QUEBEC CITY – A U.S. District Court in California declared invalid a 2004 patent describing a system that allows affiliate networks to establish “virtual affiliates.” Such systems are used by online adult industry networks to pool affiliates under a broad umbrella in order to increase revenues by working special deals with programs that pay higher rates for larger traffic volumes.

Essociate acquired U.S. Patent No. 6,804,660 (“660 patent”), issued to Evan Horowitz and Michael Landau in 2004 by the U.S. Patent & Trademark Office. Essociate claimed the patent gave it ownership of the affiliate-pooling concept and used an intellectual property argument to sue more than 20 companies in the affiliate networking space for infringement. According to media reports, Essociate obtained settlements from most of the defendants by threatening legal action but offering to settle for far less than the defendants might pay in court costs and legal fees.

Companies that engage in such tactics often are referred to as “patent trolls.”

When Canadian affiliate-pooling company Crakmedia declined to settle, Essociate carried through on its threat to sue. The case went to the United States District Court for the Central District of California in April 2014. Essociate alleged willful patent infringement and asked to be awarded damages, lost profits, attorney fees and a permanent injunction.

In January 2015, the District Court issued an order striking all of Essociate’s infringement claims. Crackmedia subsequently teamed with another Essociate target, Clickbooth, to challenge the validity of the Essociate patent based on the U.S. Supreme Court’s June 19, 2014, decision in CLS Banks v. Alice Corp. In that decision, the court ruled abstract concepts outlining digital implementations that might be possible did not qualify for patent protection.

The District Court that heard the case sided with Crakmedia and Clickbooth, declaring Essociate’s patent invalid.

“Crakmedia respects and believes in intellectual property rights, but we were determined not to give in to a frivolous lawsuit,” co-CEOs and co-founders Nicolas Chretien and Xavier Farooghi said. “We did not infringe Essociate’s patent, and we never believed Essociate should have been allowed to patent the concept of affiliate pooling.”

Crakmedia was represented by Ben M. Davidson of the Davidson Law Group in Los Angeles.