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Hailed as a hero, “anti-troll” company Newegg may, in fact, just like infringing patents

Online consumer electronics retailer Newegg – which last month suffered defeat in an Eastern District of Texas patent case against Erich Spangenberg-backed NPE TQP – was lauded as a champion of the anti-‘troll’ cause when it prevailed in patent litigation against Soverain Software earlier this year.

Although the reality is very different, what Newegg has understood is that labelling another party a ‘troll’ – even when they make products and invest heavily in R&D – gets you a sympathetic audience and a lot of positive coverage in the press. It also catches the attention of legislators who probably do not know one end of a patent from the other.

Soverain’s patents covering an online ‘shopping cart’ system have gained a certain notoriety in the patent-sceptic press – not least after they appeared to be held up by US Congressman and Innovation Act author Bob Goodlatte as a supposed example of low quality assets being used to launch abusive lawsuits when he spoke at a House of Representatives Judiciary Committee hearing in October.

The long-running battle between Soverain and Newegg began when the former filed suit in the Eastern District of Texas in November 2007 claiming that Newegg – along with seven other retailers – had infringed its patents relating to an online ‘shopping cart’ system for use on e-commerce websites. Soverain had acquired the patents when it purchased the e-commerce business of Open Market – including the market-leading TRANSACT software – in 2003.

All of the alleged infringers settled with Soverain apart from Newegg – which as a matter of policy refuses to negotiate with entities it deems to be ‘patent trolls’ – and the case went to trial in 2010. The court ruled that Newegg had infringed Soverain’s patents and that it had failed to meet its burden of proof of clear and convincing evidence that the patents were invalid. As a result, the jury in the case was not required to decide on the patents’ validity.

Newegg subsequently asked the Court of Appeals for the Federal Circuit (CAFC) to remand the case back to the lower court for a jury verdict. The CAFC panel hearing the appeal decided to go further. In January this year, it overturned the lower court’s judgment and invalidated Soverain’s patents in a decision that Soverain claims is riddled with irregularities including errors in the opinion, rulings on unasserted claims and a ruling of invalidity on obviousness which Soverain alleges contravenes its rights under the Seventh Amendment of the US Constitution.

“Over the past 10 years, the USPTO has re-examined our patents twice – in 2005 and 2010 – and both times has concluded that they are validly issued and confirmed all the claims,” Soverain president Katharine Wolanyk told IAM during an exclusive interview last week.  “So from our perspective the decision of the Federal Circuit is really an outlier – even Newegg sent a letter to the Federal Circuit within a week of it issuing its decision saying that there were all kinds of errors in the opinion.”

In October, Soverain petitioned the US Supreme Court to review the CAFC decision. A number of amicus briefs have been filed in support of its case, including one from i4i – the small software company which triumphed at the court in June 2011 after the justices rejected a Microsoft argument that the standard for finding a granted patent invalid should be lowered from ‘clear and convincing’ evidence to a ‘preponderance’ of evidence.

While the dispute shines the spotlight once again on the CAFC and its sometimes controversial handling of patent cases, it also highlights the looseness of nomenclature when it comes to labelling which patent owners are ‘trolls’ and which are not. At the time of the CAFC’s decision, Ars Technica reported that court records showed that Soverain had never made a sale and that the customer service phone numbers it provided appeared to be disconnected. Wolanyk refutes those claims and states that Soverain is an operating company that continues to market its TRANSACT product and to provide technical support for it.

Furthermore, she says that the original inventors named on the TRANSACT patents work closely with Soverain on ongoing product development and patent filing activities, as well as providing testimony when the patents have been litigated. “Newegg is very fond of referring to us as a troll, and that got picked up by the anti-patent camp,” says Wolanyk. “We take issue with that – because we have been an operating business that has been in existence for almost 20 years now. We have had a very successful run with our software and we are simply trying to license our patents.”

Interestingly, another business that Newegg dubbed a ‘troll’ and defeated in the courtroom earlier this year is Alcatel-Lucent. This is a company that has invested billions of dollars in research and development over the years, manufactures and sells products and services to business and consumer markets, and provides employment for thousands of people across the globe. It couldn’t be further from the stereotype of the bottom-feeder operating out of a token empty office in Marshall, Texas. However, the fact that it wants to protect that investment by asserting its patent rights – whether directly or through partnering with third-party NPEs – seems to make it a ‘troll’ in Newegg’s eyes.

This is Wolanyk’s grievance with the way in which Newegg and Representative Goodlatte have typecast her company. “The definition seems to come down to anybody who has patents that you don’t like,” she says. “Those who use the term keep changing that definition to exclude themselves and point the finger at someone else. Take a look at the companies in the smartphone battles – some of whom, like Google, acquired many of the patents they are asserting. So why is that okay, while it is not for we who bought an operating business 10 years ago and have continued to run that operating business alongside trying to license our patents?”

As for Goodlatte’s Innovation Act, Wolanyk expresses concern at the speed with which the proposals have moved through Congress. “We are worried about non-patent lawyers making significant changes to the judicial process and the patent law when they may not fully understand the ramifications,” she says. “We are just about one year past the implementation of a vast body of patent legislation – the America Invents Act – and people are already starting to see that not everything worked out as intended there. There needs to be more deliberation and more consultation with all the stakeholders in this process as opposed to what is a fairly narrow group of self-serving companies which are pushing this legislation.”

Nevertheless, Wolanyk does accept that a level of reform may be needed to counter abuse of the patent system by some users. “We agree there may be bad actors out there, but we certainly don’t believe that most people who seek to license their patents are bad actors,” she says. Soverain and small patent-owning businesses like it are forced to litigate if they are to have any hope of getting a return on their investment in R&D, she says: “If you send a letter to a prospective licensee or try to enter into a conversation with them immediately, it puts you at risk of getting a declaratory judgment filed against you, and that means that you are in litigation anyway. From our point of view, we would welcome the ability to have licensing negotiations without litigating. But at the moment we are forced to either litigate in what is a very inefficient system, or not to license our patents at all – which to patent owners doesn’t feel like a very real choice.”


Jack Ellis
IAM Magazine
10 December 2013

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IP management, Licensing, IP politics, IP litigation, Patents, IP business

Comments

RE: Hailed as a hero, “anti-troll” company Newegg may, in fact, just like infringing patents

For sake of a leveled playing field it makes sense to use the same type of label for companies that like infringing patents or anti-trolls - as you called them. Once I proposed calling them patent smurfs - that's perhaps to cute. Patent sponger may be better - but finding the right term is in fact a question for the people with English mother tongue.

The disbalance of public reception seems to be influenced very much by the very punchy term "troll". Obviously this is to simple to describe the complex environment in which patents are used and asserted.

Gottfried Schüll, Cohausz & Florack on 11 Dec 2013 @ 15:42

RE: Hailed as a hero, “anti-troll” company Newegg may, in fact, just like infringing patents

Balance is something that is sadly lacking in the current debate around patent rights.

The popular press has leapt on the term Patent Troll - complete with eye catching imagery. With a little prodding from Gottfried's note may I suggest the label "Patent Leech" for the anti-trolls. My Concise Oxford offers two definitions of note: 1) a bloodsucking parasite, 2) a person who extorts profit from or sponges on others. An infringing entity could in the extreme be considered to be sucking the IP lifeblood out of a patent owning entity through infringement. Certainly the sponging on others description fits some infringers. And, the visual imagery is probably even more disgusting than Trolls!

Will trading insults - calling each other Trolls and Leeches - lift the intellectual tenor of the debate? Not likely. But perhaps we could get some symapthetic attention for the patent owners side of the story.

Terry Ludlow, Chipworks on 11 Dec 2013 @ 17:42

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