Digital River Loses Patent Suit Despite Doing What Was In The Patent Two Years Before Patent Was Filed

from the broken-system dept

Last week a jury in the federal district court in Marshall, Texas (patent trolls' favorite court) gave a ruling that was a clear miscarriage of justice -- and this is a case where I actually know quite a lot about the details and have firsthand knowledge that the patents are 100% bogus. The case involves a patent troll called DDR, which was built out of the ashes of a failed dotcom called Nexchange, which tried to build affiliate style stores that could be embedded in other websites, with their look and feel. DDR sued a few companies, including Expedia, Travelocity, Orbitz, Digital River and World Travel Holdings. Everyone but Digital River and World Travel Holdings settled. The main company here is Digital River -- and the key patent, 6,993,572 is ridiculous and never should have been granted. Even Nexchange admitted it wasn't doing anything new -- though it insists it was the first to do it "on the internet."

It wasn't.

Digital River pointed out that it had been doing the same thing since its founding more than two years before Nexchange filed for its patents. I can confirm this first hand. In June of 1998, I started working for a company called Release Software. Our main competitor? Digital River. We were always up against each other in trying to do deals to build exactly these kinds of stores. In fact, by the time I started (months before these patents were filed), Release was already supplying "store within a site" offerings to a number of sites, including Egghead (remember them?), Canadian electronics giant Futureshop, and had also done download "kiosk" sites for software companies like Adobe and Intuit -- all of which were designed to match the look and feel of the original site exactly.

DDR's response to the claims that Digital River was doing it first was that they did it badly, so it didn't count. Seriously. From the Joe Mullin article linked above:

When DDR lawyers got their chance to cross-examine Pichler, they flipped through many of the same webpages, then talked about differences between the host pages and the store pages that Digital River served up. For example, on the Digital Frontier website, the store page was missing the navigation bar present on the main Digital Frontier site.

Pichler admitted that some of the pages looked different. “Our goal was to replicate the look and feel of the website,” but each client had its own peculiarities, and some stores matched their hosts better than others.

To some extent, this is true. Digital River was bad at matching the look and feel of clients. But we weren't. In fact, I remember that was part of our sales pitch to beat Digital River on deals. When we built the stores, they really matched the look and feel. Shoppers on Egghead had no idea that they'd really left Egghead's main site to enter our site, for example. Even so, I'm not sure that any of this matters. Release clearly was doing what DDR now claims Nexchange "invented" (well after we had been doing it). And, even given all that, does anyone think it's reasonable to claim that the only reason Digital River couldn't "match the look and feel" was because of some great "invention" of "matching the look and feel" in the patent? That's insanity.

But, this is East Texas... where insanity rules. On Friday, the jury ruled in favor of DDR, saying that the patents were valid and infringed upon by Digital River (and WTH). It ordered both companies to pay $750,000 each, which is much less than what DDR was asking for but is still ridiculous. What the patent explains was not in any way "new" in September of 1998. I was already working on new deals to provide the same thing months prior, and the company I worked for already had numerous deals where we exactly matched look and feel.

Either way, just the idea that anyone could get a patent on the idea of integrating an e-commerce store into another site is pretty ridiculous. As far as I know, when we were at Release, we didn't even bother filing for such patents, because, seriously, who would patent something so damn obvious?

Finally, this once again highlights the difference between an idea and actually executing in the market. As Mullin highlights, even if it was true that Digital River didn't match the look and feel exactly, the company thrived and is still in business, making over $300 million last year. Nexchange completely flopped. So if matching look and feel exactly was so important... then shouldn't Nexchange have thrived? Hell, shouldn't the company I worked for have thrived as well? It didn't. It flopped, too. Digital River beat us silly, because while we were focused on silly things like matching the look and feel exactly, it was focused on what customers at the time actually wanted: more things to sell and better tools to manage the store. We couldn't keep up with their platform (or their ability to source products) and Release eventually shut down. As for Nexchange -- I never heard of them, and I was in charge of keeping our competitive matrix up to date with all of our competitors. If they were in the same market, they sure didn't make a splash.

Execution in the market is what matters. Digital River did it. Nexchange did not. The only thing this ruling has done is to punish the company that actually executed by making them give money to the guys who completely failed in the market. It goes against everything that we, as a society, should be encouraging. It's taking money from the successful companies to give it to the ones who failed.

Filed Under: history, look and feel, patents, prior art, stores
Companies: digital river, nexchange, release software