintained by Westlaw, a Thomson Reuters unit.

Twitter raised the top end of its IPO price range by 25 percent on Monday, to $23 to $25 per share.

Last year Yahoo Inc sued Facebook Inc for patent infringement two months before Facebook's IPO. Yahoo eventually withdrew the lawsuit after a new Yahoo chief executive took over.

However, Facebook ramped up a patent-buying spree shortly after the lawsuit was filed. Facebook bought 750 patents from IBM for an undisclosed sum, and then paid Microsoft Corp $550 million for hundreds of patents that originated with AOL.

Leading up to its IPO, Facebook had disclosed 559 U.S. patents and applications. The company currently owns 2,151 patents and applications, according to the government's database.

Twitter has been vocal in the ongoing debate over how strong patent protections should be when it comes to software. Last year the company announced that it would not use patents for offensive purposes without permission from the employee who invented the technology. The company would only use patents defensively, it said, which means the patents could be used to countersue anyone who had struck first.

While the specific patents cited by IBM may not stand up in court, it is the threat from a company with so many resources that affects Twitter.

"It may turn out that these patents, under close scrutiny, are not terribly impactful," said Sanjay Prasad, an intellectual property consultant in Silicon Valley. "But there's a different issue of public perception, and in an IPO that can be important."

© Thomson Reuters 2013

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