The Company That Wouldn't Settle: Newegg's Landmark Victory ...

Photo by Eric Schmuttenmaer

For some, the burgeoning business of filing patent lawsuits against online retailers became big business. In the ideal scenario, a defendant in a patent case would settle ? essentially paying ransom to a plaintiff in the hopes of avoiding costly, time-consuming, and potentially injurious litigation.?Katherine Wolanyk, a former attorney and founding member of Latham & Watkins??Venture & Technology practice group, co-founded a company called Soverain Software. On its face, Soverain claims to have developed a ?robust e-commerce system which supports multiple storefront/merchant configurations.? However, recently-revealed court records indicate that Soverain has never made a single sale.?According to some journalists, the seemingly-reputable business of ?online shopping carts,? the colloquial ?term for Soverain?s professed business, was really nothing more than a front for the highly-lucrative business of patent trolling.?In addition to Newegg, Soverain filed similar suits against companies like?Nordstrom?s, Macy?s, Home Depot, RadioShack, and Kohl?s for alleged inappropriate utilization of patents (including patents 5,715,314, 5,909,492, and 7,272,639). Essentially, these patents claim ownership of basic online checkout technology.

In 2011, Soverain won nearly $18 million in a verdict against Victoria?s Secret and Avon in the Eastern District of Texas.?In addition, these companies were ordered to pay a ?running royalty? to Soverain. However, this most recent verdict essentially wipes out these lucrative awards.

In its landmark January 22, 2012 decision the Federal Circuit held that the ?shopping cart? patents were ?rendered obvious,? and the previous judgments for infringement and damages were vacated.

In an interview with Arstechnica, Newegg?s Chief Legal Officer, Lee Cheng, attributes the site?s victory to Newegg CEO Fred Chang?s stalwart and principled opposition to purported ?patent trolls? like Soverain. In reaction to the methods and and routine practices of these ?patent trolls,? Cheng is recorded as unabashedly proclaiming, ?Screw them. Seriously, screw them. You can quote me on that.?

It would seem that companies like Newegg?companies that relentlessly fight in these types of costly cases as a matter of principle?are the last line of defense in an arguably underdeveloped or otherwise lacking area of intellectual property law. For many, this raises myriad ongoing questions concerning the efficiency and effectiveness of the US patent system. Generally speaking, there is a vast backlog of patents in the US and abroad, and some contend that the USPTO is tremendously understaffed and underfunded. As a result of this backlog, many maintain that unworthy patents make it through an insufficiently rigorous patent application process. It would seem as though Soverain?s previously successful patent cases demonstrate a seriously inequitable patent enforcement apparatus that allows parties with very little interest in the creation of the patented technology to gain windfall profits from these cases.

These cases raise questions about the very foundations of intellectual property protection domestically and globally, and many activist inventors, professionals, journalists, entrepreneurs, and academics are joining the groundswell that is becoming a plea for change.

?Colton Cline

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Source: http://www.jetlaw.org/?p=13887

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