Patent trolls are leeches on the economics of technological growth. They contribute nothing to technology, suck the economic blood from their victims, and are difficult to eradicate. Especially in some of the swamps of the internet. WC has criticized these miserable parasites before. But, for once, there’s a bit of good news in the Patent Troll Wars.
Before we look at the good news, WC will try to answer a question from a couple of correspondents last year: why should you care about patent trolls? There are two parts to the answer: first, the settlements they attempt to extort from victims add to the cost of doing business. If a patent troll extorts a settlement under which they get 1% of every transaction on Amazon,for example, that royalty comes out of your pocket. Second, it’s corrupt. In a very real sense, victims of patent trolls are paying protection money to avoid the expense of litigation. Extortion dressed up as intellectual property rights is still extortion, and still corrupt.
Which takes WC to Soverain Software v. NewEgg. Soverain bought three patents that had been handed through a series of transactions. While Soverain’s web page makes it look like a real company with real products, in fact it is a patent troll and has done nothing but extort money from on-line retailers under color of those three patents over the last decade. Because the three patents at issue purported to grant patent protection for digital shopping carts, the place where you virtually store your digital purchases before checking out. Soverain’s business model, if the phrase can be stretched that far, was to demand payment from anyone using a virtual shopping cart. It extorted a reported $40 million from Amazon.com. It had lawsuits going against dozens of other retailers, including Nordstrom’s, Macy’s, Home Depot, RadioShack, and Kohl’s. Ars Technica has a nice chart summarizing some of those lawsuits.
NewEgg is a successful on-line computer hardware and software store. It uses digital shopping carts, just like almost every other on-line digital store. Soverain claimed the use infringed on its three patents. Soverain demanded $34 million and a 1% royalty on all sales. But NewEgg’s corporate policy is to never, ever pay money to a patent troll.
NewEgg forced Soverain to trial. The jury returned a mixed verdict but, critically, the trial judge wouldn’t let the jury consider NewEgg’s claims. The jury didn’t get to decide if, as NewEgg claimed, the three patents were invalid as obvious and prior art. If the patents were invalid, then Soverain had no claim for infringement. NewEgg appealed.
The United States Court of Appeals for the Federal Circuit – the primary appellate court for intellectual property cases – rejected all of Soverain’s claims, and determined all three of its patents were invalid. NewEgg doesn’t owe Soverain a dime.
What made Soverain especially objectionable was that it was at least partially owned by lawyers, including Katherine Wolanyk, a former Latham & Watkins attorney who was a co-founder and partial owner of Soverain. WC finds it distasteful when lawyers live down to the world’s expectations.
Serious props to NewEgg for fighting the good fight, and congratulations on winning. For more information, read Ars Technica’s fine article.