Newegg's 'Screw Patent Trolls!' Strategy Leads To Victory

from the standing-up-to-bullies dept

During CES, there was a panel discussion on patent trolling, and panelist Lee Cheng, Newegg's top lawyer, made some strong statements about how the company had made the decision that it will never give in to patent trolls, because if it does, more will just come knocking. That strategy may be costly upfront, but it also may have just saved the public from paying a massive online shopping tax. Joe Mullin, once again, has the fantastic story concerning Newegg's big victory over Soverain Software, who claimed that its patents (5,715,314, 5,909,492 and 7,272,639) covered basically any online shopping cart. As we noted back in 2010, Soverain was a pure patent troll which purchased the patents that had originally come from Open Market, and was suing everyone (with a ton of companies settling).

However, Newegg chose to fight it, and despite losing at the district court level (in East Texas, of course), the Appeals Court has invalidated all three patents. Incredibly, the East Texas court had refused to let Newegg make the argument that the patents were not valid.

At district court, the judge hadn't even let those invalidity arguments go to the jury, stating there wasn't "sufficient testimony" on obviousness, and that it would be "very confusing" to them.

That's fairly incredible. The validity of a patent is a key issue in any patent trial, and for a judge to reject it even being brought up for being "too confusing" to a jury is astounding. Thankfully, the appeals court completely rejected not only that idea, but the patents as well -- and it means that some other recent verdicts in favor of Soverain are now dead as well.

Mullin's article also highlights some of the bogus nature of Soverain:

It's all a sham. Court records show Soverain hasn't made a sale—ever. The various voice mailboxes were all set up by Katherine Wolanyck, the former Latham & Watkins attorney who is a co-founder and partial owner of Soverain. And the impressive list of big corporate customers on its Web page? Those are deals struck with another company, more than a decade ago. That was OpenMarket, a software company that originally created these patents before going out of business in 2001. It sold its assets to a venture capital fund called divine interVentures, which in turn sold the OpenMarket patents to Soverain Software in 2003.

"Thank you for calling Soverain technical support," says Wolanyck, if you press option 2. "If you are a current customer and have a tech support question, please call us at 1-888-884-4432, or e-mail us at support@soverain.com." That number, like the "customer support" number on Soverain's contact page, has been disconnected.

Mullin also includes a fantastic interview with Lee Cheng about why Newegg was willing to do this. It's worth reading in full, but here's just a snippet:

Patent trolling is based upon deficiencies in a critical but underdeveloped area of the law. The faster we drive these cases to verdict—and through appeal, and also get legislative reform on track—the faster our economy will be competitive in this critical area. We're competing with other economies that are not burdened with this type of litigation. China doesn't have this, South Korea doesn't have this, Europe doesn't have this.

Just in our experience, we've been hit by companies that claim to own the drop-down menu, or a search box, or Web navigation. In fact, I think there's at least four that claim to 'own' some part of a search box.

It's actually surprising how quickly people forget what Lemelson did. [referring to Jerome Lemelson, an infamous patent troll who used so-called "submarine patents" to make billions in licensing fees.] This activity is very similar. Trolls right now "submarine" as well. They use timing, like he used timing.

Then they pop up and say, "Hello, surprise! Give us your money or we will shut you down!" Screw them. Seriously, screw them. You can quote me on that.

Of course, once again, we wonder how companies like Amazon, who "settled" with Soverain, paying them tens of millions of dollars, feel about this. Why is it that the companies who settled over patents later declared invalid aren't able to seek their money back? Seems only fair.

Filed Under: e-commerce, katherine wolanyck, lee cheng, patent trolls, patents, shopping cart
Companies: newegg, soverain software