How Newegg crushed the “shopping cart” patent and saved online retail
arstechnica.com
arstechnica.com
My congratulations to Newegg for their courage and resolve in standing up to Soverain. At NetMarket, we were proud of ourselves for figuring out after a few days that we couldn't put the state of the shopping cart items in the URL, since you lost it with the back button, and so we needed to use a state ID in the URL as a key to the database. The idea that this was patentable was and is absurd.
[1] http://news.cnet.com/E-commerce-turns-10/2100-1023_3-5304683...
'492 assignment history: http://assignments.uspto.gov/assignments/q?db=pat&pat=59...
'314 assignment history: http://assignments.uspto.gov/assignments/q?db=pat&pat=57...
Soverain patents by assignment: http://assignments.uspto.gov/assignments/q?db=pat&qt=asn...
They've all pretty much been reduced to "X on a computer" or "X over a network" with "X" being ideas that are in many cases decades old and if patented, long since those patents have expired.
I guess this is what we get with patent office incompetence and rubber-stamp-happy inspectors. The patent office a little while ago asked for "feedback" on the software patent issue. I had a good chuckle.
This kind of reasoning also applies to border skirmishes, contract disputes, and patent trolls.
I.e. when Victoria's Secret gets hit with $10 million a year in royalties (or whatever the number was), they can say "We're not going to fight these patents in court, but if somebody else fights them and wins, so we don't have to pay that $10 million/year royalty anymore, we'll give them a one-time $3 million payment."
Victoria's Secret has an incentive to post a bounty under these terms, because having that promise available can only improve the chance that someone else will take it on. And they only have to pay out the reward when Newegg wins -- which means setting up the bounty didn't cost them money, it saved them money (assuming the reward was what made the difference between Newegg fighting and rolling over).
This way, each business can settle or fight depending on their specific circumstances, but the companies that choose to settle can still encourage others to fight.
Continuing the thought experiment, what if companies continued to do business but added a surcharge to products shipped to troll-favorable districts? It seems that the jurors in those areas would be more intimately aware of patent trolls if they had to pay a 1% extra fee when they ordered Avon products.
I'm sure some companies do such a thing and just bundle it up with the cost of the product itself, but I'm curious if any companies took a more forceful stance.
Most people have no concept of software patents, until a company they know or do business with is suddenly affected. So a boycott or even a threatened boycott with Texas may get a lot of attention.
Public education programs targeted to residents of East Texas. Documentaries, billboards, sophisticated advertising campaigns, unsophisticated advertising campaigns on 7-11 cups, etc. Whatever communicates to the residents.
i.e. don't say "you hillbillies are stupid pawns", but use a marketing campaign that speaks to the residents. For example "people claiming to hold patents are destroying freedom -- they're like people trying to take away all your gun rights".
Whatever works to enlighten.
This tactic is not intended to be a silver bullet, but part of a no holds barred effort to battle this ridiculous patent nonsense. Weaken troll's ability to exploit the Eastern District of Texas (while more directed efforts to solve this problem continue).
To get through in an immediate way you have to educate them on how much it costs them in monetary terms. For example, often it is cited that juries give ridiculous amounts at trial because it "isn't their money". I fully believe that many think this way. But if the affected party are organizations that receive money from the public for their services in return, in the end it is their money they are giving away.
My understanding is that it's the trolls that open offices in Tyler just so that they can file the suit in that district. I.e. the plaintiff is dragging the defendant into TX, and the defendant can't avoid that court.
So your choice is choosing a jury in a district that is more familiar with technology, software, and patents or choosing a jury in a district who were dumb enough not to get out of jury duty.
"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 system "fundamentally works" if you have the money to make it work for you. Most individuals, small and medium businesses simply cannot afford the cost of seeking justice. In my opinion this is true of civil, business an criminal law.
Example:
Back when I was younger and far dumber I client stiffed me for about $125K of work. Of course, off I went to a lawyer. By the time I spent about $8,000 in legal fees I realized that all I was doing was paying for my attorney and their attorney to write what I came to call "love letters" to each other. I called them "love letters" because every time they wrote one, regardless of content, they got paid handsomely by both parties. I decided to lick my wounds and move on. Good thing I did. The client ultimately filed for bankruptcy protection and stiffed a bunch of other businesses out of hundreds of thousands of dollars. They formed a new corp pretty much in parallel and have been operating ever since.
Would money have made a difference here? Maybe. Don't know. I had a similar situation with a large (multi-billion dollar global corp) that cause us huge damage. There was simply no way to go after them without putting-up at least $500K in the bank for legal fees. Not a fight I could have considered. And so, even though they were decidedly in the wrong, they, effectively, "wrote their own laws" or were able to ignore them because they could fight a fight I couldn't even begin to consider.
What I do know is that it sure felt like there was a huge asymmetry in justice. It's almost like one can exist in this parallel universe where the practical result was that laws simply were not applied in the same way to those with less money to "buy" justice.
Whenever exec's talk about needing to file patents for "self defense" I always think of cases like this. I don't know anything about OpenMarket, but I'm guessing they had similar logic. Then they go belly-up and these toxic patents make their way into a trolls portfolio.
No matter the company, IMHO, it's generally best to abstain from any patent fishing expeditions.
But I can report that the company was quite proud of its shopping cart patent, and its patent portfolio in general, largely because they felt that it protected them and established them as a major player in the nascent but growing e-commerce market. There was a sense, though, even then, that the patent was pure bullshit. I never heard any contemplation of using the patent offensively, and from what I can recall there was a feeling that if that were to happen, the same thing would happen to Open Market that happened to this patent troll. That is to say, that it wouldn't stand up.
Indeed, this is a good cautionary tale as to the havoc that "defensive" patents can wreak once they get into the hands of trolls.
Is there a site somewhere listing which firms represent patent trolls?
It's the software litigation equivalent of defending terrorists after all.
If a name is sold to another company and the index hadn't been updated, the new company and name will be at risk for misdirected rage.
We need to see alot more of this happening - hopefully this will show people there is another way to go, i.e. never ever settle with a patent troll, no matter how scary the alternative may seem to be. 3 patents invalidated but thousands to go. It is disgusting that these trolls managed to collect so much money before their garbage patents were ruled as such.
I agree patients are bad, but let's not take things out of perspective ...
Just a thought: abolish the patent system. Pay the pharmaceutical research companies directly, by the State, like we do with military research or civil works. I prefer free markets but anything touched by patents is not a free market either.
The cost could be shared by the rich countries. Research is expensive but is a fixed cost. Manufacturing could be done by the free market, because all drugs would be generic. Rare diseases could be researched instead of just profitable ones. We would avoid all the "convincing" doctors to buy expensive patented drugs. Some companies would be specialized in research, others in manufacturing. Developing countries wouldn't have to be worried about patent fees they can't afford.
IP lawyers would lose, I guess.
[1] http://www.economist.com/news/china/21570762-curb-widespread...
The patent trolls have made tens of billions at this point - around $20B last year alone in fact. They have deep pockets and will not go away easily. It will take a real fight to change things, and it will require the support of many industry players.
Since IP lawsuits entered my field of awareness, starting with the Napster Trial, I've always wanted to set up a web site called "idancedonyourgrave.com" (or something with a similar sentiment). Morbid, but I want user-submitted pics of people actually dancing on the graves of people who have damaged our society through policy and abuse of the system.
My current candidates are: Lars Ulrich (Metallica, figurehead of the Napster lawsuit), Jack Valenti (former president of the MPAA -- hey, he's dead now, too!), Hillary Rosen (former president of the RIAA), and now I'll add Katherine Wolanyk (from the article, a co-founder of Soverain, patent troll).
Looking at the companies who got sued by these trolls one can only wonder why it is that these companies don't unite to create a legal and financial firewall of sorts to go against trolls each and every time they stick their heads out of the slime they live in. All you really need is for trolls to be summarily destroyed for a few years to create the conditions for change.
I have not bought anything from Newegg in a long, long time. Sometimes I almost instinctively just buy through Amazon. Now it will be different. Because I admire, respect and appreciate what Newegg did here I will do my small part and move whatever business I can their way. It's my own little way of saying "thank you" to a company that didn't just stand-up for themselves but rather for all of us.
Maybe if enough of us chose to vote with our cash more companies might be convinced to fight trolls rather than cave in.
I read that the judge said jurors would be confused... is this normal in any other type of case? Not a satisfying explanation.
So on appeal, the appellate court can overturn a specific finding (i.e. one of the underlying claims are invalid) but not overrule the overall finding (i.e. the infringement finding is still valid because they found that if certain other claims were valid then the defendant did infringe).
This is obviously more complicated in practice because juries are supposed to only decide issues of fact and not issues of law - but in some cases it's difficult to say exactly what is law and what is fact. This is especially so in patent law, where the actual letters patent are supposed to be interpreted in light of the relevant patent legislation, and often turns on interpretation of words (which are questions of law).
This is, by the way, why patent trolls like jury trials. It's easy to bog down processes in these trials and confuse the jury.
As for the Samsumg case, that's complicated by a generally ignorant foreman who seems to have convinced fellow jurors that his interpretation of the law was correct.
Large established and heavily profitable organizations like Newegg might be able to pull this off, but what about all the small startups that are forced into bankruptcy by settling when the trolls come knocking? They don't have the resources to put up a fight. If larger companies tend to fight the tedious and expensive legal battles or avoid getting harassed by other companies by building up their own stash of patents that they can use to retaliate, in the long term what it really does is incentivize companies to go after larger numbers of smaller fish that can't put up a fight.
Points of interest to me:
Lee Cheng: And we'll take a case through trial as a matter of principle because we want to accomplish the purpose of making good law. Like eBay did, like Quanta did when they challenged LG. It's part of our duty as a good corporate citizen to try to accelerate the rationalization of patent law.
This guy talks like a crusader for just law instead of an executive or business owner. You'd pretty never hear this from anyone in a public company, it just wouldn't be possible. More's the pity that most people can't really achieve big results like this; we have to retain ownership of our businesses in order to really live out our principles.
-
A commenter on Ars, on why no one else fought Soverain to the end:
I think the problem from most defendants' perspective is that they can just pass the costs along to their customers without facing any strategic disadvantage. Compared to its competitors, does Newegg winning this lawsuit give them any competitive advantage? After all, their competitors are no longer subject to paying for the invalidated settlements either.
By paying the settlements, the companies reinforce an awful system, but they also don't need to face the volatility and potential cost of a jury-trial in districts cherry-picked by the trolls. By going to trial, the defendant only stands to maintain patent troll cost parity with their competitors (if they win and invalidate their competitors' settlements)- or they lose and get hit with a judgment that could be extremely costly.
Further, in most organizations, management risks the ire of their shareholders should they elect to go to trial and lose. They're again put in a situation where their personal risks outweigh any benefits they stand to gain. Even for executives that consider themselves ethical, they can still rationalize that minimizing risk to the shareholders is the ethical decision.
-
This seems true enough - from a (rational) game-theoretic perspective, why should any victim really fight hard to overcome a troll, if in doing so they risk big losses, and don't gain any advantage over their competition even if they win? The main potential upside is that consumers and potential partners will view them more favorably and give them more business (as is happening now), but this is a very unreliable bet to make. The downsides of "doing the right thing" are very likely greater than the upsides.
The main motivator to fight the trolls has to be personal principle, and even then the principled person has to balance it against the real risks to his company and lifestyle. Newegg had the gumption and muscle to see the case to its end, but it was the lucky one, the one-in-a-hundred with the right attributes (principled owners, private ownership, deep pockets). We're not likely to see this kind of thing happen very often, with the odds stacked against what should be the right outcome.
And that's all the more reason to salute Lee Cheng, Fred Chang, and James Wu and their victory against profiteers in a flawed system. CEO Fred Chang probably deserves as many, if not more, accolades as Lee Cheng, for deciding as the major shareholder to take this battle to its end.
Once that becomes common knowledge, I think it has to change the calculation. Settling is no longer about how much the troll in front of you is asking for; it's about the unknown number behind them in line, as well.
While it certainly sucks to have to bet your company to get these trolls to go away, if the alternative is for dozens of them to bleed you slowly dry, the bet may seem more worth taking.
There's a coalition for the open Internet, why not a coalition for fair innovation in technology? (Perhaps in collaboration with the EFF's Defend Innovation initiative?)[1]
[1] https://defendinnovation.org/
edit: Interesting trivia from a legal news site:
http://www.americanlawyer.com/digestTAL.jsp?id=1358711387829
In Tuesday's decision, the Federal Circuit ruled that three of Soverain's core patents are invalid on obviousness grounds. "The district court's conclusion that a prima facie case of obviousness was not met is not explained by the court by Soverain, and does not accord with the record," the appellate panel ruled. "[T]he trial record contains extensive testimony of the experts for both sides, discussing every claimed element of the patented subject matter and the prior art system."
If I understand this right, Judge Davis simply ignored all Newegg's testimony about prior art and ruled that they hadn't even made a prima facie case for obviousness. Thankfully the Court of Appeals didn't think so. I wonder if Davis was simply leaving the issue of patent validity to a higher court to decide, or if he really had a good legal reason to ignore prior art and the evidence for obviousness. The Soverain lawyer's blogpost provides an inside view on the 2010 case: http://mcsmith.blogs.com/eastern_district_of_texas/2010/08/j...
In the end the jury's $2.5m award might not even have covered Soverain's legal costs, meaning that it wasn't a win for them either - more of a draw.
Reading the fresh Appeals opinion is interesting too: http://www.cafc.uscourts.gov/images/stories/opinions-orders/...
Precedent agrees with Newegg that a person of ordinary skill[2] could have adapted the CompuServe order command to known browser capabilities when these capabilities became commonplace, and that it was obvious to do so. The product identifier message term does not distinguish the shopping cart claims from the prior art CompuServe Mall.
Clearly sensible reasoning, not misled by technicalities and sophistry - I like it. The opinion is basically a no-nonsense slap-down of Soverain's arguments and Davis's ruling, which will no doubt restore your confidence in the justice system a little. It was surprisingly easy for a layman like me to read, too.
I think it's a mixture of lawyers believing their own BS about patents, lack of understanding that the patents are bogus and going for the easy way out.
This might be true over a single iteration, but I don't think it holds well over indefinite iterations. Developing a (credible) reputation as an entity (government, corporation, person, etc.) who doesn't "negotiate with terrorists" can be quite a valuable asset.
Just like productive companies have an incentive to give in to the demands of patent trolls, patent trolls have an incentive to avoid companies who "don't negotiate with terrorists", in part because there is a very high (> 50%) rate of claim invalidation across the industry (what does that say about the quality of the original examination?), and in part because it costs the patent trolls just as much money to go to court as it does the productive companies.
Funny thought, these patent troll cases are turning into Western movie stories. Villain terrorizes small town because group won't defend themselves because of fear of loss of life and/or property so it's easier to just give in. One to three strangers appear then save town by standing up and fighting because they realize they have nothing to lose in the long term.
If for my company to survive I must pay "rent" to a patent troll, taking a stand against them would be my first choice. (Obviously this only works in a position like Fred Chang's where he can unilaterally make such a choice.)
Just like more trolls may appear out of the woodwork after settling with the first one, Newegg gets a karma boost for defeating one. But consider that it might just make it all worthwhile to go home at the end of the day smiling.
(You might have been facetious, but I'm not sure, so I'll just take it literally.)
I'm not saying that's your stance, but I wouldn't worry about my employees' future without my company as much, since I am worrying about my employees' future in a world dominated by rent-seeking behaviors like patent trolls.
Maybe my employees see the world like I do. Maybe they don't. I can't wait for 100% unanimous approval before making decisions. I certainly plan to try and help them if I destroy the company that was paying them, but that's entirely up to me.
> This seems true enough - from a (rational) game-theoretic perspective,
> why should any victim really fight hard to overcome a troll, if in
> doing so they risk big losses, and don't gain any advantage over their
> competition even if they win?
The demand curve will remain constant but the supply curve will shift to the right. Less product will be sold at a higher price and there will be dead-weight losses.
However, you bring up a very valid point--what happens if the losses for each individual firm are less than the cost of paying off the troll, but the losses as a whole are greater? Then it would be in the interests of all firms in a market to band together and fight the troll collectively.
The problem with a pact as you describe it is that joining is not mandatory, and a rational actor will just let everyone else join the pact, and the pact will never get formed. There needs to be an incentive for joining the pact, as well. Patent pools, ironically, may be such an incentive.
I'm just glad that New Egg decided to be irrational this time around.
Are there any potential down sides to this idea?
"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."
And it's a shame there isn't much cooperation between people attacked by patent trolls. It feels like there could be benefits of scale if you have 5 firms cooperating against a troll.
What has been is what will be,
and what has been done is what will be done,
and there is nothing new under the sun.
(Ec 1:9)Good job, Newegg!
I mean, what?
How else are you supposed to do it?
I mean.. seriously? They patented the concept of keeping track of things a customer intends to buy?
If no one had ever done this before, how many people would arrive a this solution tomorrow?
It's not hard to implement and absurdly obvious to even think of.
patents if anything should allow innovation but not be a bump on the way to innovation!!!
This reminds me of the classic pre-emptive divorce maneuver Tony Soprano pulled: http://en.wikipedia.org/wiki/Unidentified_Black_Males#Episod...
If you don't want to get sued by patent trolls, get all patent troll attorneys on retainer.
I take your point though. Can you imagine having to pay royalties to Compuserve over a shopping cart in 2003?
You'd think that's crazy, but the universal search patent Apple is bedeviling Android with has a priority date that goes all the way back to 2000 (this is why Google Desktop Search is not the vaporizing prior art it should be), but wasn't actually issued until December 27, 2011! And if I understand the rules correctly, absent successful invalidation that means we're stuck with Apple "owning" universal search until almost 2029.
It became effective June 8, 1995: http://www.uspto.gov/web/offices/pac/mpep/s2701.html#sect270...
Wouldnt it make sense for Hacker News to provide an affiliate URL to Newegg? After all, you wouldnt be shopping there if it werent for YC notifying you of their noble actions - YC is driving business to them and receiving no sales commissions.
Is there a legal way to make them pay for their prior litigation? Or to force them to pay Neweggs legal fees?
Could it gain traction?
Seems reasonable.
Not quite as good as Amazon but way up there.
Best quote of the day