-- Schlafly's complaint against PKP and RSA -------------------------------- Roger Schlafly, Pro Se PO Box 1680 Soquel, CA 95073 telephone: (408) 476-3550 In the United States District Court for the Northern District of California Civil Action File No. C-94 20512 Assigned to Judge Category 410, Antitrust ROGER SCHLAFLY, an individual, Plaintiff v. PUBLIC KEY PARTNERS, and RSA DATA SECURITY INC., Defendants. Complaint Against Unfair Business Practices Plaintiff makes complaint against defendants for unfair business practices, including libel, interference with contractual relationships, patent misuse, fraud, monopolization, and racketeering, and demands remedies available under federal law, including jury trial, declaratory judgment, monetary damages, and injunctive relief. Jurisdiction. The Federal Court has jurisdiction because it is based on Federal law, including antitrust and patent law. Venue is proper because defendants and plaintiff reside in this Judicial District. For its complaint against defendants, plaintiff alleges as follows: 1. This is an action for unfair business practices, libel, fraud, monopolization, and racketeering by Public Key Partners ("PKP"), which is managed by Mr. Robert Fougner, Director of Licensing, 310 North Mary Avenue, Sunnyvale, CA 94086 and by RSA Data Security Inc. ("RSADSI"), which does business at 100 Marine Parkway, Redwood City, CA 94065. 2. Plaintiff Roger Schlafly is a resident of the County of Santa Cruz, State of California. 3. Plaintiff is in the cryptography business, and develops computer software for customers. He is also a member of the IEEE Pl363 working group, a committee charged with adopting a public key standard. 4. Defendant PKP is a partnership between Defendant RSA and Caro-Kann Corp. of Sunnyvale. Their partnership agreement is attached as Exhibit A. Mr. Jim Bidzos is the president of both RSADSI and PKP. Cylink Corp. of Sunnyvale was also a partner in the formation of PKP. 5. Federal jurisdiction is based on antitrust law (title 15), patent law (title 35), and racketeering law (18 USC 1341, 1951, 1961-1965). Request for relief is also based on 28 USC 1331, 1337(a), 1338(a), 1338(b), 2201, and 2202. 6. Defendant RSADSI is the dominant U.S. vendor of cryptography software, and has monopoly power in that market. It is engaged in a significant amount of interstate commerce, totaling at least 55 million per year. 7. Defendants have engaged in tortious interference with business relationships between plaintiff and plaintiff's clients, including Information Security Corp. ("ISC") and AT&T. 8. Defendants claim to control certain patents related to public key cryptography. These are the following U.S. patents and their foreign equivalents. Diffie-Hellman 4,200,770 Hellman-Merkle 4,218,582 RSA 4,405,829 Hellman-Pohlig 4,424,414 Schnorr 4,995,082 These PKP patents, as issued in the U.S., are attached as Exhibit B. (There may also be foreign patents for Hellman Merkle and Schnorr.) 9. There is a substantial and continuing justiciable controversy between plaintiff and defendant PKP as to PKP's right to threaten or maintain suit for infringement of the PKP patents, and as to the validity, scope, and enforce ability thereof, and as to whether any of plaintiff's work infringes any valid claim thereof. 10. Plaintiff has not infringed these patents. 11. Plaintiff has signed a consent agreement with defendant RSADSI, attached as Exhibit C. He agreed not to sell a product infringing the RSA patent, except under license from RSADSI or the U.S. Government. (The U.S. Government funded the RSA invention, and retains certain rights.) The agreement also allows plaintiff to design and manufacture products using the RSA patent. 12. Defendant PKP sent a letter dated Jan. 12, 1994 to plaintiff's client, AT&T, alleging that Digital Signature, of which plaintiff is a partner, has breached the above consent agreement. The letter is attached as Exhibit D. In fact, no such breach has taken place. This letter was written without any notification to plaintiff or Digital Signature. 13. Defendant PKP's letter to AT&T stated: ... to the extent any of AT&T's products are tainted by ISC's violation of this injunction, we hereby demand that AT&T cease their further distribution and sale. The alleged violation is based on ISC's use of Digital Signature software. This is a tort for PKP to send such a letter, as no violation has taken place. PKP knew that there was no violation because AT&T has the appropriate patent licenses. Evidence that AT&T already had a license is in Exhibit E, a letter from Jim Bidzos to the editor of Scientific American. 14. Defendants' allegations have damaged plaintiff's reputation, hindered his ability to sell his services, and interfered with his business relationships. 15. Defendant PKP has mailed a letter dated April 4, 1994 to ISC referring to the "apparent breach of the November 15, 1988, Consent Judgment [sic]". The letter is attached as Exhibit F. Plaintiff denies any such breach. 16. Plaintiff sent a letter to PKP protesting its libelous actions and demanding a retraction. The letter was sent on April 4, 1994 and attached as Exhibit G. 17. In a letter from PKP dated April 18, 1994 and attached as Exhibit H, PKP refused to retract its earlier libel. The letter also states that: The practice of the DSA is described in the Hellman-Diffie, Hellman- Merkle and Schnorr patents ... This statement is obviously false, since the DSA patent application was filed after all of those other patents issued. Plaintiff's response is attached as Exhibit I. 18. Defendants have negotiated in bad faith, claiming to offer licenses but giving the run-around on terms and details. Plaintiff relied on defendants' promises that patent licenses would be available, and then lost business when PKP reneged on those promises. Copies of some correspondence with PKP on licensing is attached as Exhibit J. Plaintiff has never able to determine even what the PKP licensing policy is. 19. Defendants have fraudulently induced standards-making bodies, including American National Standards Institute ("ANSI") and Institute of Electrical and Electronics Engineers ("IEEE"), to draft standards based on the RSA and Diffie-Hellman patents by promising a reasonable and nondiscriminatory licensing policy, when in fact no such policy exists. ANSI and IEEE require such a policy, and would not have drafted RSA standards if PKP had not misrepresented its intentions. 20. Defendant PKP sent a letter dated March 15, 1991 to the American Bankers Association (in affiliation with ANSI) stating that "PKP has not denied a license to any party." A copy is attached as Exhibit K. Plaintiff was denied a license in 1990. 21. Plaintiff is informed and believes and on that basis alleges that ISC and other parties were also denied PKP licenses. Numerous users of Pretty Good Privacy ("PGP"), a widely used cryptography program, have complained about being denied PKP licenses. 22. A letter from PKP to ISC denying it an RSA license is attached as Exhibit F. 23. Plaintiff is informed and believes and on that basis alleges that defendant RSADSI attempted to rescind licenses granted for use of RSAREF, one of its products, even though the license agreement clearly states that the license is perpetual. 24. By getting their technology to be declared a draft standard, RSADSI has unfairly monopolized the cryptography market. Plaintiff has been damaged because competing technologies are regarded as nonstandard by the public. 25. Defendants' patent threats and fraudulent promises have prevented ANSI and IEEE from adopting public key standards, to the detriment of all others in the industry, including plaintiff. 26. Plaintiff and others on standards committees have invested valuable time and effort to develop a public Key standard, but have been thwarted by defendant PKP's patent threats and fraudulent promises. 27. Plaintiff is informed and believes and on that basis alleges that defendants have made hostile and unwarranted threats against potential customers and clients of plaintiff, including representatives of the U.S. Army. These threats have included false assertions that ISC software is illegal because of patent problems. (Even if the defendants' patent claims were valid, the U.S. Army has a license to use the patents anyway.) 28. Plaintiff is informed and believes and on that basis alleges that defendants have vindictively harassed competitors, including trying to promote a federal criminal investigation of the author of PGP. 29. The U.S. Dept. of Commerce has made a determination that practice of the Digital Signature Algorithm ("DSA") does not infringe PKP patents. Public notice to that effect has appeared in Federal Register vol. 56, no. 169, August 30, 1991, pp. 42980-42982, and Federal Register vol. 59, no. 96, May 19, 1994, pp. 26208-26211. Copies are attached as Exhibits L and M. A copy of the DSA patent is attached as Exhibit N. 30. Defendant PKP wrote a letter to the National Institute of Standards of Technology ("NIST") claiming that the DSA infringes PKP patents. The letter was dated Nov. 20, 1991 and attached as Exhibit 0. No PKP argument regarding the nature of the infringement was ever made public. U.S. patent 5,231,668 was issued and assigned to the United States on July 27, 1993. 31. When the DSA was adopted by NIST as the federal Digital Signature Standard, defendants publicly threatened to sue anyone who uses it. These threats were conveyed to the news media for the purpose of intimidating competitors, and the threats were widely disseminated. A copy of a typical story in the trade press is attached as Exhibit P. 32. Defendants have attempted to intimidate ANSI and IEEE not to adopt a DSA standard, based on patent claims they know to be invalid. A copy of a PKP letter is attached as Exhibit Q. They hoped to kill a DSA standard in order to monopolize the market with an RSA standard. 33. Defendant PKP has pooled patents in an attempt to monopolize public key technologies. The Hellman patents were originally issued to Stanford University and exclusively licensed to Cylink. Cylink apparently controls Caro-Kann Corp., a partner in defendant PKP. The RSA patent was originally issued to Massachusetts Institute of Technology and exclusively licensed to RSADSI. The Schnorr patent was issued to Klaus Schnorr, a German citizen who had no connection with PKP. The patents are not blocking. All are now under the exclusive licensing control of PKP. 34. Defendants have exaggerated the scope of their patents. In a publicly distributed letter dated April 20, 1990, PKP claimed: These patents cover all known methods of practicing the art of Public Key, including the variations collectively known as E1 Gamal [sic]. The letter is attached as Exhibit R. PKP knows that this claim is false, but makes it anyway to intimidate competitors. 35. Defendant PKP sent a threatening letter, attached as Exhibit S, to ISC claiming that any use of public key technology must necessarily infringe PKP patents. 36. The idea of public key cryptography and digital signatures is disclosed in a paper titled "Multiuser cryptographic techniques" by Whitfield Diffie and Martin E Hellman, National Computer Conference, vol. 45, 1976. The paper was presented at a public conference in mid-June 1976, and published as part of the conference proceedings shortly thereafter. This was more than one year before any patents were filed, and therefore in the public domain according to 35 USC 102(b). A copy of the paper is attached as Exhibit T. 37. Another paper by Diffie and Hellman, "New Directions in Cryptography", IEEE Transactions on Information Theory, vol. IT-22, no. 6, Nov. 1976, was submitted on June 3, 1976. It discloses the public key distribution system of the DiffieHellman patent. A copy of the paper is attached as Exhibit U. 38. A survey paper, "The First Ten Years of Public-Key Cryptography", was published by Diffie in Proceedings of the IEEE, vol. 76, no. 5, May 1988. A copy of the paper is attached as Exhibit V. It states on p. 563 that Exhibit U was publicly distributed in June 1976 and publicly disclosed at the National Computer Conference, also in June 1976. The Diffie-Hellman patent was filed on Sept. 6, 1977. This was more than one year later, and hence the patent is invalid and unenforceable according to 35 USC 102(b). 39. The Hellman-Merkle patent is invalid and unenforceable because it is inoperative as disclosed. Claims 1-6 and 1417 require a quantity computationally infeasible to generate from a public key. Claims 1-3 and 6- 17 require secure communication over an insecure channel. There are no other claims. While the inventors probably believed that their invention met these requirements at the time they filed their patent application, it was later proved that the invention does not meet the requirements. According to Exhibit V pp. 565-566, it turned out to be feasible to compute the secret key from the public key. It follows that the claimed computational infeasibility is not achieved, and the communication is not secure. In fact, according to Exhibit V, the inventor had to pay a $100 bet when the invention was proved to be useless. 40. RSADSI has known the Hellman-Merkle invention to be worthless since at least 1985, and have not used it in its commercial products for that reason. 41. The Hellman-Merkle invention is not useful because of the flaws cited in Exhibit V, and therefore fails to satisfy the 35 USC 101 requirements for patent protection. 42. The Hellman-Pohlig patent is not even a public key patent. PKP deceptively cites it to bolster their claim to own all public key technology. 43. Defendants have claimed that ElGamal encryption, as described in T. ElGamal, A Public Key Cryptosystem and a Signature Scheme 8ased on Discrete Logarithm, IEEE Transactions on Information Theory, IT-31 (no. 4, July 1985) pp. 469-472, or as implemented in SecretAgent (a product of ISC which uses software licensed from plaintiff), or as currently being considered by the IEEE P1363 committee, infringes PKP patents. Plaintiff asserts that there is no infringement, even if the PKP patents are valid. 44. ISC had kept SecretAgent out of the commercial (non-government) market for a couple of years because of PKP patent claims on ElGamal encryption. 45. Plaintiff has suffered lost royalties as a result of defendants claiming that SecretAgent infringes PKP patents. 46. The RSA patent claims preempt a mathematical formula, and hence fail to pass the Freeman-Walter-Abele two-step test for statutory subject matter under 35 USC 101. While such a rejection had been made by the examiner, it was traversed with the disingenuous argument that the apparent formula is not a mathematical formula because it uses an equivalence relation. The argument from the RSA patent file wrapper is attached as Exhibit W. Plaintiff alleges that this argument is mathematically incorrect. 47. Defendants have demanded licenses for use of the "RSA algorithm" even though such a demand is prohibited by the doctrine of file wrapper estoppel. Exhibit W emphatically says, However, there are no mathematical algorithms in the applicants' claims. An example of a statement that the RSA algorithm is patented can be found in Bidzos's letter of Sept. 16, 1986, included in Exhibit J. 48. Cylink has filed court papers, attached as Exhibit X, stating that it believes the RSA patent to be invalid. If so, PKP has knowingly extracted license fees and sued competitors based on an invalid patent. 49. According to item 13 of Exhibit X, it appears that RSADSI has denied an RSA license to Cylink. 50. Plaintiff will seek leave of court to amend this complaint to assert such additional grounds for invalidity as may be ascertained and shall give notice prior to trial as may be required by 35 USC 282 of the matters specified herein. 51. Defendant PKP acquired the Schnorr patent in a willful attempt to maintain its monopoly over public key technology. When use of the DSA appeared to be a non-infringing use of public key, RSADSI publicly attacked DSA technology as inferior, showed little interest in marketing DSA products, but acquired the Schnorr patent anyway in a predatory attempt to deter others from using the DSA. An example of Bidzos's public disparagement of the DSA (where it is referred to as the DSS) is attached as Exhibit Y. 52. Plaintiff is informed and believes and on that basis alleges that PKP ties licensing of its patents to the purchase of software and services from RSADSI, in an attempt to broaden the scope of its patents and monopolize the market for certain related software and services. 53. Defendants have organized an illegal secondary boycott of competitors. RSADSI has publicly distributed a "Sink Clipper" poster which urges people to boycott companies selling products based on a cryptographic technology other than that sold by RSADSI. It says: What you can do ... Boycott Clipper devices and the companies which make them exclusively: Don't buy anything with a Clipper chip in it. A copy of the text on the poster is attached as Exhibit Z. 54. Plaintiff has been developing software for the Tessera card, a device with Clipper chip technology. Plaintiff stands to suffer injury from RSADSI's secondary boycott if it kills the market for Tessera cards. 55. Defendants' conduct and tactics with regard to the PKP patents constitute patent misuse. 56. Plaintiff is informed and believes and on that basis alleges that defendants charge different royalties to different licensees, and use price discrimination to bolster their monopoly. 57. Defendants are in violation of antitrust laws with their monopolization tactics. 58. Defendants have defamed plaintiff by making allegations of patent infringement to third parties, in violation of libel laws and laws against unfair business practices. 59. Defendants concocted a joint scheme to fraudulently exaggerate the scope of their patents and deceive standards making bodies into drafting an RSA standard on or about April 6, 1990, the day the PKP partnership agreement in Exhibit A was consummated. Defendants formed an association - in-fact that constituted an "enterprise" within the meaning of 18 USC 1961(4). 60. Defendants intended to use the exaggerated patents and phony license promises to monopolize the public key cryptography market, with full knowledge of the ANSI and IEEE patent policies-and of the invalidity of the Hellman-Merkle patent. 61. Several of defendants' threats and fraudulent patent claims and threats were transmitted through the U.S. Mail, thus constituting mail fraud in violation of 18 USC 1341. One such letter, Exhibit R, was sent by registered mail on or about April 20, 1990. 62. PKP also sent Exhibits K and Q through the U.S. mail system. 63. Defendants have interfered with commerce, in violation of 18 USC 1951, with their predatory tactics, unwarranted threats, and other unfair business practices. 64. Plaintiff is informed and believes and on that basis alleges that defendants have engaged in extortion by using the threat of lawsuit to extract patent licensing fees, when in fact they knew the patent to be invalid. 65. Plaintiff has been damaged, as have others, by defendants' fraud, extortion, and interference with commerce. 66. Defendant PKP has conspired with defendant RSADSI to engage in a pattern of racketeering, in violation of the Racketeer Influenced and Corrupt Organizations (RICO) Act. 67. Plaintiff damages, in lost sales, contracts, and royalties, are estimated at $2 million. Much of this would have been interstate commerce, including royalties from ISC in Illinois. WHEREFORE, plaintiff prays for judgment as follows: 1. That defendants, defendants' agents, partners, servants, employees, and all others acting in concert or participating with them, be enjoined during the pendency of this action and permanently from further interference with plaintiff's business. 2. That defendants pay plaintiff $2 million in real and punitive damages, and that damages be trebled according to antitrust and RICO laws. 3. That defendants be required to comply with the ANSI and IEEE patent policies. 4. That defendants' patent claim on all public key technology be declared invalid. 5. That practice of ElGamal encryption does not infringe any PKP patents, whether those patents are valid or not. 6. That practice of the DSA does not infringe any PKP patents, whether those patents are valid or not. 7. That the Diffie-Hellman patent be declared invalid and unenforceable. 8. That the Hellman-Merkle patent be declared invalid and unenforceable. 9. That defendants be estopped from enforcing the RSA patent. 10. That defendants be enjoined from further libeling plaintiff. 11. That defendants supply a complete list of persons and businesses that they have given false or libelous information, and that they send written retractions to each party. 12. That defendant partnership PKP be dissolved, and its patent pool be divided and returned to each patent's rightful owner. 13. That plaintiff be compensated for court costs and legal fees. 14. That plaintiff have such other and further relief as is just and proper. Dated: July 26, 1994 By: Plaintiff, Roger Schlafly, Pro Se Roger Schlafly P0 Box 1680 Soquel, CA 95073 telephone: (408) 476-3550 -- End ---------------------------------------------------------------------