Tree.com fighting to maintain business patents
04/26/2014 12:00 AM
04/25/2014 6:59 PM
Imagine being told the patents on which your business is based are not valid.
That’s the situation Charlotte-based LendingTree, created in the early days of the Internet to help consumers comparison shop for mortgages, found itself in 18 years after the company was started.
Four years ago, LendingTree sued a handful of competitors, including real estate website Zillow, claiming they infringed on patents for the method of matching borrowers with lenders over the Internet. In a setback for LendingTree, last month a federal jury said not only are its patents invalid, but also that the competitors did not infringe on them.
LendingTree has said it believes it has “strong grounds” to appeal. Doug Lebda, the 44-year-old CEO of parent company Tree.com, said appeals can’t be filed until the judge in the case issues final rulings.
Lebda founded LendingTree in 1996. He said he got the idea to make it easier for borrowers to shop around for mortgage rates when he bought a condominium in Pittsburgh and saw how hard it was to compare rates.
In 2002 and 2003, two patents for “Method and Computer Network for Co-Ordinating a Loan over the Internet” were awarded to LendingTree. The patents listed Lebda and his former chief technology officer, Richard Stiegler, as the inventors.
LendingTree filed its lawsuit in 2010. It has settled with defendants Quinstreet and LeadPoint. Besides Zillow, the two remaining defendants in the suit are Adchemy and NexTag.
Industry observers say if LendingTree loses the legal fight, it will face more competitors. If that happens, Lebda said, he’s confident the strength of LendingTree’s brand name and service will help it keep winning business. He also said the patents are set to expire in four years, anyway.
Tree.com has expanded over the years to match consumers with other types of lenders, such as ones offering auto loans. Last year, the company began allowing consumers to shop for reverse mortgages on Lendingtree.com, added the ability to comparison shop for credit cards and relaunched its personal loan product. Tree.com makes money from selling leads to various lenders.
The company employs 189 between its offices in Burlingame, Calif., its headquarters in Ballantyne and people working remotely. The company had as many as 900 employees in 2010, but that has fallen in part after it sold its mortgage origination operation in 2012.
Lebda, who lives in Dilworth, spoke to the Observer this week about defending patents and how the company is doing overall. He said he could not discuss specifics about the pending litigation. His comments have been edited for brevity and clarity.
Q. As simply as possible, tell me what your patents cover.
A. The patent is very specific. It requires a form (that a borrower fills out online), plus filters that are preloaded as (borrower) selection criteria from lenders (and) matching with lenders in a way that banks compete, that lenders compete. So, it really requires all four steps.
Q. What is the first thing a business should do if it thinks someone is infringing on its patent?
A. You write them a letter. You’re essentially putting them on notice that we have a patent and we believe you might be infringing and you try to get a business deal. If you can’t get that, you have to weigh the costs and benefits of the court process.
Q. Any advice for someone thinking about seeking a patent?
A. Keep very good records of everything you’ve done before that process, and get very good legal counsel. And be prepared that it’s going to be probably several years until you get a patent, and it’s going to be a reasonably expensive process, and you’re going to go back and forth with the patent office many times.
Know that a patent is ... a useful shield but it’s not the end-all-be-all. At the end of the day, running your business is a more important factor than having a patent. Even if you get a patent, you still have to defend a patent. It’s not necessarily something that can keep people out of your business forever, and there’s ways to design around it. You can design around a patent and do it slightly differently.
Q. Are you worried about what will happen to the company if you ultimately lose this legal battle?
A. It has zero impact on our business. There’s lots of companies out there doing similar things, and you win everyday not because of a patent. You win everyday because of the way you do your business. We’re doing well because we’re very good at marketing, we’ve got a great brand and lenders love the service we provide. Nobody has stayed out of the business because we had a patent. If our patent went away tomorrow, our business would go just like it has.
Q. So why go through all the time and costs of defending your patents in court?
A. The way I think about it is it’s property. That’s intellectual property. That’s an asset that we own. And we want to protect it.
Q. You sell leads to mortgage lenders. How has Tree.com been affected by the slowdown in the past year of home-loan refinancing activity as mortgage rates have risen?
A. We’re doing great despite the market contracting. We’re adding lenders (to the LendingTree network) at a very healthy clip, I think 50 a quarter. The refi slowdown has certainly made lenders look for new sources of volume. As their (lender) volume has slowed down in the market ... lenders naturally will want more (leads) from us.
In addition to that, the other market dynamic that we’re seeing is credit is starting to loosen a little bit. We’re seeing average credit scores going from 720 to 680. The pendulum really swung to the point of credit standards being too strict, and now I think they’re swinging back.
Q. Some consumers might not want the lenders on your network to have their phone numbers. Tell me about your plan to start masking that info.
A. One of the great things about LendingTree is you fill out a form and your phone rings by five lenders calling you. For some customers that’s overwhelming. We’re going to mask your phone number: When we send your information to the lender, we’re going to send you a LendingTree number. When they call that number, we’ll call you and connect that call.
Q. What keeps you up at night?
A. The only thing keeps me up at night is whether we can actually fulfill the promise of LendingTree. We want this to be something that materially changes people’s lives, consumers lives, and helps them make really smart decisions at a big scale, and we’re still only doing 1.5 percent of the mortgage business. We want to grow. We want to do 10 percent (or more) of the mortgages in the U.S.
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