Newegg vs. Patent Trolls: When We Win, You Win
blog.newegg.com
blog.newegg.com
To achieve a decisive victory in these cases, Newegg typically has to take the defense of its case through a full trial and possibly an appeal.
People often fail to appreciate just how risky a trial can be. We stand on the sidelines and laugh at how absurd this or that flaky patent appears. And yet - and yet - the law itself went through a phase in which such patents were almost routinely granted. Standards may have tightened over time but, still, a patent claim in a hotly litigated case will not survive to trial unless it has been able to withstand a host of pretrial challenges by which a defendant has already asked a court to rule that the patent, as a matter of law, should not stand. It is only when a court tosses the patent claim in the pretrial phases that a defendant avoids the risk of a potentially absurdly high verdict after trial. If the claim survives such challenges, then the defendant has no choice but to settle or to play it out through trial while incurring just a risk of having a large verdict entered against it. This is the point at which most defendants - even large, deep-pocket defendants who can otherwise afford to pay the costs of defense - will fold. Newegg, on the other hand, has made the tough decisions, incurred the major risks, and largely managed to defeat such patents on the merits.
In doing so, it incurs the very large costs of defense typical in such cases. And it has the guts to take the potential liability risks of going through full trials to take the cases to verdict.
Large, institutional defendants have occasionally (though rarely) adopted such policies in the past. For example, over decades, GM adopted a policy of never settling injury claims if its own experts had determined that the GM autos were not at fault. In doing this, it would often incur defense costs that far exceeded the value of the claim being defended. But it did so to send a firm message to the plaintiff's bar that prosecuted such claims - that is, "if you want to sue GM, your case had better have merit - you will get no nuisance settlement from us."
Newegg effectively is delivering the same message but with an important twist. If GM successfully defended a particular injury claim, that ended the case for that claimant but had no preclusive effect on other, similar claims. If Newegg successfully defends and defeats a patent claim by having the patent declared invalid, the law of what the lawyers call "res judicata" (meaning, "a matter adjudged") kicks in and kills that patent off forever.
So, not only does Newegg take out the garbage, it makes sure it won't accumulate ever again.
This is a true public service for which we all must tip out hats.
Is the underlying reason for this strategy the low costs of settlement, or the extremely high costs of lawsuits? What if the value of a patent really is only a few thousand dollars?
Note that this very tactic is used by big companies to avoid licensing valid and useful patents owned by smaller entities. Licensing discussions often begin with the potential licensor saying "sue me", or these days, outright suing you first with a Declaratory Judgement. Can an individual afford to take on a large company? Trolls appear to simply be a symptom of this disparity in the market.
(I'm not an expert on the subject, but it's been discussed before on HN, and this is my recollection.)
It occurs to me that an interesting variation would be for the loser to pay an amount equal to the lesser of the two parties' legal bills. That would limit the risk, and remove the incentive for the deeper-pocketed party to spend money just to inflate the bill.
I am small troll A suing company B. I lose, judge orders that troll A pay all the legal fees. I don't have the money, I file bankruptcy, I flee the country.
Lawyers still want to get paid. I doubt any legal team will just chase some random around into collections because "loser pays"
I remember a comment a while back on HN or somewhere which suggested an approximate solution to this : the loser must pay the costs equal to its or the winners fees- whichever is lower.
What about the situation with east Texas where they side with the patent holder the majority of the time?
Under this I might almost be more likely to just settle. Do I pay nothing, a paltry sum to settle, or 2-4x the cost without "loser pays" to lose? If I have even a 10% chance of losing it sounds like settling might be a good deal.
Not to mention that the costs to the losers the few times they win would really scare anyone who isn't able to eat the massive costs anyways. Would you sue someone from stealing thousands from you if there was a small chance at you owing them millions?
Are there caps? Is one side prohibited from charging substantially more than the other?
I think it would somewhat depend on the judge's assessment of the situation, but I would think so long as you're acting in good faith they'd likely rule for you to pay whatever costs you can afford, and the rest would be covered by public finances.
It wouldn't surprise me to hear of judges deciding that the defence's legal team is grossly excessive and telling them they're not claiming for everything either, at least in the UK judges have quite a lot of leeway in what they can do in their own court room.
If the max cost of predatory practices isn't much higher than the gain from using them in the rare cases when caught, it creates an incentive to use such practices.
This isn't a complete economic argument in favor of companies behaving poorly. Punitive damages pale in comparison to a threat of loss of future business dealings as a result of poor behavior.
Japan, for instance, prohibits punitive damages. Is there any suggestion on your part that companies there are somehow more "predatory" than ones here in the US?
That fully depends upon how you simulate humans in one's argument. For a generally rational generally well informed human this is likely true (note I'm not even going with the 'fully rational fully informed'). But for the majority of consumers, there is less cost and there are ways to reduce the cost further. There will be some impact when the news breaks (if it breaks, the story being publicly available is a world of difference from the story being CNN/Fox New's headline of the day), but people will quickly lose interest or otherwise stop caring. While punitive damages may not be enough to fix the issue, I think there is an issue and I think the issue would be worse without them.
You run into a lot more useful ones at the intersection with the physical world where some protection lets a company get a chance to be the first one to market and reap some benefit.
In some industries (Pharma) it's really the only practical approach due to the extreme development costs (easily over 1B$) and often cheap production costs.
Though seriously, I think the term landmine is loaded toward using patents exclusively as a troll. A wider analogy could be like a toll bridge, where the builder should be compensated by travelers. Some tolls could be usurious, but that wouldn't invalidate the whole principle.
Your impression is likely based on what you hear in a) tech media, which is largely supported by ads and hence welcome rage-views, and b) tech forums like this where open source is the dominant religion. But count how many times you've heard of a merit-less lawsuit, and compare that to the dark matter of millions of active patents out there. Forming opinions based on cherry picked examples is not a good idea. Better to look at empirical evidence.
I'll give you some numbers less than 1% of patents are ever asserted, and only a fraction of them make it to a trial. The vast majority of patents lie fallow because there is no demand for their technology in the market. Now does that look like a serious problem anymore?
For one concrete example, anyone who worked on data compression outside of purely academic areas has been harmed, and by extension their customers have been harmed, by early software patents in that area. The LZW patent (infamously associated with the .GIF file format) and IBM's patents on arithmetic coding both rendered entire fields of computer science radioactive for years.
It's perhaps even more enlightening to spend some thinking about what life would be like if everything that could be patented under the incredibly loose standards of the USPTO was patented. It's safe to say you wouldn't be able to afford the computer or tablet you're typing on, nor the Internet service necessary to convey your thoughts. But this argument is also moot because neither of those technologies would be available in their present form, at any price.
Your impression is likely based on what you hear in a) tech media, which is largely supported by ads and hence welcome rage-views, and b) tech forums like this where open source is the dominant religion.
My impression is based on decades of work in the industry.
I'll give you some numbers less than 1% of patents are ever asserted
How many land mines ever explode? Does that make land mines a good thing? Patents are intellectual land mines, nothing more, nothing less.
http://eml.berkeley.edu//~bhhall/papers/HallHarhoff12_NBER_w...
Your example is not concrete. What you think of as "radioactive" could simply be researchers concluding that specific area was not worth exploring anymore. Here's how you can give a concrete example: Those patents have expired. Can you point to any new fundamentally significant compression technology that has since emerged that could have been thought of as being previously held back by those patents?
Now I can give a concrete example of how those very same patents caused innovation: When they sued people over lzw in gifs, that prompted people to develop alternate methods like PNG. Sounds like progress to me. Was it forced innovation? Sure! But that's always been one of the rationalizations of patents. People often don't innovate unless forced to.
>My impression is based on decades of work in the industry.
So let's get even more anecdotal: how often have you been unable to "advance the arts" due to a patent?
> How many land mines ever explode?
How many good ideas get ripped off with their creator getting nothing in return? If we want to be hyperbolic, I could just say "anti-patent people are just intellectual thieves, nothing more, nothing less"?
The RSA patent held back crypto progress for decades. I don't know if there were any lawsuits.
Likewise for the GIF patent.
Still today patents on JPEG2000 are preventing its adoption.
H.264 patents slowed progress on web technology. https://en.wikipedia.org/wiki/H.264/MPEG-4_AVC#Controversies
The "dark matter of millions of active patents out there" is an apt description of failure. The constitutional purpose of patents was to disclose inventions that others could build on. If that purpose were being fulfilled we'd be browsing the patent database instead of all the places we actually go when we want to pick up a new technique.
Give concrete examples instead of vague generalizations. I just have an example of how the GIF patent actually provoked progress as it was used to sure people who were using it without remuneration to the creators.
Image compression experts say JPEG2000 is simply not used because it's just not enough of an improvement to make it worth the hassle. Patent issues are secondary. And note that patents did not prevent it from bruin developed in the first place.
H.264 patents did not slow down development of new technology, it just slowed adoption of existing technology (h.264) in a different existing environment (browsers) Would you really qualify using the same technology in a browser as a significant technical innovation?
So coming back to my challenge: Now that the RSA patent has expired in 2000, 15 years ago, what novel developments can you point to that you can say was blocked by the patent?
You're asking to assume patents are useful until proven otherwise, and waving your hands about cherry-picking, when in fact you'd have to cherry-pick pretty severely to find an example of a software patent which would stand up to an honest evaluation of its novelty. This is because software is not created by lone inventors having eureka moments behind closed doors—the state of the art is pushed forward primarily through massive collaboration. The vast majority of software patents only exist because software and mathematics are arcane topics that the patent office doesn't have the expertise to understand or the incentive to evaluate honestly.
Software patents and IP are not natural laws with inherent value. It is not for us to empirically prove their harm, rather they are specific legal constructs designed for the public good, and thus their good must be justified, not the other way around.
It sounds like you are arguing to abolish patents. The rest of the world is held hostage for under 1% of the patents issued? It doesn't sound like a serious problem to just do away with then all according to your stats.
What about paying into an troll insurance policy every month so that if a troll wanted to sue you they would see that you were protected and would fight the lawsuit with a giant pile of money. This might deter the troll from suing in the first place.
The biggest factor for that is not the validity of the patents, but the breadth and ability of the patents to be filed against "juicy" targets with a lot of cash. The cost of filing a suit is literally in the hundreds of dollars (I think ~$750) and most of these cases get settled out fairly early because of the immense cost of the defendants to complete the discovery process.
I'm paraphrasing, but 'Just assign your patent to [some group of investor/trolls] and they'll let you know if they can make anything of it.'
Patents do virtually nothing useful for small businesses/solo inventors. There are exceptions, but they are exceptional.
However to me this signals the possibility of an inefficiency in the market, and something that trolls leverage. Intellectual Ventures was reputedly originally formed to fix this gap.
That is one of the problems, he who fronts the money expects to get the reward. Hence class actions where the lawyer who works on contingency gets millions and those wronged get a nickle.
1. You'll still get a significant sum if the total is significant (and if the case is open-and-shut, the risk wouldn't be too high for an investor, so you could get a favorable deal)
2. The infringing company would have to pay in full, which discourages them from doing it in the first place.
I guess I really want to know is if this actually happens in practice, or if there are reasons I'm not thinking of that stop it from happening.
The selling out to a bigger player does happen, although since it's a distress sale it's often for a low value.
This isn't common. See Jarg corp which was basically out of cash, then hired lawyers on contingency (with patents licensed from Northeastern University) then sued google. I think google paid northeastern in a settlement.
Lawyers are expensive. Good lawyers are extremely expensive. There are also experts, investigators and consultants to hire. Everything about the process is expensive. It's very good that newegg is doing this because it helps everyone.
Note that this very tactic is used by big companies to avoid licensing valid and useful patents owned by smaller NON PRACTICING entities.
Yes, big companies have a better track record against trolls. And yes, this unfair. But that doesn't mean trolls are OK.
This is not true. Giants like Apple, Google and Microsoft get sued all the time. They face hundreds of troll lawsuits at any given time.
http://arstechnica.com/tech-policy/2014/02/apple-top-target-...
Mentions Google, Apple and Samsung (respectively 192, 191, 151 lawsuits over last 5 years). Microsoft has mentioned similar numbers, but I can't find a reference off hand. Google for "patent trolls target Microsoft"
Their bias got so bad that even their typically anti-patent commenters called it out on one of their recent articles.
That's great for Newegg, but it means that future trolls will skip them, and just go after the startups and small businesses that don't have the resources to fight a lawsuit on principal.
I'm not saying that what Newegg is doing is bad, or even that it doesn't help. I'm just saying that the publicity that they are seeking for it might end up working out well for them by getting people to stop suing THEM, but won't work well to get people to stop suing other, smaller businesses.
If a patent troll were to sue you for something you've implemented, and you knew that Newegg implemented it too, you'd have a difficult time getting Newegg to fund your defense I think. Unless the troll sues Newegg, nobody's going to help you out. If the trolls just avoid Newegg, they can still get their payout.
How about some sort of patent troll insurance that takes over your defense and sues to invalidate the patent? The insurance should cost a smaller amount of money than settlement would cost. The more companies have that insurance, the bigger the defense you can mount, and the lower the costs for everybody are.
The first person sued by the troll immediately takes it to court and wins, invalidating the patent, and ensuring that only one lawsuit will have to be fought and everybody else is safe.
Of course this could mean that a lot of people feel they don't need the insurance because someone else will invalidate the patent for them, but if the list of people and companies protected by this insurance is public, those without it will be the first to be sued. So eventually, everybody will want this insurance, and the trolls will be forced to take it to court every time.
There's got to be a business model in this.
The "perk" of contributing would be that you would get access to all of the expert witness prepared statements and legal work, so if a patent troll comes after you next, you would have a lot of your defense work already done for you. Plus, once the patent troll looses a case, especially on appeal, that decision can be used as precedent.
And for some non-software industries many firms might have a pretty good idea which competitors/suppliers/clients of theirs are likely to be threatened by the same patent.
If anyone wants to google them and can't find anything (like me), that's because the name is Soverain, not Sovereign.
EFF[1] and NYT[2] ran full reports on him previously.
[1] https://www.eff.org/deeplinks/2013/07/times-profiles-patent-...
[2] http://www.nytimes.com/2013/07/14/business/has-patent-will-s...
All the other efforts like preventing bad patents through StackExchange etc also have very little impact on troll business model. The only real weapon you can use against them is crafting laws that strongly discourage trolling. One would think tech industry with 100s of billions in bank have enough lobby power to get this done quickly. The issue again is that tech industry itself want to own such lousy patents to use against each other. So the industry will only support weaker forms of laws against trolling. I would highly suspect there would be end of trolling anytime soon. Industry as a whole would be more than willing to absorb this cost instead of giving up on their own ammo.
I recall a story where Steve Jobs called Eric Schmidt from Burning Man and threatened Schmidt with "nuclear war" over Android. What did he threaten him with? Legitimate competition? Guess again.
Junk patents are a perfect vehicle for vexatious litigation.
This is just my biased opinion but the IT industry appears to have no shortage of child-like executives.
World's largest patent troll co-founded by former Microsoft CTO and a licensing lawyer from Intel who coined the term "patent troll". Two individuals who had certainly seen their share of trolling by smaller entities against MSFT and INTC. I believe the lawyer blogged about the problem of "patent trolls" anonymously for while at Intel in the late 90's, but was later "outed".
The industry was aware of this problem very early on.
Companies that are still using those should be sued for not securing their consumers' information properly. Failing that, this would be an even better way of achieving the same thing.
- Why is this happening in the first place?
- Who is this entity that grants a loose patent?
- Why isn't this entity being interrogated ?
Because US patent laws and practices allow for it
> Who is this entity that grants a loose patent?
The United States Patents and Trademark Office.
> Why isn't this entity being interrogated ?
Because there would be very little point. One part of the issue is patent laws themselves, the other part is that the USPTO is taken to task for both overly lengthy examinations[0] and insufficiently rigorous examinations. I don't have much experience with the USPTO themselves, but knowing people working in european patent offices:
1. they are judged pretty much solely on the number of patents examined and their responsiveness
2. patent offices are funded through maintenance fees (fees paid to renew the patents and keep them enforceable) creating a fucked up incentive to accept patents by default at the cost of the already very loose and subjective patentability criteria ("novelty" and "inventive step or non-obviousness")
3. especially given patent offices are generally underfunded and short-staffed, especially in high-flying specialists able to actually evaluate patents which are either complex or in novel fields (being a patent examiner is few people's idea of a great career, even less so once you've built experience and respectability in your field, and that's assuming the patent office could even hire and pay you), even more so compared to the high-powered business they face
4. this is compounded by states routinely "diverting" (plundering) patent offices's funding, in the US Congress diverts about 10% of the USPTO's collected fees to the general treasury
5. it is also compounded by the opening of whole new and novel patent fields ("business method" patents) which generate even faster growth than the historical patent fields and are the source of much of the bullshit patents
that's not even considering that the existing patent system simply isn't a good fit for software, more generally the whole field of business method patents seems incredibly fucked up and created specifically to be abused (good thing europe has declined to implement it)
[0] https://en.wikipedia.org/wiki/Backlog_of_unexamined_patent_a...
Don't forget the Court in Eastern Texas which is a popular place for patent lawsuits. Popular because the court is friendly to patent trolls due to the revenue the court generates. [1]
[1] https://en.wikipedia.org/wiki/United_States_District_Court_f...
https://ipcloseup.wordpress.com/2015/02/25/for-samsung-chari...
I'd love to be a fly on the wall when an East Texas jury convenes: They all know what their verdict will be going in so I imagine they just hold out for one last free lunch and chit chat to fill up the time while they "deliberate".
AFAIK, it's more about responsiveness rather than number of patents. Examiners are judged on how many responses ("Office Actions") they file, whether allowing or rejecting a patent. Since a patent can keep coming back for examination after every rejection, they typically generate more responses than patents.
> 2. patent offices are funded through maintenance fees...
Actually, while maintenance fees are the largest portion of revenues, they are also funded by examination and issuance fees: http://www.uspto.gov/about/stratplan/ar/USPTOFY2014PAR.pdf
They get paid an examination fee every time 1) someone files a patent application and 2) someone requests for further prosecution after they get a "final" rejection.
You could also argue that this creates a perverse incentive to keep rejecting patents, especially as issuing rejections can also be easy for an examiner. They are supposed to attack every element of the claim and prove it is covered by specific sections of prior art, but I've seen responses where they literally dismiss entire claims with some vague prior art references. And there is really nothing an applicant can do about such behavior other than suck it up and pay for continued examination.
> the existing patent system simply isn't a good fit for software...
I'd say that's not true anymore. There was period where patent offices suddenly had to start accepting software-based patents and didn't know how to deal with them, resulting in poor quality patents. Things are lot tighter now.
Also, I wouldn't conflate "business method" patents with "software" patents. In fact, there is no such thing as "software" patents. There are only patents on solutions to problems that happen to be best solved with software. Business methods are just one such area of problems (which I'd agree are not amenable to patenting).
- does the patent have the right structure? (A series of progressively refined claims) - is the patent sufficiently different from all other patents?
What they don't do is check for actual originality, because that's extremely hard in a technical field. That part of the process has to be tested in court.
Software really proceeds too fast for the patent system, has network effects that are stronger than most other technologies, and has a strong collaborative, public spirit surrounding the Internet and communications technologies.
There's also the "using a computer" loophole: while pure software may not be patentable, the process of using a computer (a mechanical device) to do something is a physical process and therefore patentable.
You have to be careful not to run afoul of Alice[1]
[1] https://en.wikipedia.org/wiki/Alice_Corp._v._CLS_Bank_Int%27...
If the patent system were "horrendously broken" it would have been fixed long ago. It obviously serves powerful political interests horrendously well.
Google "build on a patent", here's on example of what I'm talking about:
"Your brilliant idea needn't fall by the wayside simply because you don't want to deal with the patent process."
Due to the Berne convention, we don't get to have that comparison. Although lots of people argue that China's weak enforcement of non-Chinese IP has had rather a positive influence on their industry.
There's a good history of patents and cartelisation in "Information Feudalism" http://www.amazon.co.uk/Information-Feudalism-Owns-Knowledge...
[1] https://en.wikipedia.org/wiki/Alice_Corp._v._CLS_Bank_Int%27...
Between Bilski, Alice, and even the older decisions of Benson, Flook, and Diamond v. Diehr, SCOTUS has generally held that most software patents are basically inherently invalid. It should also be pointed out that many patents favored by trolls would also fail obviousness and/or prior art tests: the problem isn't that the patents are valid, it's that trolls can extract money from people by charging them somewhat less than the cost to go to court to prove that the troll's patents are invalid.
One way you could fix the system is to punish the trolls for knowingly peddling invalid patents: if an entity gets three patents invalidated by the court system and they've been aggressive in suing people for compliance with those invalid patents, then all patents that they hold are summarily invalidated and they get prohibited from enforcing any patents for 5 years. On top of having to reimburse everyone they charged (plus damages… plus interest ☺).
Most "patent trolls" spin off separate legal entities for each patent they're using. This is to minimize losses if a suit goes wrong and they end up having to pay legal fees. So, trying to punish trolls would be extraordinarily difficult; you'd have to figure out some way to explicitly link all of these entities, which is something the trolls are already specifically trying to prevent.
'Piercing the corporate veil'
Disclaimer: I have absolutely nothing against Free Trade or Free Trade Agreements. I do have a major problem when they're over-reaching and include off-topic subjects and regulations though.
https://en.wikipedia.org/wiki/Software_patents_under_the_Eur...
Patent trolls may suck, but IP is a thing we're not going to get rid of. As long as it's "property" it can be traded. As long as it can be traded, the possibility that the current owner has desires at odds with the original owner can arise.
Certainly. What these people are doing is effectively extortion and fraud; there should be a legal framework in which such abuses can be identified as such and treated accordingly.
The "IP" in question is not valid; it is predicated upon a lie. The lie is that the patented idea is a significant new invention without prior art. The trolls know this and exploit it by looking for obvious implementations of everyday things that could conceivably land within the language of a patent, which is a patent of specifically this type which they specifically acquired for the purpose of trolling.
But let's all accept the definition that says that big corporations can do everything they want, while small inventors (yes, they exist) must concede unilaterally of any rights. No way there's a better definition around.
N expensive lawsuits might be cheaper than M cheap settlements, if M is sufficiently larger than N.
Maybe rights over patents should be lost if the rights holders fail to actively defend it (similar to trademarks)? That would at least prevent the absurd scenario where a patent holder waits for their technology to become widespread before starting to prosecute.
I get why they'd go after anyone but NewEgg for that reason, but EVERYONE in their business should know NewEgg doesn't settle by now.