Why would a Delaware company holding several dozen patents — several formerly owned and controlled by a semiconductor manufacturer — suddenly decide to sue businesses that offer their customers access to Wi-Fi?  Because that is where the money is.

Innovatio IP Ventures, LLC is a patent holding company — one that today holds 31 patents, acquired mostly from Broadcom, that generally deal with “wireless local area network” technology most consumers know better as Wi-Fi.  In reality, Innovatio doesn’t really innovate much of anything in the technology department.  It has no products or services for sale.  But it has managed to innovate what critics are calling a “major shakedown” with the help of its law firm to collect royalty payments from companies large and small who find it easier to settle the lawsuits than hire attorneys to defend them.

That may be precisely the business model companies like Innovatio have in mind.

The company is suing coffee shops, grocery stores, restaurant chains, and even individual hotels and motels where Wi-Fi is provided as a customer convenience.  Among the defendants: Hyatt Corporation, Marriott Hotels, Wyndham Hotels and Resorts, Ramada Inn, Best Western, Days Inn, Super 8 Hotels, Travelodge, Caribou Coffee, Cosí and Panera Bread Co., and Meijer, Inc.  Within those lawsuits, hundreds of individual business locations are accused of violating Innovatio’s Wi-Fi patent rights.

But there is a way to make Innovatio, and their attorneys, go away.  Agree to a quick, “one-time settlement” in the form of a “licensing payment” between $2,300 and $5,000 per infringing location.

That’s cheaper than putting an attorney on a retainer and spending several hours contemplating a defense strategy, a fact of life many businesses can’t afford to ignore.

Critics of these patent-holding companies call them “patent trolls” that exist solely to rake in settlement payments on broadly-written patents.  Innovatio’s own lawsuits describe anyone who uses Wi-Fi as a potential violator.  It’s a new tactic for patent attorneys who more commonly chase equipment manufacturers and vendors, not the end users of the technology.  Innovatio has set its sights on smaller companies offering Wi-Fi services, perhaps because some of America’s largest equipment manufacturers, Cisco and Motorola, have deep enough pockets to fight back in court.

Who has even fewer resources to defend themselves against a patent infringement lawsuit mill?  Individual consumers, who technically are also violating Innovatio’s patents just by running a wireless network inside their home.  Innovatio defines that as patent infringement themselves, but benevolently suggests it will not sue ordinary consumers “at this stage” of Innovatio’s “systematic campaign,” reports The Patent Examiner:

“Innovatio has made a strategic and business judgment at this stage that it doesn’t intend to pursue [lawsuits on the basis of] residential use of WiFi,” said Matthew McAndrews, the lawyer representing Innovatio in the case. (The law firm’s offices in downtown Chicago are located about five blocks away from Innovatio’s office. The U.S. Patent and Trademark Office shows another address for Innovatio, in a house at the end of a cul-de-sac in Ladera Ranch, Calif.)

As if to assure anyone who owns a laptop, smartphone or tablet that they’re not in danger of finding themselves in the company’s cross hairs, McAndrews added that he doesn’t “perceive” Innovatio’s litigation strategy changing. McAndrews did not respond to queries about who is behind Innovatio.

But that may not last forever:

McAndrews acknowledged the ubiquity of wireless Internet – likening it to a fundamental utility like gas or electricity – but offered a different perspective on the terms of its use. Ultimately, he said, Innovatio’s “plan is to license this portfolio to the fullest extent possible. That would include anyone who’s wireless networking.”

A ZCom owned Verizon Wireless store in New Jersey

Verizon Wireless executives forced independent authorized resellers of the company’s prepaid wireless service to buy cheap phones and activate them with their own money, fraudulently boosting the number of so-called “new activations” Verizon reports to its stockholders.

That is the chief allegation in a new lawsuit filed not against Verizon Wireless itself, but its largest franchisee, ZCom.

The NY Post reports Verizon Wireless executives who managed independent New York Verizon retailers masterminded the alleged scam by suggesting Verizon Wireless’ biggest franchisee, ZCom, “fraudulently increase the number of Verizon Wireless new account activations through the fabrication of fraudulent prepaid accounts,” the suit charges.

ZCom, which sub-leases authorized retail locations for Verizon products, was the defendant in the suit because ZCom can make or break independent store owners who sub-lease, staff, and manage the retail stores.

Plaintiff Shelly Bhumitra, who sub-leased several Suffolk County stores from ZCom, told The Post he was pressured to fraudulently activate pre-paid phones when a Verizon Wireless executive came to his store with ZCom’s owner, Iminder “Vikas” Dhall.

“They suggested that with our own money we should buy inexpensive phones [not smartphones],” and then load them with $30 of prepaid minutes, he said in an interview.

Bhumitra said he was then told to “give them away as bonus phones” to customers so that when used they would count as new activations.

The store owner said he was also instructed to load prepaid minutes onto phones that customers were throwing away and activate them with fictitious names. He was told to keep them in a drawer and make calls on them once or twice a month, echoing charges in the suit.

A store owner would ultimately earn $55 from each activation — enough to more than make up for the $30 outlay.

The three Verizon Wireless executives outed for allegedly taking part in the scheme have all recently resigned, according to the lawsuit.

Verizon itself is taking several measures to distance itself from the case.  Not being named as a defendant has allowed the company to avoid commenting, claiming it would be “inappropriate.”  The company also canceled its contract with ZCom, which generates $150 million in revenue for Big Red every year and holds the “master lease” to 130 Verizon Wireless stores, which are all over downstate New York.  For now, those store locations will remain open.

ZCom’s lawyer denied the allegations in the lawsuit.

Quarterly financial reports can make all the difference for shareholders who can make or break a stock based on financial results.  Verizon Wireless has had an increasingly challenging time managing to grow its prepaid division, which industry observers say used to charge more than its competitors for no-contract plans.  By inflating the number of new activations in company results, shareholder value is artificially protected.  Store owners can be convinced to play along because of lucrative new customer signing commissions, and to meet required sales targets.  Poorly performing store manager/owners can find their leases terminated and, in a worst-case scenario, the store location itself can be closed.

Bhumitra claims he was intimidated into going along with the alleged scam.

Verizon Wireless has tried to compete more aggressively in the prepaid category in 2011, with some success.  After creating new monthly packages bundling voice minutes with data and texting at lower pricing, the company added 879,000 new prepaid customers in the first quarter, and 1.3 million in the second, the Post reports.

Burlington Telecom offices in Burlington, Vt.

Citibank has sued the city of Burlington, Vt., and the city’s legal firm demanding municipal-provider Burlington Telecom hand back their fiber-to-the-home network and pay damages in excess of $33.5 million dollars.

Citicapital, which owns the equipment that operates Burlington’s community network, says Burlington Telecom has defaulted on their lease payments, and has demanded the city “de-install and return” the fiber network — everything from set-top boxes and in-home wiring to ripping fiber cables directly out of underground vaults and off telephone poles.  Citi also wants BT’s vehicle fleet turned over to them.

Burlington Telecom has been a poster child of poorly-planned and implemented city-owned broadband, and a series of financial and operational scandals led state investigators to consider criminal charges for misappropriating taxpayer funds to sustain the network.  While prosecutors ultimately declined to file charges, the resulting scandal in the mayor’s office has left the city with a network it stopped paying for, and the potential much of it could be auctioned off to the highest bidder, which could turn out to be Comcast or FairPoint Communications.

Citicapital claims the city has not made a direct lease payment since November, 2009.  The bank had been drawing down funds deposited in a special escrow account the city was required to open as part of the lease-to-purchase transaction.  That account has also run dry, and the bank claims it has received no payments since May of 2010.

Citibank’s attorneys filed suit:

“BT continues to use Citibank’s equipment and vehicles unlawfully and without its permission and continues to depreciate the value of Citibank’s assets in order to generate revenue for itself,” the bank’s attorneys charged.

Citibank wants a judge to award punitive damages in excess of its remaining loan balance “because Burlington’s intentional breach of the agreement amounts to a reckless or wanton disregard of Citibank’s clear contractual rights.”

“It’s ironic that a bank that received a taxpayer-financed multi-hundred-billion-dollar bailout now wants taxpayers in Burlington to pay them excessive damages,” shares Stop the Cap! reader and Burlington resident Joe, who shared the story with us.  “I think we should be calling it even after three years of big bank bailouts.”

The lawsuit has city residents worried because attorney fees, and any resulting damages or settlement agreement with the bank, will likely run well into the millions of dollars.  Every month the city remains in arrears, Citibank’s agreement calls for at least $235,000 in missed payment fees and interest.  Taxpayers will likely cover most, if not all of that amount.

“I don’t think anybody should be surprised,” City Councilor Paul Decelles, R-Ward 7 told the Burlington Free-Press. “I always believed this day was going to come. Now we have enormous mess on our hands.”

Citibank wants their fiber back.

Christopher Mitchell from Community Broadband Networks notes Burlington Telecom was an aberration in a country with many successful community-owned broadband networks.

“We have watched in dismay as Burlington Telecom transitioned over the past four years from a model community network to the worst case scenario,” Mitchell wrote on the group’s blog. “This situation proves only that community networks can suffer from bad management in some of the many ways private telecom companies can suffer from bad management (resulting in anything from bankruptcy to prison).”

“Communities can learn lessons from Burlington’s situation — chief among them that transparency is important,” Mitchell observed. “As with other public enterprise funds, the operation should be regularly audited and oversight must be in place to catch errors early, when corrections are easier and less costly.”

Among Burlington Telecom’s problems included overpriced, uncompetitive broadband service that never took full advantage of fiber’s speed and versatility.  Earlier news accounts included speculation BT had trouble securing sufficient connectivity with a backbone provider to sustain faster speeds, but it left the company at a competitive disadvantage against incumbent cable operator Comcast.  Burlington Telecom also failed repeatedly to build community support to establish a firewall against frequent political shots fired at the network as it became a partisan hot potato.

The city promises a “vigorous defense” against the lawsuit, and observers suspect a judge will not order the city to shut the network down, because it would cease the only revenue stream the company generates that could be used to pay a negotiated settlement with the bank.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/WCAX Burlington Citibank Sues BT 9-20-11.mp4[/flv]

WCAX in Burlington explores how much of a case Citibank has in its lawsuit against the city and its attorneys over Burlington Telecom.  (4 minutes)

At least seven states including New York, California, Illinois, Pennsylvania, Washington and Ohio have announced they are joining the Justice Department lawsuit to stop AT&T’s attempted buyout of T-Mobile USA.

The merger has been heavily criticized by consumer groups for its potential to reduce wireless competition and stifle the marketplace with just two dominant carriers — AT&T and Verizon Mobile.  Now several Attorneys General have joined the voices of opposition to the merger.

“This proposed merger would stifle competition in markets that are crucial to New York’s consumers and businesses, while reducing access to low-cost options and the newest broadband-based technologies,” New York Attorney General Eric T. Schneiderman said in a statement.

Washington State Attorney General Rob McKenna said the deal would “result in less competition, fewer choices and higher prices for Washington state consumers.”

“The proposed merger would create highly concentrated markets in Massachusetts and could lead to higher prices and poorer service.” Massachusetts Attorney General Martha Coakley said.

Illinois Attorney General Lisa Madigan said the deal would “substantially lessen competition for mobile wireless telecommunications services in Illinois and across the United States.”

“Blocking this acquisition protects consumers and businesses against fewer choices, higher prices, less innovation, and lower quality service,” Madigan added.

“Our review of the proposed merger between AT&T and T-Mobile has led me to conclude that it would hinder competition and reduce consumer choice,” California Attorney General Kamala D. Harris said. “Enforcement of antitrust law is the responsibility of the Attorney General and is vital to protecting our state’s economic strength and tradition of innovation for the betterment of all Californians.”

Shuler

Although the level of opposition to the transaction continues to grow, AT&T itself claims to remain confident it can push the merger through.

“It is not unusual for state attorneys general to participate in DOJ merger review proceedings or court filings,” AT&T representative Michael Balmoris said.

Several Democratic lawmakers, most of whom receive substantial campaign contributions from AT&T, would seem to underline the company has the support of at least some in Congress.

Rep. Heath Shuler (D-North Carolina), joined 14 Democratic co-signers in a letter sent Thursday to President Barack Obama encouraging him to support the merger deal.

“By settling the proposed merger of AT&T and T-Mobile USA we can put thousands of Americans back to work and promote economic development across the country,” Shuler said. “I urge the President to strongly consider the vast benefits this merger will have on job creation and the economy and quickly resolve any concerns the Administration may have with the proposal.”

Among the co-signers: Rep. John Barrow, Rep. Mike Ross, Rep. Dan Boren, Rep. Dennis Cardoza, Rep. Joe Baca, Rep. Leonard Boswell, Rep. Ben Chandler, Rep. Jim Costa, Rep. Henry Cuellar, Rep. Mike McIntyre, Rep. Mike Michaud, Rep. Collin Peterson, Rep. Loretta Sanchez, and Rep. David Scott.

AT&T currently also has support for their deal from 11 states, many which receive very little service directly from T-Mobile: Alabama, Arkansas, Georgia, Kentucky, Michigan, Mississippi, North Dakota, South Dakota, Utah, West Virginia and Wyoming.

A court hearing is scheduled for Sept. 21 to discuss settlement options.

[flv width=”480″ height=”290″]http://www.phillipdampier.com/video/KFOR Oklahoma City ATT T Mobile Merger 9-19-11.mp4[/flv]

KFOR in Oklahoma City explores the latest developments in the T-Mobile/AT&T merger case.  (2 minutes)

Not satisfied with relying on the U.S. Department of Justice to protect the competitive marketplace for cell phone service, Sprint Nextel today brought suit against AT&T, Inc., AT&T Mobility, Deutsche Telekom and T-Mobile seeking to block the proposed acquisition as a violation of Section 7 of the Clayton Act. The lawsuit was filed in federal court in the District of Columbia as a related case to the Department of Justice’s (DOJ) suit against the proposed acquisition.  It has been assigned to the same judge handling the Justice Department’s own lawsuit — Judge Ellen S. Huvelle.

“Sprint opposes AT&T’s proposed takeover of T-Mobile,” said Susan Z. Haller, vice president-Litigation, Sprint. “With today’s legal action, we are continuing that advocacy on behalf of consumers and competition, and expect to contribute our expertise and resources in proving that the proposed transaction is illegal.”

Sprint’s lawsuit focuses on the competitive and consumer harms which would result from a takeover of T-Mobile by AT&T. The proposed takeover would:

• Harm retail consumers and corporate customers by causing higher prices and less innovation;
• Entrench the duopoly control of AT&T and Verizon, the two “Ma Bell” descendants, of the almost one-quarter of a trillion dollar wireless market. As a result of the transaction, AT&T and Verizon would control more than three-quarters of that market and 90 percent of the profits;
• Harm Sprint and the other independent wireless carriers. If the transaction were to be allowed, a combined AT&T and T-Mobile would have the ability to use its control over backhaul, roaming and spectrum, and its increased market position to exclude competitors, raise their costs, restrict their access to handsets, damage their businesses and ultimately to lessen competition.

Sprint believes that in a marketplace dominated by AT&T and Verizon Wireless, the two largest players would likely collude on pricing and terms of service rather than compete heavily against one-another.  Sprint’s assumptions may already be true, considering both companies largely charge near-identical prices for service.

While Sprint proceeds with its own legal action, squabbling has broken out over whether or not AT&T so carefully crafted the terms and conditions of their $6 billion “breakup fee,” payable to T-Mobile USA if the merger fails, that it almost guarantees AT&T will never have to pay it.

“Under its agreement with Deutsche Telekom, the deal is only valid if the acquisition receives regulatory approval within a certain time frame,” an anonymous source told Reuters. “Also, the agreement could become invalid if regulatory conditions for the sale push the value of T-Mobile USA below a certain level.”

T-Mobile, unsurprisingly, disagrees with that characterization.

A Deutsche Telekom spokesman said Tuesday that AT&T could retreat from the transaction if the concessions necessary to get approval amount to more than $7.8 billion, but added Deutsche Telekom would still be entitled to receive the break-up fee package, which includes cash and wireless spectrum.