How Newegg handed a patent troll its own ass on a plate

Ars Technica's got an amazing piece on the Newegg fight against a patent troll called Soverain Software, who had been extorting a 1% royalty on all transactions from ecommerce companies with a bogus shopping cart patent. Newegg refuses to settle in cases like this, even when it would be cheaper to settle than to fight. They beat the hell out of Soverain, killed their patent, and freed not just themselves, but all the firms that faced potential extortion from them -- and all of us, who will pay higher prices to keep these ticks nicely, comfortably bloated with their parasitic gains.

For Newegg's chief legal officer Lee Cheng, it's a huge validation of the strategy the company decided to pursue back in 2007: not to settle with patent trolls. Ever.
"We basically took a look at this situation and said, this is bullshit," said Cheng in an interview with Ars. "We saw that if we paid off this patent holder, we'd have to pay off every patent holder this same amount. This is the first case we took all the way to trial. And now, nobody has to pay Soverain jack squat for these patents."
...Newegg is unique in its willingness to take on patent troll cases and fight them through trial. The company won't hire law firms that take on patent troll cases, and its top lawyer, Lee Cheng, is vocal about his view that others should take the same approach. Cheng talked with Ars about Newegg's strategy, why they do it, and how it's going for them.

How Newegg crushed the “shopping cart” patent and saved online retail [Ars Technica/Joe Mullin]

(via Waxy)

I write books. My latest is a YA science fiction novel called Homeland (it's the sequel to Little Brother). More books: Rapture of the Nerds (a novel, with Charlie Stross); With a Little Help (short stories); and The Great Big Beautiful Tomorrow (novella and nonfic). I speak all over the place and I tweet and tumble, too.

MORE: Business • Copyfight • ecommerce • patent trolls • web theory

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Ryan Lenethen

I resolve to buy something from Newegg this year. Though thats hardly a hugh concession on my part ;) Good for them. Althrough you notice that all these stupid things are filed in Texas? The US justice system is pretty stupid that way, at least I think so.
- Gulliver
  
  Well, I’m a Texan, spend hundreds of USD at Newegg yearly, and this news reinforces my loyalty to them.
- http://www.edmcdonald.org/ Ed
  
  Amen, me too.
http://www.nathanhornby.com/ Nathan Hornby

Hang on a minute; there was a company extorting a 1% royalty on anyone using a shopping cart on their website? And people were PAYING them?

I’m sorry but that’s really dumb. What’s wrong with telling them to fuck off back to the hole they came from? Why is a legal battle required?
- mccrum
  
  Because the company suing you is owned by lawyers who have hired a top legal firm and they have won against smaller fish in the past. If you read the article, you note that Newegg lost their first case and only killed this patent on the appeal. During their loss and appeal, Soverain managed to squeeze 20 million out of Avon and Victoria’s Secret. That’ll set you up to move up the food chain pretty well.
  - http://www.nathanhornby.com/ Nathan Hornby
    
    Honestly, this whole thing still feels like a dream, or a practical joke.
    I work regularly in the e-commerce field, at both ends of the spectrum, and this is the first time I’ve heard of this absurd claim – why does it require a court? This is a serious question. This is the kind of thing that should be resolved via a polite customer service email to the US Patent Office, asking them to revoke an obviously completely invalid patent – that fact that people could lose court cases and require lawyers for this is genuinely bind-boggling to me.
    
    Remind me to file a bunch of patents with the US patent office though, I could do with some passive revenue from people that use umbrellas.
    - mccrum
      
      I didn’t say I agreed with the current legal or patent system in the US, I just stated how things are being resolved. Any dumbass with some time and common sense can see how most patent infringement cases are total BS, but the lawyers keep making their 20% so they keep filing them.
      - http://www.nathanhornby.com/ Nathan Hornby
        
        Why doesn’t the patent office have any liability for the work they do?
      - mccrum
        
        I think they’re doing their best with the limited resources that any government agency (except the Department of Defense) has but they stand no chance going up against a pack of legal hounds who believe they found a clever way tweak the system to their financial gain and just need to convince 12 rubes in East Texas* to go along with them.
        
        * – Apologies to East Texas rubes who have seen through this sham
      - http://www.nathanhornby.com/ Nathan Hornby
        
        Hm. Well our governments really no better than yours – but if I tried to get this past our Patent Office they’d laugh in my face, and bill me for the privilege.
      - http://www.ikaink.net Itsumishi
        
        @boingboing-b02d27666964db9258b673accd36c27a:disqus The US Patent office routinely hands out bullshit patents because handing out patents is how it gets its revenue.
      - http://www.nathanhornby.com/ Nathan Hornby
        
        That explains why they do it; but it doesn’t explain why they don’t have any liability for their work.
      - http://www.ikaink.net Itsumishi
        
        If I’d been able to respond inline to mccrums comment I would have, when inline runs out the @ trick is the next best thing.
      - http://www.nathanhornby.com/ Nathan Hornby
        
        @Itsumishi Sorry, I mostly reply by email so sometimes Disqus causes some thread confusion.
    - EuroDrop
      
      I guess you don’t know how the US legal system works
      
      If someone sues you, you just can’t ignore it
      - http://www.nathanhornby.com/ Nathan Hornby
        
        I appreciate this – but why is this even a possibility? And what are the repercussions?
        
        If someone sued me in the UK I couldn’t just ignore it either; but our Patent office wouldn’t issue totally bogus patents. This is a problem with the Patent Office, and something they should have to legally and financially take responsibility for.
        
        But I;ve said it before and I’ll say it again, I don’t know why any online company bases itself in the US – maybe if more people went elsewhere they’d look at reforming their dodgy laws.
      - mccrum
        
        ” maybe if more people went elsewhere they’d look at reforming their dodgy laws.”
        
        Ha! Our dodgy laws are the reason they’re here in the first place. GE just called the IRS to demand a rebate because they claim the US owes them money instead of paying any taxes on the profit they made.
      - Antinous / Moderator
        
        If someone sued me in the UK I couldn’t just ignore it either; but our Patent office wouldn’t issue totally bogus patents.
        
        Do I need to point out that people from all over the world file libel suits in the UK because you allow suits that even the greediest lawyers would laugh at in most countries?
      - http://www.nathanhornby.com/ Nathan Hornby
        
        Oh we got other problems. Don’t start me on the other problems.
      - http://www.nathanhornby.com/ Nathan Hornby
        
        @boingboing-b02d27666964db9258b673accd36c27a:disqus
        
        Good point! I guess what I should say, is that companies affected by DMCA, Patent trolls, Copyright puppets etc. should go elsewhere.
        
        Companies like GE are big enough to be based anywhere, because they dictate what policy affects them and how much they have to hand over to the government. Pretty much literally.
  - vonbobo
    
    I was wondering how this affects all of the other lawsuits? The article says the patents are now useless. .. is that for every other lawsuit? For the companies that did pay the squeeze, can they now sue in return?
    - James Penrose
      
      It probably helps any cases in the same circuit where the appeals court ruled but may not be binding elsewhere. Federal circuits are semi-independent kingdoms when it comes to using precedents set in other parts of the country.
      
      (I am not a lawyer.)
      - MyrddinWilt
        
        Only with respect to findings of law.
        
        Deciding the facts in a particular case is a very different matter. If a losing patent plaintif could simply troll to another jurisdiction there would never be any resolution.
        
        If the plaintif fails to appeal the decision it is pretty much game over for this set of patents.
      - lafave
        
        The patents were invalidated and all their lawsuits were in one jurisdiction. If they move jurisdictions, they’ve got estoppel issues. They’re done with that set of patents.
http://www.facebook.com/profile.php?id=100002204733322 Jared Kaufman

I’m glad that corporations are people, that means I can give the Egg a big hug…
- lysdexia
  
  https://plus.google.com/photos/105995342998660055104/albums/5838548174098112369?authkey=CI25u7qL0I6b-wE
  
  Just hug Lee when you see him.
gyffes

Woo! Off to buy something — ANYTHING — from NewEgg!
mccrum

Hey NewEgg, when you see this story on bb, know that I have been glad to support you in the past and will certainly continue to support you. Also: thanks for RMAing that video card recently, the new one’s running like a gem.
l337n00b

I have a feeling that their success here means that NewEgg may be avoided by patent trolls in the future. More companies might want to look at this approach.
http://twitter.com/Epers Eddie Perkins

Love how in the interview one answer contains, “The American justice system has issues, but it fundamentally works. The jury system is sound. Juries are people of good will and have common sense.”

This is followed in the next answer by, “Just think about the dynamic if you’re a juror. Most of the jury could be very pro-defense and think the plaintiff is full of it. But all you need is a single one who is friendly to the plaintiff and holds out on the verdict. You just need one really stubborn person—that can drive a whole jury to make a decision that swings the other way. Everyone wants to go home. It’s not their money. Defense oriented jurors are more likely to compromise and say, “Maybe we’ll just split the baby. Maybe we’ll just give them $2.5 million and call it a day.”"

I dunno. I just found it funny.
http://www.facebook.com/people/Rick-Adams/100000053021803 Rick Adams

This is a huge hit to my dream of eventually making butt-loads of money for doing essentially nothing. Damn you NewEgg.
- Antinous / Moderator
  
  Convince one of your parents to write a best seller.
howaboutthisdangit

Newegg has just become a preferred vendor for me.

If more companies did this, they might reduce the number of trolls or the frequency of lawsuits, and save themselves money in the long term. Companies that yield only encourage more extortion in the future.

Of course, many corporate execs are not concerned with the long term health of the company, as long as they maximize short-term profits and bail out before the shit hits the fan. They play into the hands of trolls.
wysinwyg

NewEgg is good egg.
Vengefultacos

Crap. I had given up on NewEgg since I’d gotten a string of defective products that I had to ship back on my own dime (unlike, say, Amazon, which will foot the bill for return shipping). But putting the hurt on a patent troll has to be rewarded…
- LinkMan
  
  If you can find a free Shoprunner code, they’ll pay for return shipping to Newegg.
- vonbobo
  
  Odd, is this new? I have had a couple of RMAs with newegg and never had to pay an extra cent.
http://thisisonlya.blogspot.com robcat2075

The most troubling issue I see is that the judge at the first trial wouldn’t even allow NewEgg to argue that the patent was invalid because that might be “confusing” to the jury.

BTW, judges in TX are elected and have to collect campaign contributions to run for their post.
- MyrddinWilt
  
  No, these are federal judges, they are appointed by the President and confirmed by the Senate and hold a life appointment.
wrf1984

I wish insurance companies would do this. Instead, they always settle and pass the extra on to us in the form of increased rates. In the long run NewEgg will indeed save money because people won’t screw with them. I’m convinced the same is true of insurers.
MyrddinWilt

So I was deposed in the original case against Amazon. Not surprisingly given my testimony and that of Eric Rescorla, it seems like a different set of claims were asserted in this case.

What I find rather hilarious is that New Egg actually used a Gifford patent as prior art since he was one of the founders of Open Market and the ‘inventor’ on a whole slew of patents similar to the shopping cart patent. At the time they claimed that the patents were purely defensive but the court record shows that they were attempting to license them.

The reason the Open Market server was not very successful is hardly a mystery. It was old style ‘enterprise’ software which meant that it cost a fortune (seven figures) and required dedicated professional services to deploy. From what I heard it was not much more than a poorly debugged set of spaghetti code and scripts.

Take a look at the following at ‘the burn artist’. Open Market is the only company I knew of that charged anything like that sort of money for an electronic sales system.

http://www.wired.com/wired/archive/6.10/es_selling_pr.html
http://cobramcgiantballs.tumblr.com/ Xploder

From the interview – “Screw them. Seriously, screw them. You can quote me on that.”

I love it.
http://redesigned.com redesigned

Hurray for IP laws!!! In this case it happened to be bogus and beatable so we didn’t all suffer. It could have just as easily gone the other way.

Time for some IP law reform big time.
Sasha K-S

These guys walked off with like $50M for their nonsense or something. Hardly got their asses handed to them. Still, mad props and much appreciation to NewEgg.
austinhamman

while i commend newegg for their stand, not everyone can afford to fight patent trolls.
i seen a petition recently which would make patent trolls pay the full cost of claims if they lose. if filing a false patent claim costs them, trolls would be less likely to do it. the petition is here, sign if you agree:
https://petitions.whitehouse.gov/petition/make-patent-trolls-pay-all-costs-associated-their-frivolous-lawsuits-if-they-lose/gWPpVYMt
i think that is something just about everyone could get behind (including a number of large businesses)