Why one software CEO agreed to meet a patent troll—and then fought it to the end

When the business software company Pegasystems got sued in 2013 by a mysterious shell company called "YYZ LLC," Pegasystems' head of IP licensing, Ayaz Hameed, got ready to tell his boss that they had been hit by a patent troll.

Hameed looked at the two patents in the complaint (PDF), numbered 7,062,749 and 7,603,674, and read their examination histories. The patent focused on creating "monitoring messages" and storing them into a central database using what's called a "message broker."

"There was nothing earth shattering about what he [the inventor] said," concluded Hameed. It also didn't come close to describing how the accused software, Pegasystem's SmartBPM Suite, worked. Hameed began the unenviable job of telling Pegasystem's CEO and founder, Alan Trefler, that the company and his life's work had been hit with a low-value patent suit—from a "company" they'd never heard of seeking a quick payout.

It's an all-too-familiar story for software companies. The most surprising thing about the YYZ lawsuit was that it was Pegasystems' first. By 2013 when the suit was filed, Pegasystems was one of the biggest companies building business-process and customer relationship software.

But Trefler's response was unexpected. "Why don't we talk to the guy and explain to him that we don't infringe?" Hameed recalled.

"From everything I’ve heard about patent licensing entities and patent trolls, I thought, 'it's not going to work,'" Hameed said. "But why not give it a shot?"

The thinking was that perhaps in a one-on-one meeting, inventor to CEO, cooler heads would prevail. "I tend to be fairly optimistic in my views of humankind," said Trefler in an interview with Ars. "I always think there’s some chance."

Meeting in Cambridge

The lead inventor on the patents and apparent owner of YYZ is Vincent Cyr. He founded an IT services firm called Promenix in 1997, and it was sold a decade later. The patents were spun out into YYZ.

YYZ's lawyer had already reached out to tell Hameed that IBM and Oracle, two software giants who compete with Pegasystems, had already paid for licenses to the patents. "They told us, if we wait longer, it will go up in price," said Hameed, who wouldn't say what YYZ's cash demands were. "Typical troll tactics."

Cyr came to Pegasystems' headquarters in Cambridge, Massachusetts with his lawyer. They spoke with Trefler and Hameed for over two hours, with Trefler—whose knowledge of Pegasystems' products goes back decades—trying to explain how the concepts in the patent were far outdated by the time it was filed in 2000.

"Some of the principles they had patented were ones I had been involved in implementing," said Trefler. "Messages brokers," for instance, are middleware systems that have allowed computers to talk to each other and have been in operation for decades. In Trefler's view, the concepts in the patents date to at least the 1970s.

Cyr was respectful and not rude, but during the meeting it became clear that he and his lawyer, Julie Chovanes, weren't interested in the merits of the case, Hameed said.

"I asked [Chovanes], 'What do you mean by 'message broker?' and she said, 'We'll make it mean whatever it needs to mean for us to win this case,'" he said. "That's not something that someone who's interested in the technology would say."

Trefler also thought Cyr and his lawyer had earlier expressed a "bona fide interest" in hearing their position on how Pega's technology differed from what their patent described. The meeting left him disappointed and determined.

"The conversation kept coming back to 'if you pay us this much, we'll go away,'" Trefler said. "I concluded that was two hours of my life I'm not going to get back."

Perhaps early engagement from Trefler made Cyr, other YYZ investors, and his lawyers think they were likely to get such a payoff, but it had the opposite effect. Trefler became more energized to win a complete victory over the YYZ patents—even though millions in potential damages were at stake.

"He [Cyr] seemed sad to be doing what he was doing," Trefler said. "He would have been happier running a business instead of an NPE [non-practicing entity], but for whatever reason, he had decided to take this path. I encouraged him to recapture the work he had done earlier."

Cyr, who runs a real estate business in his home state of Pennsylvania, wouldn't discuss the meeting with Pegasystems or anything else about the YYZ litigation. "Whatever anybody wants to write, I can't stop you," he said when reached by telephone. "I have nothing to say at this point in time. I may be involved in an appeal."

Cyr also wouldn't say what the name of his company, YYZ, meant. "It's letters—we put the company together to hold the patent," he said.

Fighting a system in “moral decay”

Hameed arranged for two steps to keep costs low while the company litigated the case. First, Pegasystems would become part of a joint defense group that included other companies sued by YYZ: Hewlett-Packard, Adobe, Software AG, and BMC. Those five companies shared experts and prior art searches.

Some aspects of the litigation, including much of the electronic discovery, were handled in-house using Hameed's own IT team. He also hired the Pittsburgh-based Webb Law Firm on a recommendation from Newegg Chief Legal Officer Lee Cheng, who has used the firm for high-stakes cases against other patent trolls.

Ultimately, BMC and Software AG ended up settling out of the case, which was a surprise to Hameed and his team.

During the course of the case, the Supreme Court issued its opinion in last year's Alice Corp. v. CLS Bank decision, a landmark patent case that has made it much easier to knock out software patents that are abstract. As courts began interpreting Alice as a mandate to kill many types of "do it on a computer"-type patents, Hameed got more confident that his team was going to beat YYZ, perhaps even before a trial.

On October 8, the company won a total victory. In a 22-page opinion (PDF), US District Judge Sue Robinson found that YYZ's patents were abstract and unable to pass the first test of patentability. YYZ lawyers claimed that their patents "use a very specific set of technologies and invented a set of solutions to problems that existed in very specific technological environments," but Robinson saw it as routine functionality dressed up with computer language.

"To broadly claim a method of accomplishing routine functions requires more than just an 'apply it' directive, even in a specific technical environment," wrote Robinson. "A component that 'can be configured' to perform the claimed function is neither sufficiently described nor sufficiently innovative" to warrant getting a patent.

YYZ has until next month to decide whether it will appeal, and Hameed is expecting that the company will. Meanwhile, Pegasystems is going to request its legal fees get paid—something that has also gotten easier because of Supreme Court precedent.

Hameed and Trefler declined to say how much Pegasystems spent on defense, although they acknowledge that the legal bill was likely higher than what the company could have settled for. Like many other tech companies, Pegasystems has advocated for legislative change to the patent system as well.

For 59-year-old Trefler, a former chess champion and the son of a Holocaust survivor, taking on these cases is a simple matter of being a responsible member of the industry.

"Nothing can be worse than encouraging these sorts of suits," he said. "As someone who’s always prided himself as being an engineer and an inventor, I think it is disrespectful to both of those professions to engage in or support frivolous patents. It's disheartening to see the moral decay of the patent system."