The Sydney Morning Herald is carrying a story entitled “The fine art of patent trolling”, which focusses on Forgent Networks Inc. Forgent is perhaps best known for its 2004 litigation against 31 companies, including Apple, Microsoft and Adobe, alleging infringement of a patent covering the jpeg image compression algorithm. That suit is still pending, but has so far netted a significant sum in settlement payments from some of the respondents.

The article states: “With a skeleton crew of 30 employees and the help of a law firm, Forgent has built a business out of suing – or threatening to sue – companies, even though it offers no related products and does no development of the technology itself.” Or as Forgent puts it on its website:

When Forgent went through a restructuring several years ago, it leveraged its expertise in these areas to form an intellectual property and software company. The company began a review of its patent portfolio at the time of this restructure.

In 2001, Forgent retained Jenkens & Gilchrist, a national law firm, to assist Forgent in protecting its intellectual property from infringement through licensing and, if necessary, litigation, including those claimed in U.S. Patent No. 4,698,672 (the ‘672 Patent). …

In 2005, the company expanded the intellectual property program and Godwin Gruber LLP was retained to assist Forgent in protecting U.S. Patent No. 6,285,746 (the ‘746 Patent).

In February, the USPTO announced that it would be reviewing the ‘672 (jpeg) patent, a move which cut almost 40% from Forgent’s share price overnight–hardly surprising, as that patent amounted for about 87% of its income in the most recent quarter. Yahoo reveals that there has been no reportable insider stock purchases since the share price crashed.

Forgent’s latest 10-K filing also reveals some interesting information:

In October 2004, Forgent terminated Jenkens & Gilchrist (“Jenkens”), who previously served as lead counsel in the litigation of the Company’s U.S. Patent No. 4,698,672 (the “’672 Litigation”). In December 2004, Forgent entered into a Resolution Agreement with Jenkens, paid Jenkens $1,000[,000] and agreed to them pay 50% [sic] of the first $6,000[,000] in gross recoveries received on or after October 27, 2004 and 10% of all gross recoveries received thereafter.

In January 2005, Forgent engaged Godwin Gruber, LLP (“Gruber”) to represent the Company as lead counsel in its Patent Licensing Program. Under this agreement, as amended in May 2005, Forgent agreed to pay Gruber a contingency fee of 22% of all license and litigation proceeds, net of expenses, once total proceeds from licensing and litigation exceed $6,000,[000] and a fixed monthly fee of $200,[000] for time incurred. In October 2005, Forgent terminated Gruber and engaged Susman Godfrey, LLP (“Susman”) to lead its Patent Licensing Program. Forgent agreed to pay Susman 33% of all net proceeds received from licensing and litigation once Forgent receives $6,000,[000] in gross recoveries received on or after October 27, 2004. Additionally, Forgent agreed to pay Susman a fixed monthly fee of $116,[000] for time incurred. (note – square bracket amounts added because figures in the 10K are in thousands of dollars, other than share price)

The 10K also notes: “The U.S. ‘672 patent expires in October 2006 and its foreign counterparts expire in September 2007. Revenues from this patent are finite and, if such revenues are not replaced, net income and the market price of Forgent’s common stock will decline following the expiration of the ‘672 patent or the resolution of the ‘672 Litigation.”