Twilio, Inc. is a cloud communications company that earlier this year raised $100 million in funding, a figure that placed it in the Unicorn Club—those startup companies with valuations over a billion dollars. Twilio has made a name for itself as a cloud-based communications platform.
But Twilio faced a problem when it was sued by competitor TeleSign Corporation for patent infringement. In particular, Telesign alleged that Twilio's "Lookup," "Authy," and SMS technologies infringed TeleSign's patents, and it asked for an injunction.
Specifically, TeleSign argued that Twilio's Lookup technology (which provides information about telephone numbers) when used in connection with Twilio's Authy technology (a two-factor authentication service) and/or Twilio SMS (technology that routes short message service text messages) infringed a process claim of TeleSign's patent. As the court explained, in layman's terms, the process claim at issue "helps reduce fraud in online registrations by adding to a registration process the step of determining characteristics of a phone number and then factoring those characteristics, along with a verification message, into a decision about whether to register a particular user."
On October 19, 2015, the United States District Court for the Central District of California denied TeleSign Corporation's motion for a preliminary injunction against Twilio—perhaps helping Twillio keep its Unicorn status. A copy of the court's decision can be found here.
In denying the injunction, the court found that TeleSign failed to show that Twilio's customers were actually using Lookup, Authy, and/or SMS in an infringing manner. TeleSign's three main pieces of evidence involved (a) Twilio's website with a tutorial about building a phone verification system, (b) Lookup's webpage with phone characteristics, and (c) Lookup's blog. The court found TeleSign's arguments of infringement were "heavy on speculation and light on evidence . . . require[ing] a critical leap." In other words, the court found that TeleSign could not rely on Twilio's online user manuals to prove that Twilio's customers actually used the features at issue. Invoking Federal Circuit authority, the court explained, "[i]t is well settled that excerpts from user manuals as evidence of underlying direct infringement by third parties of products that can be used in a non-infringing manner are by themselves insufficient to show the predicate acts necessary for inducement of infringement." While the court noted that TeleSign's evidence shows that infringement is possible, for a preliminary injunction it "must show that it is more likely than not that infringement has occurred . . . [which i]t has not done." Thus, TeleSign may be able to prove this at trial, but under the increased burden for a preliminary injunction, TeleSign was unable to prove its case.
The court dealt another blow to TeleSign when it ruled that TeleSign failed to show irreparable harm, which also is required for an injunction. TeleSign argued that Twilio's sales caused price erosion and lost sales for TeleSign. The court was "skeptical that the casual nexus requirement [wa]s met" to show that TeleSign suffered from Twilio's acts. Based on the same reasoning, TeleSign also failed to show that money damages would be inadequate.
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