How a patent lawsuit was used to inflate penny stock

The newswires and stock blogs have been all-abuzz in the past month about a patent lawsuit filed by Wordlogic against Mercedes Benz. What follows is one financial newsletter's review of the case and their recommendation to BUY because Wordlogic is going to win hundreds of millions of dollars from MB, and then sue everyone else as well. I am dubious - the patent could have serious validity problems because of non-cited prior art. The patent involved, U. S. Pat. No. 7,293,231, is for a predictive text algorithm, that is as you type the first part of a word, the computer automatically offers one or more full words that could be what you have in mind. I type in "predict" and the computer automatically returns "prediction, predictive, etc.". Cute feature in some cases, aggravating feature in other cases. The following stock tout is interesting for its cheerleading wording, its use of patent lingo, and calculation of patent damages, which while I think are exaggerated, look like some of the patent damage calculations proposed in "legitimate" patent lawsuits. It is entertaining reading, and good copy if you want to tout your patent lawsuit in the future. A pity the tout ignores serious prior art problems with the patent. As of June 2008, WordLogic had retained Dan Skerritt of Tonkon Torp (Portland), a litigator whose big win seems to be one of those state lawsuits against the cigarette companies. I hope he understand prior art in the patent world. Also in June, WordLogic retained the services of Ascend Ventures, to help exploit its patent. The patent cites a fair amount of patent and non-patent prior art: 119 U.S. patents and patent applications, 15 foreign patents. While it cites a lot of non-patent prior art, only 10 are one year or more prior to the provisional filing date of March 1999. Since there has been two decades of research prior to the filing in this area of user interfaces, this patent could have invalidity problems, once Mercedes-Benz throws some good money at a prior art search. This potential problem is not mentioned at all in the tout below, one reason I am suspicious of its logic. The second problem is that there an Acacia subsidiary, Autotext, which has a lawsuit against 12 companies over a much earlier patent, 5,305,205, that is similar to WordLogic's patent (more primitive maybe, but raises 103 issues definitely). And this patent is NOT cited by Wordlogic's patent, raising invalidity issues of what other patent prior art Wordlogic missed finding, let alone what other non-patent prior art Wordlogic missed finding (I am available to do the search :-) Let's look at the key aspect of Wordlogic's independent claim 1:

(a) receiving a partial text entry comprising at least a first character (b) in response to receipt of the first character ...., obtaining a dynamically generated list of completion candidates .... (c) displaying the list of completion candidates in a search list

The rest of the claim is utterly obvious graphical user interface methods to ask the user if she wants to ignore the list, or choose one of the proposed words to be entered into the appropriate field. Now, let's look at the key aspects of Acacia's 5,305,205 patent not cited as prior art:

(b) list means responsive to the entry of a succession of characters by said entry device on a character by character basis for determining a succession of ordered lists of candidate words from said vocabulary words, .... (c) display means for displaying at least a portion of said list on said display screen, ...

Not that hard to map the three phrases from the WordLogic patent into the three phrases from Acacia's patent, suggesting that WordLogic has serious patent validity problems, especially if additional prior art searching is done. Supposedly WordLogic has a second patent about to issue, probably a continuation where they submitted additional prior art. But if such art included the Acacia patent, the second patent is proof not of WordLogic's innovation, but rather more proof of patent quality problems at the PTO. So when Frank Evanshen, president and CEO of WordLogic is proclaiming:

"The time has arrived for this company, its products, and its patents to be put on the world stage."

I can agree if the stage happens to be at a world comedy theater. On January 20th, 2009, WordLogic announced a comprehensive technical and financial review is being done of the patent, to be finished in a month. Without a rigorous prior art analysis, this review will be worthless. Indeed, the report is available at www.wordlogic.com/WordLogicReport.pdf, a report which is worthless for ignoring the prior art problems this patent probably has. Thus the following stock tout is a good example of a) patent lawsuit based stock touts you will see more and more in the future, and b) the dubious nature of many such stock recommendations if they aren't written by one or more people who know the stock markets, technology and patent claim analysis. Now, "Wall Street News Alert"- The Stewart Report Investment Opinion German Engineering Has the Respect, But WordLogic Holds the U.S. Patent. Laguna Beach, CA, January 23, 2009 - To most investors, WordLogic (OTC/BB: WLGC $0.80) is a cutting-edge software technology company... and I won't argue with that assessment. But, for our purposes, it's a pregnant win in the form of a giant lawsuit. Very recent events, not yet digested by the financial community, suggest this lawsuit is worth $12-$18 per share, yet the stock is still under a buck. Speculating on the outcome of a lawsuit might not seem like the highest of ambitions - the Wall Street equivalent of ambulance chasing - until you realize the value of the technology relative to the probable value of the suit itself. As for the defendant? It's none other than Mercedes-Benz of North America, meaning that this particular "ambulance" is stacked with enough $100 bills to pass for an armored Brink's truck. Besides, the technology being contested is so integral to modern daily life that you probably used it a couple times today before you even got to work. So did your kids. In fact, if you received this stock recommendation on your Bluetooth, Blackberry, iPhone or some other handheld device - or even if you got it via e-mail on your desktop - it's likely you used WordLogic's technology to open this profile on WordLogic itself. That's because most of today's personal electronics employ a "predictive text" program - i.e., the technology on your text-messaging program that finishes the word "message" before you finish entering the letters "mess" Actually, though, WordLogic's technology is to simple predictive text-messaging software what chess is to checkers. Horizontal logic is no big trick. It's the ability to bridge upward to access all kinds of specialty dictionaries that makes WordLogic's technology so patently unique. In terms of vertical growth, if its intellectual property was a building, we'd be looking at The Sears Tower. The software really is dynamic. But, again, the important thing is that it's also heavily patented - and the patent has been so heavily infringed on that triple damages are now being sought. If the adage is true, if "imitation really is the sincerest form of flattery", then the same thing could probably be said of plagiarism - or even the outright piracy of an intellectual property. My point being, if WordLogic's technology is good enough for Mercedes-Benz, it's probably very good technology! Beyond that, the techno-members of a wireless generation who live and breathe ethers of the Internet would be the ones to best explain WordLogic's software. No, my assigned role here is to offer The Stewart Report's investment opinion, in part because I've twice used the stock market to speculate on the outcome of David v. Goliath-type lawsuits similar to this - and twice I scored some fairly bodacious profits. I also have a 50 percent interest in Stewart/Abbott Medical, a privately held company with a technology that's patent pending, so I have a modest knowledge of patent law and the hurdles of the patent process. And, finally, the last stock The Stewart Report featured using the ---- service (Applied Nanoscience, Inc.: Pink Sheets/APNN) more than doubled in just four day's time. A little profit-taking set in after that, but it's still up a respectable 84.6 percent. Bragging rights aside, APNN is a "patent technology pure play." Bottom Line: WordLogic is also a "patent technology pure play", but with a wonderful wild-card twist: Massive, winnable litigation for treble damages! Ridiculous sums of money are up for grabs - and I believe that, one way or another, WordLogic will prevail. The adage is: "If you know the ropes, you are less likely to hang from them." Frank Evanshen, WordLogic's President and CEO, understands this. So he also understands that if you are to go up against an army of German lawyers, deep pockets can be helpful. Accordingly, selling the Company - and therefore the patent, the lawsuit and the future payday for a large fraction of its long-term value - is always a viable option. That makes WordLogic an obvious buyout candidate as well. So, whether it's in the courtroom or the conference room, shareholders have an intriguing situation that's already in play, and is the basis for The Stewart Report's strong speculative BUY Recommendation at this time. United States Patent No. 7,293,231 Everything centers on WordLogic's patent. The original application is titled: "Data Entry for Personal Computing Devices." Read that twice, consider the day and age in which we live and then tell me this isn't an important patent. You might also take a look at the link on the Company's website and view the patent documents themselves. In them, you'll notice that the Company makes 116 separate claims (all of them were approved!) and survived seven separate "Office Actions" (which is almost unheard of). See below: NOTE: If you are unfamiliar with the patent process, an Office Action is filed when the patent people come back to you with a complaint and/or a request for additional proof to substantiate your design claims. Usually, in all but the most important patent applications, after one or two Office Actions, a patent is either approved or sent to the shredder. Surviving so many claims is evidence of a patent application that has been thoroughly tested because it's truly far-reaching - If not all-encompassing. In other words, what we're talking about here is an honest-to-goodness "Platform Technology", such as DOS, on which Microsoft was built. These are, of course, rare - and tend to be wildly valuable.