Earlier today the United States Supreme Court declined to accept Soverain v. Newegg, which will allow one of the more pronounced travesties of justice to stand as if the Federal Circuit got it correct in the first place. Soverain President Katharine Wolanyk said, “We are obviously disappointed by the Supreme Court’s denial of our Cert. petition, and are troubled by the precedent it leaves in place.”
Everyone who has objectively looked at the case knows that the Federal Circuit made a terrible mistake, but now that won’t be corrected and a serial patent infringer that has made a business practice of ignoring patent rights gets to use the Soverain technology for free. And just when you think things couldn’t get more strange, Newegg makes a bizarre comment with misogynistic undertones.
“The witch is dead, hurray,” said Lee Cheng, Newegg’s Chief Legal Officer. It doesn’t take a rocket scientist to realize that Cheng is calling Wolanyk a witch. Of course he will deny such a charge and he and his supporters will proclaim their innocence. But this is no different than liberals working “weight” into every comment or tweet they make about New Jersey Governor Chris Christie. This type of not so subtle dig is what those familiar with Newegg have come to expect. It is this juvenile, over the top, holier-than-thou attitude that Newegg personifies.
But Cheng didn’t stop there. He just couldn’t help himself. “Patents held by organizations like Soverain are like vampires — unproductive, undead, unholy and intent on sucking economic and entrepreneurial lifeblood out of society,” said Lee Cheng, Newegg’s Chief Legal Officer. “When these patents and the abusive patent assertion business model are exposed to the light of day, they turn to dust.” The problem with Cheng’s statement is it is factually incorrect. Soverain is not an evil entity, and despite what you may have heard they are not a patent troll either.
Where to begin…
First, Soverain has been labeled a patent troll, which is utterly asinine. Soverain purchased the company that innovated and still to this day supports the software developed with thousands of customers. Have we gotten to the point where an operating company is really considered a patent troll? For some time now the term “patent troll” has translated to “one who sues me,” but this is taking it to the next level. The media calling Soverain a patent troll really should be ashamed of themselves. Of course, they are not ashamed because trying to get a news story factually correct has long since vanished from the list of objectives in most newsrooms.
Second, we have another example of just how beneficial reexamination is for the challengers. After this escapade it is utterly malpractice for patent attorneys not to recommend filing a request for reexamination when your client is facing a claim of infringement. This is true because apparently there is absolutely no negative consequences associated with losing a reexamination. Once upon a time Judges would give deference to the Patent Office after it had reviewed a patent during a reexamination proceeding. But in this case the Soverain patents were reexamined not once, but twice by the USPTO. Each time the patents escaped with claims intact. So the Patent office looked at the Soverain claims no fewer than three separate times: once when they issued the patents and two other times during reexamination. The patent claims were continually held to be patentably unique. How a patent owner can prevail two times at the Patent Office in reexamination and then still lose the claim on appeal to the Federal Circuit is bizarre to say the least.
Third, the evidence that Soverain’s patent claims were obvious was so lacking in the mind of the district court judge, Chief Judge Leonard Davis of the United States Federal District Court for the Eastern District of Texas, that he granted a JMOL on the issue, which is exceptionally rare. “I don’t think it’s a close call,” Davis said when ruling that Newegg had not met the burden of proof by the requisite clear and convincing evidence required to invalidate a patent claim.
Fourth, the law of obviousness is in shambles at the moment. Obviousness is applied arbitrarily based on the personal beliefs of whoever rules last. Indeed, we have reached a point where the law of obviousness is so unpredictable and subject only to the whim and fancy of the reviewer. That is evidenced in this case by the fact that multiple district court judges over multiple cases agreed with the Patent Office over multiple reviews. At the end of the day everyone was told that they are all wrong and that the claims are invalid by clear and convincing evidence. I guess all those independent decision makers were just out to lunch completely in the mind of the Federal Circuit. But is that how an Appellate Court is supposed to operate?
How can the law of obviousness be so convoluted that only a three-judge panel of the Federal Circuit can get it right while multiple, distinct and independent decision makers were left with wholly different views on the issue. With such radically different views on these claims how is it possible that Newegg could ever have satisfied the clear and convincing hurdle to prove the claims were obvious? There answer is this: Newegg could only prevail because the law of obviousness is reviewed de novo, which means the Federal Circuit will ignore all previous analysis, give absolutely no deference to previous decision makers and do whatever they want. This case is a most extreme example of what former Chief Judge Mayer described in Highmark v. Allcare as the Federal Circuit’s “appellate overreach” as a result of the Court’s “increasing infatuation with de novo review of factual determinations.” The Federal Circuit has been enamored with the de novo standard for some time, but Mayer is correct to observe that it is now over the top.
Fifth, it is completely accurate 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 the World Wide Web! There were only 50 servers worldwide in January 1993, Microsoft didn’t release its first browser (Cello) until the Summer of 1993, the first international WWW Conference wasn’t held until 1994, the first beta version of Netscape Navigator wasn’t available until November 1994, which was after these patents were filed. Yes, these patents even predate the very existence of Amazon.com, eBay, Netscape Navigator and Internet Explorer! So it is ignorant to pretend that this innovation was obvious because of the shopping carts the world has become familiar with as the result of the Web, as so many anti-patent critics have done. This innovation was fundamentally important, which is why the Patent Office has reviewed and repeatedly affirmed the claims and why so many companies use and pay for Soverain’s technology. Claims cannot be invalidated simply because they involve innovative features that later become common.
Sixth, the Federal Circuit is hopelessly fractured at the moment. While it has always been true to some extent, the outcome of an appeal now is wholly dependent on the three-judge panel drawn by the parties. There is no certainty, there is no way of predicting what the Federal Circuit will do, and that leads to enormous uncertainty. It also means that those who prefer to infringe, like Newegg, have a good chance of prevailing if only they continue to fight. Whether through war of attrition or random Federal Circuit decision, the defendant that keeps fighting can eventually prevail in many, if not most, cases. Facts and reality be damned! Keep fighting until you get the Federal Circuit.
Here Newegg lost on every level they fought until the Federal Circuit. The Federal Circuit then made findings of fact as if they were the trial court and decided the case on issues not argued by either party. That is taking the de novo review obsession too far. In the situation where the Federal Circuit is going to go beyond the record and what was argued it would be most wise for the Court to request further briefing on the issues rather than make a random decision. After all, a Court of Appeals is supposed to review the record, not make the record.
Wolanyk says, “We are at a critical juncture, with public debate regarding patents and innovation permeating headlines, reports, and Congressional hearings. Until the Federal Circuit’s contrary decision, our patents had been repeatedly validated by the courts, the U.S. Patent & Trademark Office and the market. We were counting on the Supreme Court to reset the balance.”
Indeed, we are at a critical juncture and it seems that everyone is becoming anti-patent. Of course, many esteemed leaders have been believers in a strong patent system. George Washington, Thomas Jefferson, James Madison and Abraham Lincoln, all U.S. Presidents, were champions of a strong patent system, and three of the four are enshrined on Mount Rushmore. Thomas Edison who was once upon a time revered as a brilliant inventor was also a champion of a strong patent system. Sadly, today if Edison were alive the popular press, a large percentage of high-tech CEOs, most in the federal judiciary and many in Congress would vilify Edison as a patent troll. How the times have changed!