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Businesses Patents Your Rights Online

How Newegg Saved Online Retail 259

Posted by timothy
from the thank-heavens-for-angry-lawyers dept.
bargainsale writes with an account at Ars Technica of "the inspiring story of Newegg vs the patent troll. Perhaps the system does work after all." Newegg's lawyer Lee Cheng has some choice words for the business model employed by Soverain Software, the patent troll which tried, with some success, to exact money from online retailers for using online shopping carts. Newegg has prevailed, though, and Soverain's claims are toast. From Ars: "The ruling effectively shuts down dozens of the lawsuits Soverain filed last year against Nordstrom's, Macy's, Home Depot, Radioshack, Kohl's, and many others (see our chart on page 2). All of them did nothing more than provide shoppers with basic online checkout technology. Soverain used two patents, numbers 5,715,314 and 5,909,492, to claim ownership of the "shopping carts" commonly used in online stores. In some cases, it wielded a third patent, No. 7,272,639."
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How Newegg Saved Online Retail

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  • by 140Mandak262Jamuna (970587) on Sunday January 27, 2013 @09:37PM (#42712007) Journal
    Long time ago, in a country fair, I saw a kid playing Whack-a-mole. That boy took the large cushioned mallet and bopped the head of the first mole that popped up. Then immediately he dropped the mallet started yelling an running around "I won! I won!! I whacked the mole!!!". It is nice to hear that boy did well, is all growned up now, becoming chief lawyer for some on line retailer. Good boy! Now go whack another mole.
    • by Areyoukiddingme (1289470) on Sunday January 27, 2013 @10:04PM (#42712127)

      The sarcasm was fun, but if you RTFA, you'll discover this isn't the lone mole. He's been at it for six years, and this is at least the 5th mole. So no, he hasn't Won the Game, but he's a lot farther in than one mole and he still has his mallet in his hand. More to the point, he has NewEgg executives and NewEgg's money behind him, so it's a pretty large and well-funded mallet.

      NewEgg's executives should be inordinately pleased with themselves. Their strategy just paid for itself. All the money they sank into this defense will be paid back and then some by not having to pay a tax on every transaction to these stuffed shirts for the next 10 years. (Or 30 years, if they had filed an amended patent that magically re-ups the expiration term.) (Or 50 years. Or forever.)

      Meanwhile, there's a laundry list of other retailers with an online presence who either knuckled under or fought just a little bit, then knuckled under. Ask yourself why. The answer starts with "cr-" and rhythms with brony....

      • by 140Mandak262Jamuna (970587) on Sunday January 27, 2013 @10:12PM (#42712181) Journal
        yeah, I know, I know. I felt a twinge of regret when I hit the submit button. I was being grossly unfair. Sorry about that.
      • If there were any justice in the justice system, the patent trolls would be paying Newegg. Not just paying for Newegg's legal fees, etc, but actually paying Newegg.

        Those bogus patents pulled from their "portfolio", and given to Newegg, along with a few dozen more patents. They might actually own a valid patent that could prove valuable to Newegg.

  • by GoodNewsJimDotCom (2244874) on Sunday January 27, 2013 @09:39PM (#42712017)
    You gotta make sure it takes at least 2 clicks to check out, or you're done for. I still wonder why someone doesn't patent the 2 click, 3 click... n click patent so for anyone to do business without tribute it takes 1000 clicks!
  • Thanks, NewEgg (Score:5, Interesting)

    by sunderland56 (621843) on Sunday January 27, 2013 @09:41PM (#42712027)

    If I wasn't already a loyal customer, I sure would become one now.

  • I worked on the Transact product at Open Market.
  • by Bob9113 (14996) on Sunday January 27, 2013 @09:54PM (#42712079) Homepage

    Patent trolls often wield bad patents. There are also companies that make things that wield bad patents. Beware of associating the bad of our patent system only with trolls -- the problem runs deeper. If all trolls disappeared tomorrow, we would still have vast minefields of bad patents and enormous, destructive patent battles.

    We have just invented the greatest tool since Gutenberg for the dissemination of information. An almost incomprehensibly powerful tool for decentralizing problem solving. At the same time, we have been radically increasing the breadth and power of patents, which inhibit the decentralization of problem solving. Patents have a good mission, but their method is a hinderance to the information revolution. That conflict is inherent in patents; it does not require a troll to cause harm.

    • by Eskarel (565631) on Sunday January 27, 2013 @10:20PM (#42712213)

      I think you're just using too narrow a definition of "patent troll". Patents are designed to foster innovation. They give an idea value so that people will take the risk of investing in that idea whatever the scale of the inventor. If all ideas are trivially copied once their details are known then either the ideas have no value so no one invests in them or the ideas get kept secret and we don't get to know about them and build on them. Good patents provide this functionality, they temporarily stifle competition in order to foster innovation.

      Bad patents on the other hand merely stifle innovation. Patents can be bad for any number of reasons(the patent holder has no intention of seeking investment for them, the idea itself is trivial(a hard one since the whole idea of patents is that once someone shows you an idea it usually seems trivial), or the patent should not belong to the holder. Essentially these are patents with no upside for the community.

      If you wield a bad patent you're a patent troll be you some little company with no assets or the latest do no wrong tech firm, if you use a good patent you're not.

      This still leaves us with working out how the hell to determine things like triviality and prior art, but at least we don't have to try and determine intent. Patents, like copyrights and all sorts of other intellectual property, are a necessary evil, they always have downsides, but they're supposed to have upsides.When they don't, the holder is a troll.

      • by Drishmung (458368) on Sunday January 27, 2013 @10:59PM (#42712459)

        ...

        If you wield a bad patent you're a patent troll be you some little company with no assets or the latest do no wrong tech firm, if you use a good patent you're not.

        ...

        I think the term Patent Troll is more exactly defined than that, and divorced from the subjective judgment of "Good" or "Bad" patent. A Patent Troll is a non-practicing entity (NPE). The sole aim of a patent is to encourage the creation of new inventions. The mechanism to do that involves remuneration, but that's not the aim. A NPE doesn't produce anything, so it doesn't encourage the creation of new inventions. It sure encourages the creation of new patents, but is doesn't encourage the creation of new 'things'.

        You might argue over the goodness/badness of Amazon's 1-click patent, but Amazon at least provides a useful service using the process for which they hold a patent and isn't, in my opinion, a patent troll.

        Patents, like copyrights and all sorts of other intellectual property, are a necessary evil, they always have downsides, but they're supposed to have upsides.When they don't, the holder is a troll.

        I disagree with you only over the term 'troll'. Otherwise, you've got to the nub. Patents and copyright exist only to benefit society. "We, the people" created them solely to benefit us. If the economic burden of the current copyright and patent system outweighs its economic benefit—which numerous studies have indicated is so—we need to uncreate them

        That may seem naive, but OTOH, simply nuking software and business patents would go a huge way to fixing this, and that does seem to be the worldwide trend.

      • by martin-boundary (547041) on Monday January 28, 2013 @02:03AM (#42713169)

        Patents are designed to foster innovation. They give an idea value so that people will take the risk of investing in that idea whatever the scale of the inventor. If all ideas are trivially copied once their details are known then either the ideas have no value so no one invests in them or the ideas get kept secret and we don't get to know about them and build on them. Good patents provide this functionality, they temporarily stifle competition in order to foster innovation.

        Yeah, patents are designed to foster innovation like my kid's bee costume is designed to let him fly.... badly.

        Patents don't give an idea value. They give a piece of paper value. That creates an economy based on pieces of paper, and to prevent those pieces of paper from losing their artificial value, you need to enforce restrictions on people, ie take away some of their freedom.

        But actually, all you *really* need for people to invest in an idea is lots of them. The more people you have, the more likely you'll find one willing to invest in an idea. It's that simple. That's how it's always worked before patents even existed.

        Here's another secret: all you need for lots of inventions is lots and lots of inventors: educated people with time to tinker. We have those, more than we ever had in the history of the world. Ideas get rediscovered *all*the*time*.

        We really don't need silly pieces of paper that are collected by a bunch of rich corporations so they can stop other people from actually inventing new things. And we don't need US courts to tell us we should pay a ransom to the owners of those pieces of paper, just because they paid the USPTO a fee for the privilege of demanding our money.

      • by TheLink (130905)

        Patents are designed to foster innovation. They give an idea value so that people will take the risk of investing in that idea whatever the scale of the inventor.

        They are poorly designed then.
        1) A lot of really innovative stuff only gets big after many years - takes a lot to get the market ready for your stuff. See Douglas Engelbart and the Mother of all Demos. Whereas Amazon etc get lots of money and leverage from stuff like one-click and "Shopping Cart (Web Edition)".
        2) An overworked patent examiner can't tell how innovative something really is in zillions of different fields, and may not have enough to time to look for prior art by comparing broad vague claims wi

    • by demonlapin (527802) on Sunday January 27, 2013 @10:27PM (#42712267) Homepage Journal

      We have just invented the greatest tool since Gutenberg for the dissemination of information. An almost incomprehensibly powerful tool for decentralizing problem solving.

      And the reason it has worked is that we have not let governments kill it. Regardless of how you may feel about politics in every other area of life, please leave the Internet the fuck out of it. The Internet is the greatest accomplishment of humankind to date IMHO, and has transformed my life in ways I could never have imagined. I'm about the same age as the personal computer - born in the mid 70s - and I never even imagined any of this would be possible even when I was 12 and got my first modem.

    • And speaking of Soverain Software [soverain.com], their web page is responding "Service Unavailable" at the moment... Lol, and so on...

    • by steelfood (895457) on Sunday January 27, 2013 @11:00PM (#42712469)

      I think your scope is a bit too narrow. All "intellectual property" has this effect. All of it needs reform (sans trademark, which is more for consumer protection than a piece of "property").

    • Part of the problem is that patents are too long. In the 18th century having patents last as long as they do made sense as the pace of innovation wasn't that quick. Not like it is today.

      I think we need a patent system, last thing I want to do is come up with some clever algorithm that solves a novel problem and only to be undercut by someone with far more resources and market presence that didn't have to do the work of actually implementing or even thinking up that idea. On the other hand I don't want to be

  • From TFA: (Score:5, Insightful)

    by Areyoukiddingme (1289470) on Sunday January 27, 2013 @10:12PM (#42712177)

    Screw them. Seriously, screw them. You can quote me on that.

    In Internet vernacular: QFT—Quoted For Truth.

    Thank you Mr. Lee Cheng for saying it and saying it with attitude. I'm afraid it will probably cost you in the future when judges read about it and are miffed by your attitude, but you'll probably only be seeing the same six judges for the next 20 years anyway, and they already don't like you on principle, so... full speed ahead and damn the torpedoes.

    That's one useless little rent-seeker squashed. Only 1000 more to go...
    (Mr Lee Cheng of NewEgg has some serious job security.)

    • Re:From TFA: (Score:4, Informative)

      by Just Brew It! (636086) on Sunday January 27, 2013 @10:49PM (#42712393)
      I don't think the judges will give a flying fuck about the colorful language. It was in an interview for a tech news site, not something he said under oath in a courtroom.
    • Re: (Score:3, Informative)

      by jonadab (583620)
      The thing is, this ruling in Newegg's favor didn't just invalidate Soverain's $2.5 million case against Newegg. By going for the validity jugular and winning, they managed to invalidate Soverain's patents and cost them the hundreds of thousands in settlements they otherwise would have had from all the big retailers who wouldn't have taken it to court. The defendants in all the other pending cases can now point to this verdict. (In layman's terms, the argument goes along the lines of "Soverain is suing us
      • Re:From TFA: (Score:5, Interesting)

        by Areyoukiddingme (1289470) on Monday January 28, 2013 @12:30AM (#42712837)

        They aren't going to have to do that a thousand times. If they can manage it two or three times, and get nice big public stories about it featured in the news, future patent trolls will conveniently forget to sue Newegg in favor of going after everyone else and collecting settlements that don't endanger their existence.

        Sadly, you are correct. Now that you mention it, I think you overestimate the number of times NewEgg will get a chance to defend against a troll. This may be the very last time. NewEgg's lawyer will be reduced to filing amicus briefs on those cases from which NewEgg was omitted.

        I do have one question for our lurking lawyers. Does this mean other companies who have previously settled automatically get their settlements refunded? Does Victoria's Secret get their $18 million back? I would assume it's not automatic, so my real question is can they file something and get it back? Or once you've settled, is your money gone forever? That's something I haven't seen addressed in the numerous Slashdot patent threads.

        • by edb (87448)

          Most settlements are self-contained, and are not affected by outside events or court judgments. A settlement by definition is a short-cut to circumvent going to trial; that pretty much limits its scope in both directions. The settlement does not affect other litigation (outbound effect = 0) nor is it affected by other litigation (inbound effect = 0).

          If other parties to other lawsuits which have settled agree to reopen those settled (i.e. closed) suits, then they are open game. Otherwise, them's the rules

    • Re:From TFA: (Score:4, Insightful)

      by nedlohs (1335013) on Monday January 28, 2013 @12:58AM (#42712951)

      It's part of the gambit. They have to generate as much publicity as possible so that other patent trolls see it.

      It's the same technique as "we don't negotiate with terrorists". It doesn't work if no one knows it's what you do. The idea is that patent trolls won't bother going after them because the patent trolls want the settlement option, they don't want it to end up in court and certainly don't want the patents themselves challenged.

  • Prior Art (Score:4, Insightful)

    by Gary Perkins (1518751) on Sunday January 27, 2013 @10:14PM (#42712191) Journal
    According to the article, the main prior art they found was a Compuserv checkout. I wonder if they were prepared to bring up the various bulletin board commerce solutions...surely a few of those would qualify as well. It's absurd that a company would think they could sue every company and license for a technology that's existed since at least the early nineties, but wasn't patented until the web was well under way, and had NO ties to the original software.
  • by Frosty Piss (770223) * on Sunday January 27, 2013 @10:49PM (#42712391)

    Soverain had already picked a fight with the biggest kid on the playground and won. The first company it sued was Amazon, and Soverain scored a $40 million settlement from the giant retailer back in 2005. The Gap also settled for an undisclosed sum. That was back when defendants were afraid of RIM-sized damage payouts, before eBay v. MercExchange and subsequent Supreme Court decisions started to put some limits on what do-nothing patent holders could win.

    So what happens now to all that loot that these companies paid out?

    As far as I'm concerned I hope Amazon can't get any back, what with their own bullshit bag of silly patents...

  • I'm going to go right now and buy something from Newegg.. Not sure what but I'm going to buy something.

  • by CuteSteveJobs (1343851) on Sunday January 27, 2013 @11:03PM (#42712481)
    > "the inspiring story of Newegg vs the patent troll. Perhaps the system does work after all."

    Unfortunately this doesn't take into accounts the costs. Newegg was lucky that they had an in-house lawyer and the original owner who was prepared to make a stand. This is rare: Conventional wisdom is to hire outside lawyers - patent specialists and all. Lawyers don't come cheap, so Patent troll victims end up owing their lawyers millions of dollars EVEN IF THEY WIN. Under the American court system usually the loser does not have to pay the winners costs, and even in countries where they do, the loser only pays a fraction of the winner's costs costs. The article also doesn't consider the incredible waste of employee time responding to a suit where they could be doing something profitable instead. It also doesn't consider the stress on the employees and the owners. No one will buy a business threatened with a patent lawsuit. Business development grinds to a halt. In theory judges are supposed to dismiss law suits without merit, but they don't - because they don't give a shit about the costs and it gives them something to do.

    That the original judge fucked up does not surprise me. Forget what you see on TV about just and fair judges: In patent troll counties like the Eastern District of Texas the judges are blatantly pro-plaintiff. If they were not all the money flowing into their district would dry up, the judges and legal fraternity would be looking for a job somewhere else. The system has not worked. Newegg may have won, but the suit would have still cost them a fortune. This is a rare outcome and usually costs the trolls nothing who shrug and move on to their next victim.

    I suggest a new strategy: but the judges of the Eastern District of Texas and other patent troll counties under a microscope and petition the government to remove judges who are playing sides or unfit or incompetent to serve. Did you notice the article doesn't name the original judge? Awesome job. Imagine being able to fuck up like that but everyone is so in awe of your power no one will name you. In any other profession people would be laughing at them over the water cooler.
    • by nomadic (141991) <nomadicworld@nOSpaM.gmail.com> on Sunday January 27, 2013 @11:20PM (#42712569) Homepage
      "Newegg was lucky that they had an in-house lawyer and the original owner who was prepared to make a stand. This is rare: Conventional wisdom is to hire outside lawyers - patent specialists and all. "

      They did hire an outside law firm, Weil Gotshal, which is one of the top firms in the country.

      In theory judges are supposed to dismiss law suits without merit, but they don't - because they don't give a shit about the costs and it gives them something to do. . . That the original judge fucked up does not surprise me. Forget what you see on TV about just and fair judges: In patent troll counties like the Eastern District of Texas the judges are blatantly pro-plaintiff. If they were not all the money flowing into their district would dry up, the judges and legal fraternity would be looking for a job somewhere else.

      Absolutely wrong, judges love dismissing cases, particularly complex cases like patent actions, because they don't want their docket to get overloaded. Judges make incorrect holdings of fact and law all the time; that's the whole point behind appeal courts. It's usually not out of malice or incompetence, despite perennial slashdot anger at what is perceived as to the contrary. Speaking as someone who used to litigate in federal courts, the majority of judges just don't care on a personal level about the parties before them, they just want to get the cases moved through their court. The only personal investment most judges have in the cases is they don't want them to be reversed because they consider it as a hit on their reputation.
  • by nomadic (141991) <nomadicworld@nOSpaM.gmail.com> on Sunday January 27, 2013 @11:13PM (#42712535) Homepage
    The funny thing is CDW, Zappos, Systemax, etc. are still on the hook for the money they settled for. Bet their trial lawyers are kicking themselves right now.
  • by Jack9 (11421) on Sunday January 27, 2013 @11:42PM (#42712663)

    > Perhaps the system does work after all.

    Winning your 1 case, does not mean the system is working as intended, regardless of the outcome.

  • by Skapare (16644) on Monday January 28, 2013 @03:07AM (#42713371) Homepage

    ... a more accurate term I believe would be leech.

  • by lkcl (517947) <lkcl@lkcl.net> on Monday January 28, 2013 @06:42AM (#42714055) Homepage

    that newegg had to go to court at all indicates that "the system" is a failure. software is mathematics. mathematics is unpatentable. it was a lower-court ruling ignoring the supreme court which resulted in the mistaken impression that software can be patented: U.S. law *actually* says that only a hardware-software *combination* may be patented, i.e. something like an electronic cash register, or a calculator. if someone makes better software that runs on e.g. TI's hardware then, under U.S. Patent Law, that alternative software *cannot* be patent infringing. the problem is that it's going to take someone to stand up, just like newegg did, but this time to take it all the way through to the supreme court. and that's the problem: the cost of taking things to court. if patent litigation was zero cost to the defendant, including taking things all the way to the supreme court, *then* the system would not be unequal, and would be sorted out pretty damn fast.

"Bureaucracy is the enemy of innovation." -- Mark Shepherd, former President and CEO of Texas Instruments

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