Wednesday, January 30, 2013

An New Indicia of Extortion

Here is the latest from our Indicia of Extortion collection, brought to you via Ars Technica.

Newegg, Inc. won its patent suit against non-practicing entity, Soverain on appeal.  Soverain claimed it owned the patent for the electronic shopping cart.  The Ars Technica article includes the details on the defendants, just about every major e-commerce player who sells products on the internet.

Newegg's Chief Legal Counsel, Lee Cheng's interview in the Ars Technica article offered insight into Newegg's commitment to follow the case through all the way to the end based on their well-founded belief that their products didn't infringe Soverain's patents and that Newegg didn't owe royalties on prior and future sales.  Mr. Cheng note that, "It's part of our duty as a good corporate citizen to try to accelerate the rationalization of patent law."  He is to be commended.  It's easy to say the patent system is broke.  It's much harder to do something about it especially when it would have been cheaper to just pay up, pass the 1% royalty fee to your customers and move on.

And when commenting on the submarine patent nature of patent trolls, where patent holders lie beneath the surface for long periods of time, usually while entrepreneurs create markets for products using patented technology and then do the pop-up and pay-up by suing the now profitable company for royalties, Mr. Cheng added,

"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."

The Court's decision on Soverain Software v. Newegg, Inc. is an interesting read because it provides an accessible example of a patent infringement decision based on obviousness and the scope of prior art.  It is easier to understand than many other more technical obviousness claims because the technology is understandable to anyone who has shopped over the internet and used an e-commerce shopping cart.  If you are trying to wrap you head around how obviousness works, read the decision.

The folks at a long list of America's top retailers and e-commerce giants are sleeping easier night.  Tomorrow they should be calling their IT folks and telling them to check out Newegg the next time they need laptops, keyboards, software or a host of any other products and to have fun clicking Add to Cart.

Update - February 11, 2012:  Mr. Cheng provided comments to the Federal Trade Commission on the impact of patent trolls on Newegg's business.  The comments, available here, provide insight into the complex and nuanced impact that patent assertion entities have on Newegg's business.  The comments are thoughtful and highlight the complexity of the issues.