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Soverainv. Newegg: Not an Ordinary Obviousness Dispute


Written by Gene Quinn
Patent Attorney & Founder of IPWatchdog, Inc.
Principal Lecturer, PLI Patent Bar Review Course
Posted: December 12, 2013 @ 7:45 am

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On October 16, 2013, Soverain Software submitted its Petition for Certiorari to the United States Supreme Court, seeking a review of the United States Court of Appeals for the Federal Circuit in Soverain Software LLC v. Newegg (January 22, 2013). The seeming late filing of the Petition for Certiorari was due to the fact that a  limited grant of rehearing was ordered by the Federal Circuit on June 13, 2013. The rehearing was for the purpose of clarifying the status of claims 34 and 35 of U.S. Patent No. 5,715,314. The other patents at issue in the case are U.S. Patent No. 5,909,492 and U.S. Patent No. 7,272,639.

The original January 2013 opinion was authored by Judge Neman with Judges Prost and Reyna in agreement. In that opinion the Court identified claim 34 as representative of the “shopping cart” claims, and held claim 34 invalid on the ground of obviousness. The parties stated, on petition for rehearing, that the Federal Circuit ruling should have been for claim 35, which would conform to the judgment entered on the jury verdict. Ultimately, the rehearing was not successful and claim 35, like claim 34, was ruled invalid because it was obvious. See Soverain Software LLC v. Newegg, Inc. (Fed. Cir., September 4, 2013).

The Newegg brief in opposition to Soverain’s Petition for Certiorari was due on November 18, 2o13, but Newegg’s attorney requested an extension until Thursday, December 12, 2013, so we await the filing of Newegg’s opposition brief. I have been told that Soverain plans to file a reply to whatever Newegg files, so it will be some time before we know whether the Supreme Court will take this important case.

The Pioneering Technology

Before diving into why this case matters and everyone should pay close attention, allow me to point out that the technology involved in this case is THE original shopping cart technology. In fact, the ‘314 patent matured from a patent application that was filed on October 24, 1994. Despite what you may have heard, this is not an example of a bad patent, nor is it something that wasn’t new or was legitimately obvious at the time it was invented, which would have been some meaningful time before October 24, 1994. This is an example of a pioneering invention that came about at the dawn of Internet as we know it today.  The fact that it is ancient in Internet terms does not mean that the claims are bad, it merely means that the innovation embodied in the patent is fundamentally important. Indeed, the Soverain’s enterprise software product has been in use for nearly 18 years, and has been used by over 1,000 customers in over 25 countries, including companies such as Time-Warner, AT&T, Sony, Disney, BusinessWeek and Reuters.

Widespread adoption should be celebrated rather than mocked by those who ignorantly believe that widespread adoption is somehow proof that the invention is obvious. Exactly when did we stop celebrating innovations that are widely adopted and start pretending that such widespread adoption has to mean that the patent system has run amok? Those poking fun at this patent and ridiculing the patent system as a result are simply not being honest, or they simply don’t know enough to actually form an informed opinion. But pretending that this innovation wasn’t groundbreaking over 19 years ago when the patent was filed is at best misguided and at worst misleading and demonstrative of some kind of hidden agenda.

The absolute truth known to everyone in the innovation community is that pioneering innovations become commonplace.  What was revolutionary at the time the invention was made becomes taken from granted.  In hindsight pioneering innovations look insignificant because they have become ubiquitous. The public, judges and critics find it difficult (assuming they try) to determine whether that which is commonplace today was really, truly obvious decades earlier as of the critical date.  Even when an honest and fair obviousness inquiry is undertake it can be exceptionally difficult to put yourself back to before the invention was made in order to determine what was known and what was obvious at the time. But let’s dispense with the ridiculousness, shall we? The overwhelming majority of the world was not at all knowledgeable about or clued into the World Wide Web at the time this innovation was first made. So let’s dispense with the histrionics.

Not an Ordinary Obviousness Dispute

Of course, many will look at this matter and see only an obviousness dispute, which is generally speaking not of grave concerns to the broader patent community. But I first clued into this case when I noticed that one of the preeminent Supreme Court advocates of this generation was representing Soverain at the Federal Circuit. Clearly there was more to the case than your ordinary garden variety obviousness dispute.

Soverain is represented by Seth Waxman (WilmerHale), who is listed as the Counsel of Record, as well as numerous other attorneys including Robert Sterne (Sterne, Kessler, Goldstein & Fox) and David Nelson (Quinn Emanual Urquhard & Sullivan). This is an all-star cast lead by Waxman, who over recent years has enjoyed great successes at the Supreme Court in patent matters.

The Question Presented by the Soverain petition is stated as follows:

In Graham v. John Deere Co. of Kansas City, 383 U.S. 1, 17 (1966), this Court held that “[w]hile the ulti- mate question of patent validity is one of law,” that question is premised on “several basic factual inquir- ies.” Those inquiries include “the scope and content of the prior art” and the “differences between the prior art and the claims at issue.” Id. In KSR International Co. v. Teleflex Inc., 550 U.S. 398, 407 (2007), this Court reaffirmed that the Graham factual questions “continue to define the inquiry that controls” the determination of obviousness. The Federal Circuit in this case resolved disputes about these “basic factual inquiries” under the guise of determining the ultimate legal question.

The question presented is:

Whether the Federal Circuit’s effective redefinition of obviousness as a pure question of law, allowing it to resolve disputed factual questions in the first instance on appeal, violates the Seventh Amendment and this Court’s precedent.

But how is this more than an ordinary obviousness dispute? The first clue is this: The patents in question were granted in the first instance, were upheld twice in reexamination despite being challenged with substantially the same prior art, and the patents were found valid and infringed by a jury. Indeed, it seems that every time these patents had been previously considered they have been found to have valid claims, but then the claims are invalidated by the Federal Circuit? In the not to distant past we could have said that no patent claims that had ever escaped reexamination had ever been determined to be invalid by the Federal Courts. Sadly, those days have been gone for at least several years.

The fact that a patent can be reexamined twice and then still found to have claims that are invalid due to obviousness should capture the attention of everyone in the patent community. If the Federal Circuit can merely review matters of obviousness de novo even after the Patent Office has twice found the claims to be valid in reexamination what is the point in even attempting to obtain a patent?

But let’s dive a bit deeper the reexamination facts:

  • 5 of Soverain’s patents, out of a portfolio of 60 patents/apps, have been reexamined a total of 8 times.
  • Throughout these 8 reexaminations, all of the reexamined claims except one unasserted claim have been confirmed, with none of the other claims ever being amended.
  • Throughout these 8 reexamination Soverain managed to add 270 new dependent claims.
  • 3 of Soverain’s patents (the ‘314, ‘492 and ‘639, which are the ones asserted in the Newegg litigation) have each been reexamined twice.

This makes it exceptionally difficult to understand why obviousness, which is supposed to be a mixed question of fact and law, should be considered start to finish in a de novo manner. Appellate Courts are not equipped to determine facts de novo, which is why they are supposed to limit themselves to the record and accept the facts found as correct unless there is an egregious error.

The Erosion of Patent Rights

There is a disturbing trend over the last 8 years to chisel away at the rights of a patent. This started with the Supreme Court prohibiting permanent injunctions as a matter of right to a victorious patent plaintiff despite the patent grant giving the owner an exclusive right. It got worse when the Supreme Court said that obviousness is to be determined based on common sense. It gotten even worse still when Congress passed the America Invents Act and ushered in multiple new ways to challenge issued patents. It has gotten worse still as the result of the Federal Circuit and the Supreme Court preferring to use patent eligibility to make determinations never intended by the statute and calling into question patentability of all software, genetics related innovations and medical diagnostics. The problem of patent erosion will get even worse still, and much worse, if the Innovation Act becomes law, which will usher in fee-shifting and guarantee serial challenges to issued patents due to changes in the AIA estoppel provisions.

In short, a patent is not nearly as strong today as it was at the beginning of 2006. Patent rights continue to erode and at some point we have to acknowledge that if a patent can be stripped after many years, or even a decade, of litigation that have upheld the rights granted then it really isn’t a property right any more. Property rights settle and title becomes quieted. Title to patents never quiets any more, which is an enormous problem that has negatively impacted investors willingness to fund start-up companies and will only continue to get worse unless something is done.

Fight Until the Patentee Loses

Now factor into your consideration the fact that the Federal Circuit invalidated the patents for reasons not asserted by Newegg, invalidating the claims at issue on the Court’s own initiative.

This strikes me as particularly bizarre given that the Federal Circuit is an appellate court that is supposed to review the record and nothing else, although the predictable outcome of obviousness being handled de novo and after rulings of the Federal Circuit have started to kill patent claims that survive reexamination at the USPTO.

I guess the two questions that have to be asked as the result of the Soverain/Newgg dispute are these:

  1. What is the point in having a trial in the first place?
  2. What is the point in reexamination in the first place?

It seems that the Federal Circuit really should be the tribunal of first instance for everything from reexamination, to litigation, to exclusion orders to post-grant review because they pretty much do what they want. While I understand that sometimes disparate treatment is caused by different standards of review, at the end of the day aren’t claims either patentable because they are novel and nonobvious or not? That should certainly be the case, but what we are increasingly seeing are cases where the patent owner wins and then has to keep fighting over and over in multiple forums until they finally lose. Then when the patent owner loses it is over. How is that fair?

Patent litigation has continued to increase in cost over the years because challengers will fight in every forum, lose over and over and then ultimately prevail on appeal despite every other tribunal determining that the claims should survive. If a patent is a property right then this constant challenge after challenge in search of a different result has to stop. At some point a patent has to settle and the rights granted must quiet. When patent rights don’t settle all innovators are getting is some kind of expectation of exclusive rights that never seem to materialize, and that is even if the innovation is commercially relevant in the first place.

Conclusion

Call me cynical if you want, but it seems to me that the patents that are most vulnerable are the ones that cover the most commercially important innovations of the day. Widespread adoption of a technology that proves to be foundationally important is almost the kiss of death. At the same time infringer companies will settle garbage patent troll cases while litigating against solid patents that are infringed for half a generation. This would be comically funny in a Monty Python way if it were not so gut wrenchingly sad.

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Posted in: Federal Circuit, Gene Quinn, IP News, IPWatchdog.com Articles, Patentability, Patents, US Supreme Court

About the Author

is a Patent Attorney and the founder of the popular blog IPWatchdog.com, which has for three of the last four years (i.e., 2010, 2012 and 2103) been recognized as the top intellectual property blog by the American Bar Association. He is also a principal lecturer in the PLI Patent Bar Review Course. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.

 

24 comments
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  1. Gene,

    Very insightful commentary on an extremely important case which has been (largely) ignored by most patent pundits. The pro infringer lobby has gamed the system and serial challenges to a patent’s validity are now the norm. So far in 2013, there have been filed a total of 563 challenges to patent validity: 514 IPR and 48 CMB (covered business method). No doubt that number will continue to increase as infringers continue to take as many bites of the serial challenge apple as they can. Not to be cynical or anything but I wonder if the CAFC would have arrived at a different conclusion if Soverain had been a practicing entity?

    Bemused

  2. Gene,

    Well said … “under the guise”. [Two thumbs up]

  3. Great article. One part of the AIA not mentioned is that the extension of a patent duration will no longer include RCE’s and appeals. That will cut years off the enforceable period of most patents.

  4. Gene,

    Well written and argued. It bodes poorly for the small company where unlimited monies are not available for litigation.

    I was part of a litigation where our company, a billion dollar a year firm, took on a customer many times our size. We won every case, spent $10s of millions, got an injunction and still ended up with a net loss in profit if you did a true accounting. The point is a small inventor is doomed.

    My view is that this kind of legal precedence should drive the adoption of a trade secret/know-how strategy where the knowledge developed around inventions is withheld from helping the “greater good”. As an inventor with 50+ patents this would be my approach as a counter to unfavorable court rulings and legislation.

    Steve

  5. “THE original shopping cart technology.”

    Yeah about that: http://www.google.com/patents/US3458015

    Another interesting little article: http://www.aldricharchive.com/introduction.html
    http://www.aldricharchive.com/biography.html

    Who knows how many people claim to be the first?

    “But pretending that this innovation wasn’t groundbreaking over 19 years ago when the patent was filed is at best misguided and at worst misleading and demonstrative of some kind of hidden agenda.”

    If that’s true, I can’t believe that the CAFC has such an agenda. This is an outrage!

    “then it really isn’t a property right any more.”

    Or it never really was before, and it was only similar thereto etc.

    “given that the Federal Circuit is an appellate court that is supposed to review the record and nothing else”

    I wish!

    “How is that fair?”

    They do get to appeal. But what else would you suggest?

    I do agree with you regarding the whole having to defend over and over and over again. But I don’t see what there is to do about it, especially if the patentee is suing lots of people. They can always choose to sue less people and protect their rights.

  6. If the RCE and Appeal removal is enacted, then Congress will have reneged on their promise in regards to pre-issue publication (which was based in part on the promise – with penalties – of the Office providing a final decision within a certain amount of time to protect an applicant’s ability to not too early publish their materials.

    In essence, we have a taking by the government: Quo is taken without any Quid, and with no stick to keep the Office from being dilatory, applicants have no recourse.

  7. John Smith-

    What would I suggest?

    First, I would suggest that you get a clue.

    Second, i would suggest that the Federal Circuit do their job! They are an appellate court. If they want to be decision makers in the first instance then they shouldn’t have taken an appointment as on an appellate court.

    Finally, you say that you agree with me about defending over and over again and they you make the absolutely ridiculous statement… well… that is what you get when you sue. To call that asinine is to insult other asinine comments.

    If you own a piece of real property that has had its boundaries determined will that decision change the next time you sue someone? Let me answer for you… NO! It is completely unacceptable that a patent owner can prevail on a patent in every single venue, including twice at reexamination, and then can have the patent claims declared invalid. Then factor in that the claims were declared invalid for reasons never raised by Newegg.

    Oh, by the way, how do you justify a claim that not even asserted being declared invalid?

    Also, how do you justify Newegg’s opposition brief contradicting what was argued before the Federal Circuit?

    If you are going to comment on this case perhaps you should try and inform yourself.

    -Gene

  8. Stephen-

    I think you are 100% correct. With all the erosion of patent rights what will start to happen is companies will not seek patents and will keep their innovations secret. That seems to be what some on the Federal Circuit want, all on the Supreme Court want and a vast majority of Congress. Sickening.

    -Gene

  9. As an inventor with dozens of patents and pending patents, I’ve sat in many discussions about asserting patents with multiple law firms. All of these discussions wrap around risk management. If you go after a large company, you run the risk of this daisy-chained perpetual litigation. If you sue smaller companies or end users, that risk is lower because they likely don’t have the resources of sophistication to carry on an extended suit. They’re much more likely to settle.

    So, under the weak patent system we now live in, most patent holders sue smaller companies and end users. Thus we have the so called patent troll problem.

    What I find sickening is that the screaming of the large multi-national infringers changed the law and influenced the courts to weaken patents to this point. Now the same multi-nationals leverage the chaos they’ve created to twist the knife one last time into inventors and small businesses just to make sure we’re dead.

  10. Wonderful job, Gene.

  11. This is an excellent article. I think John Smith’s comment illustrate the problem. And, unfortunately, Obama went from a pro-patent Kappos appointment to stacking the Fed. Cir. with judges that have no science or patent background. Your point about hindsight is very important. It took me years to understand just how pernicious hindsight was to my own thinking. There is no hope that the new Fed. Cir. judges who never have expressed prior to appointment any real interest in science and technology will ever understand hindsight.

    My prediction: we are going to go back to the dark ages. Companies are going to begin to make everything secret again. We are going to get software scramblers that make it difficult to know how software works. Employees will be put under employment contract that limit what they can do and what they can stay for the effective life of what they are working on.

    When I started working with software start-ups in the early 1980’s, there was complete darkness. You had to sign employment agreements (actually my employer forget to get this in place at first and then paid me the equivalent of about $100K today to sign one). What many people don’t understand is that the disclosure in patents is seldom used, but the disclosure allows the technology community to publish articles in popular journals, discuss the technology over the Internet and at conferences, etc. When I interviewed for one job in the mid-1980’s they wouldn’t even discuss what they did or how they did it–and it was software. Microsoft had levels of super secret rooms where termination and law suits was the threat for violating by disclosing what they were doing in the secret rooms.

    We are heading back to this environment. And, the patent system is getting so costly that only the very large corporation will get patents and be able to enforce them. They will become a part bullying tactics. We can bankrupt you by forcing you to burn as much money as we burn.

    And, all of this is constantly being driven by big money behind it. Just go over to patentlyo and deal with some of the paid bloggers. I am socked that people still don’t seem to understand that there are paid bloggers—there was even a job announcement recently for a patent attorney to help shape the policy statements and manage the paid bloggers.

  12. And, by the way, one way to verify what I am saying is look back at the magazines in the mid 1980’s. A big area of research was how to encrypt and then decrypt software and firmware so that there was no way for people to figure out how it working. How to create a sealed system to protect your invention. The idea was to lock down the people and all information regarding how your system worked.

    That was a huge area of research and considered a massive market opportunity. My money is on us going back to that—and you know—think about it. What is Apple/Google/Microsoft doing? They are trying to lock up vertical markets so they can do exactly that.

    And, Obama is appointing people that are by and large inexperienced with innovation, science, and the patent system. I think it is an insult to those of us that have spent our lives understanding these things to have the ignorant come in and shape our system.

  13. >What I find sickening is that the screaming of the large multi-national infringers changed the law and influenced the >courts to weaken patents to this point. Now the same multi-nationals leverage the chaos they’ve created to twist the >knife one last time into inventors and small businesses just to make sure we’re dead.

    Thanks Paul. I think this says it no only about patents but about our entire legal system now. The big corp has won every battle so far and this is just another one they are fighting. The biggest problem — in my view– is that they are relentless with endless money. They seem to be experts at trench war fare where every foot they take they hold and then fight for the next foot the next year. They lose lots of battles, but rarely lose a foot.

  14. One other thing you may notice is that the people with experience speak of enforcing and applying the law, the paid corporate –directly or indirectly—speak of policy reasons for not applying the law.

  15. NWPA,
    For your information, virually all semiconductor memory devices are designed with a mode which prevents anyone from reading out the software written into it. Most manuacturers take advantage of this option, and keep their software secret. This isn’t a step back to the dark ages – companies have worked like this for at least 2 decades and continue to do so. Trade secret has always been a viable alternative to patening for software – it’s impractical to chase every Fred-in-the-shed copycat from overseas into a court.

    As for the main topic of the article- if you are going to let technologically illiterate juries decide on these cases, you will end up with bad justice.

  16. Benny, your “trade secret has always been a viable alternative to patenting software” is so over simplified as to be meaningless.

    And as for your “mode,” that mode is useful for some protection, but not much. It is easily circumvented by the technologically savvy. I remember articles back to the early 1980’s about how to get around that mode. And, in fact, that was an area of research of how to make it harder to circumvent which included encryption at the processor level for instructions.

    But, we currently live under a disclosure and open state for all EE and software. Disclosure is the current state. Once that falls there will be major shifts. Please Benny, no more nonsense from you. You are clearly a not very sophisticated participant in this discussion. Read what I wrote and think. Imagine no more disclosure from large corporations. Imagine all engineers locked down with employment agreements. That is the world where we are headed.

    Another thing, how do you distinguish software from hardware: answer you can’t!!!! Does “a circuit configured to [[recite same software functions]]” not read on software and hardware.

  17. NWPA,
    If you can “easily circumvent” the software protection in our devices there are some highly paid jobs waiting for you. Even we can’t read back our own devices once the protection is activated.

    Trade secrecy for our software is viable because the cost of litigation against manuafcturers of copies is not within our budget. Further, most of our software is not even patentable in view of prior art. The same is true of many manufacturers in various fields.

    As to your last question ” a circuit configured to…etc” – you have raised an interesting point. Since many circuits are configured in software, and since it is impossible (well, for you, difficult) to read the software, proving infringement will be a long, hard, days’ work. If I can’t protect my rights with a patent, why would I file for it?

    So, legally your arguments are correct, but you don’t seem to have taken it further to the practical level. When I wrote that “trade secrets are a viable alternative” I meant that this is often the option which makes the most economic sense for the company. It certainly does for ours.

  18. I would think that in most cases keeping software a trade secret is like keeping music a trade secret.

  19. Not really Tom. I suppose those that seem to think that building software systems is just a matter of specifying what you want and then taking it to the local boy to write think that. But, those of us that are skilled in the art know that is far from the truth. It will–granted–take years before keeping software a trade secret begins to create serious problems, but they will develop.

    Funny, how when I first started in this field people all thought it was magic and now people think you take any specification for software that you can possible imagine to a local boy to get it written and it will be written. Pick up a book on software and you may change you mind. You may realize that the tools and theory of software development are truly astounding. The idea that software is some easy task and transparent due to the interface is naive and frankly ridiculous.

  20. It reminds me of a story by one the greats of computer science Donald Knuth who said he thought writing a random number generator would be easy. He did his best and the program cycled every five numbers! Those of us that have written sophisticated software know that we stand on the shoulders of giants. We also know what a total disaster it is when the ignorant attempt to get involved in software.

    Just think—software–if you knew the Church-Turing Thesis–you would know that everything that is possible for your little mind to do is possible of software. So, are you so simple? How could it be that other fields need patent protection but software does not when software has the potential of doing everything every person in every other field does? How could that be? What is funny about these arguments I hear constantly is that they always have macro contradictions to them.

    Like Lemley’s assertion that software has no structure or that functional claims have no structure. So, according to Lemley these machines are magic. Two machines with the same structure perform different functions. Or, how is it that software is specified functionally. So, according to Lemley multi-million dollar specifications to software engineers tell the software engineer nothing. Sheer nonsense of course. And what we are seeing is people completely ignorant of the field —or intentionally exploiting others’ ignorance—making up wild assertions that have no basis in reality.

  21. And, Tom, if you want to test this: I will bet you any amount of money you want that I can specify a simple program that I can write quickly but that you on your own will NEVER be able to write. Never. So, before you try to encapsulate one of the most difficult fields in the history of human kind, try to drink a little bit from the pool of knowledge. Ignorance is hard to tolerate.

  22. So NW (may I call you NW?), do you think software should be patentable?

  23. Tom,
    My 5 cents worth – algorithms should be patentable, as they are in many cases valid intellectual property.
    However, different algorithms could be written tto achieve the same external result.
    Should manufacturers file patents for algorithms? In many cases, no, as it can be near impossible to reverse engineer a competitors product to prove infringement. And what value a patent if it’s rights cannot be enforced?
    (I am referring to software which is embedded in the computer chips, not software distributed on CD’s or downloaded from the web).

    I wholeheartedly agree with NWPA that the algorithm engineer is (or should be) one of the most highly respected individuals in an R&D team.

  24. “Finally, you say that you agree with me about defending over and over again and they you make the absolutely ridiculous statement… well… that is what you get when you sue. To call that asinine is to insult other asinine comments.

    If you own a piece of real property that has had its boundaries determined will that decision change the next time you sue someone? Let me answer for you… NO! It is completely unacceptable that a patent owner can prevail on a patent in every single venue, including twice at reexamination, and then can have the patent claims declared invalid. Then factor in that the claims were declared invalid for reasons never raised by Newegg.

    Gene, like I said, I agree with you but I don’t see what we could do. You have to give all the people who are being accused their day in court, along with the opportunity to challenge the validity of the patent in court. At a bare minimum.

    “Oh, by the way, how do you justify a claim that not even asserted being declared invalid?”

    I don’t and I’m actually curious as to how that happened. I haven’t looked into the case that much to know.

    “Also, how do you justify Newegg’s opposition brief contradicting what was argued before the Federal Circuit? ”

    I didn’t notice that. Sorry.

    I didn’t try to inform myself, but I don’t have the time to read this thing in even more depth than I already have. It’s a pretty long involved case.

    And again, I’m sincere in feeling as you do that the CAFC should only be reviewing things. But they don’t. And perhaps the judicial economy is worth it in cases where the facts couldn’t go the other way. Which, as I understand it, is what they were saying here.