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Supreme Court Refuses Soverain v. Newegg


Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Zies, Widerman & Malek
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Posted: January 13, 2014 @ 9:46 pm
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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!

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Posted in: Anti-patent Nonsense, Federal Circuit, Gene Quinn, IP News, IPWatchdog.com Articles, 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.

 

27 comments
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  1. Gene,

    Can’t say I’m surprised that SCOTUS refused cert in this case. When it comes to an invalidity determination based on obviousness, even one this bad, Our Judicial Mount Olympus simply isn’t interested.

  2. EG-

    Yes, they seem to like that patents are being lost for whatever the reason.

    -Gene

  3. Patent troll’s days are numbered. It’s rare you see bi-partisan support in Congress and even rarer when you also get executive and judicial support. The USPTO issues 50,000 invalid patents every year allowing lawyers to rack up $30 billion in damages every year. Lee Cheng is a hero to entrepreneurs!

  4. Gene, there’s a fatal flaw in your analysis. We now know that George Washington, Thomas Jefferson, James Madison, and Abraham Lincoln were just backward-thinking, oppressive rich white guys and Thomas Edison was a patent troll who destroyed innovation. We need to share the wealth to create the perfect utopia! It worked for the USSR, it’s working for China; now it’s our turn!

  5. Gene,

    What a travesty and not just for Soverain but for all patent holders. Someone recently made a joking comment to me that when a patent infringer loses at the trial court the common retort should be “We lost at trial. Now we have you exactly where we want you (I.e. going up to the CAFC).”Guess that joking comment wasn’t far from the truth.

    Bemused.

  6. bemused,
    that is exactly the path all big corporate infringers take when sued by small patent holders: fight at trial, bury you in motions, try to dismiss thr case on summary judjement, ask for sanctions and if alal fails and they still losem than go for appeal (another 2 years) this is not to mention reexam re
    There is never a sense

  7. sorry, could not finish typing

    I mean there is never a sense of finality for a patent holder even with the best quality patent on truly fundamental invention
    meanwhile infringers of all kinds will be making money from their infringing activities and use the proceeds to fight patent holder
    travesty indeed…

  8. Kevin-

    I know you are new to IPWatchdog.com, but if you want to continue to comment here you need to know that facts are required. Making naked assertions without support is frowned upon and eventually will get you banned.

    So what support do you have that the USPTO invalidates 50,000 patents every year? Either provide proof or retract.

    What is your definition of a patent troll? I ask because clearly Soverain is not a patent troll by any fair definition. Thus, for us to have any kind of intellectual debate we need to know where your mistake is being made so we can set you straight.

    As far as Lee Cheng being your hero, I’ll let that comment stand by itself without comment from me. I think it speaks volumes about you in and of itself.

    -Gene

  9. Bob-

    Great comment. It would be laugh out loud funny if there weren’t increasing numbers of people who believe what you wrote. How have we gotten this far? When did we start to celebrate those who steal from innovators?

    -Gene

  10. Bemused, Angry Dude-

    The lack of finality is a critical problem. The sad reality is that at the moment patents are not a property right; or perhaps better to say that commercially useful patents that represent real innovation do not convey property rights. Property rights at some point need to settle. I would think the Supreme Court should be able to understand that simple truth.

    -Gene

  11. Gene,
    to be entirely correct we need to mention that at least in pharmacetical industry patents do represent property rights, at least up until now…
    it’s a lot simpler with pharma than with high tech: one medicine – one patent. A LOT of resources spent on initial discovery and approvals for new medicines, which then can be easily analyzed for chemical composition and replicated by infringers anywhere in the world
    so no enforcable patents on new medicines – no thriving commercial pharma industry (unless Obama can tell us what medicines we might need tomorrow and organize/finance all R&D :-)
    I think that we owe whatever “property rights” still remain in patents to big pharma
    I am wondering if those old politicians can understand the consequences of their actions, including consequences to the economic health of this country and to their own physical health…

  12. Gene at 10: the problem is compounded when the property right itself has a limited shelf life.

  13. Anon-

    AMEN! A patent is a wasting asset even under a true property right regime.

    -Gene

  14. Angry Dude-

    I would somewhat agree that up until now pharma patents seem like property rights, but Hatch-Waxman gives incentives to engage in patent busting, which has always seemed peculiar to me. But don’t forget that the Supremes have said that it is possible that there is an Antitrust violation when pharma companies settle a patent litigation under the express terms authorized by Hatch-Waxman. Thus, innovator drug companies could wind up very soon getting the worst of both worlds under Hatch-Waxman.

    There is no doubt that there is creep all around toward a regime that looks more like copyrights, which are hardly rights. In such a regime the only way to police the industry is with gigantic copyright owners acting in concert. Is that what is on the horizon for patents?

    It will be interesting to see what happens and whether Google will be able to purchase the patent system they want when it starts to bite into the profits of the pharma and biotech giants.

    -Gene

  15. Not sure Soverain isn’t a patent troll. Ars did some digging and suggests otherwise (tech support numbers disconnected, etc): http://arstechnica.com/tech-policy/2013/01/how-newegg-crushed-the-shopping-cart-patent-and-saved-online-retail/ I’d like to see a revenue breakdown, actual sales or support fees or whatever, vs. patent infringement settlement/judgment/royalties etc.

    Also, just a nit, but, Cello wasn’t released by Microsoft; it was shareware provided by Cornell’s LII to enabl lawyers access to the (at the time) UNIX-only WWW. (TBL did his pioneering work on Next (BSD UNIX) systems, and the first NCSA Mosaic builds wer for UNIX systems.)

  16. Chris-

    Remember, Ars Technica also publishes Timothy Lee and his view of patent is legally and factually erroneous. For example, Lee has said that the Supreme Court has explicitly prohibited software patents but the Federal Circuit disregards that prohibition. Anyone who can read knows that is false, so Ars Technica isn’t exactly known for printing the truth. See:

    http://www.ipwatchdog.com/2012/10/03/lies-damn-lies-and-media-hatred-of-patents-and-the-cafc/id=28389/
    http://www.ipwatchdog.com/2012/10/05/all-in-doubling-down-on-erroneous-attacks-on-the-federal-circuit/id=28588/

    Also, why would you want to see a breakdown in revenue? If you are going to follow that lead then you logically must conclude Thomas Edison was a patent troll since 100% of his revenue came from licensing. Are you actually going to say that Thomas Edison is a patent troll? What about Texas Instruments, IBM and Microsoft, each who have well developed and highly lucrative licensing programs.

    -Gene

  17. Timothy Lee ?

    The guy who used to write some nonsense about patents on techliberation site ?

    Viva la Revolution indeed…

    no more questions need to be asked…

    same kind of stuff as Mike (techdirty) Masnik

  18. You all can skip the part were you accuse me of being anti-patent. If I were anti-patent, I would be out of a job. I just don’t see that the CAFC had any other choice.

    “This innovation was fundamentally important, which is why the Patent Office has reviewed and repeatedly affirmed the claims”???
    Not really. The patent office reviewed the claims in several ex parte reexams. Reexams cannot be based on prior use, so Compuserve’s use would not have been considered by the PTO in reexams. Compuserve’s prior use was the basis for obviousness.

    “there is absolutely no negative consequences associated with losing a reexamination. ” Mostly correct, for ex parte reexams, which do not give rise to res judicata. That is why some defendant’s avoided inter partes reexam.

    “Fourth, the law of obviousness is in shambles at the moment. Obviousness is applied arbitrarily based on the personal beliefs of whoever rules last.” True. That why pro-patent guys like me get paid the big bucks.

    “multiple district court judges over multiple cases agreed with the Patent Office over multiple reviews” How many is multiple? I see only one that did not settle. But no matter how many times a patent is held not invalid based on prior art presented, the patent is always vulnerable to better prior art. In this case, after reading the trial testimony and the CAFC opinion, I just see this as a routine application of obviousness principles.

  19. @bemused: That joke is a practical reality. I only litigate one patent case a year, but with that little experience my approach is always the same: practice in the trial court has to be undertaken as preparation for the Federal Circuit. The chance of error in the trial court is very high, and any case of value will be appealed. It costs 50K to do a decent appeal, so with millions in the pot your nuts if you don’t call. That applies whether you are plaintiff or defendant.

  20. @angry dude. Maksnik at TechDirt attended my debate on software patents at the Computer History Museum. Afterwards, in a crowd of people as I was leaving, he asked a couple questions. I gave him my card and told him to call me and I could give him answers and discuss my opinions. I suppose he didn’t have time for that so he wrote an article and just guessed at my positions, stating them as if he had interviewed me.

  21. Gene,
    I suppose reasonable people can disagree about the extent to which prior art (CompuServe Mall) invalidated Soverain’s claims, but to not mention the pivotal piece of evidence regarding nonobvious claims in a write-up is either lazy or purposely deceptive (which is it, Gene?). Arguing against a straw man seems a little self-aggrandizing. Seems pretty clear to me that the circuit court felt the prior art was compelling with regard to the obviousness of these patents in light of the Mall’s functionality, and that the district court got it wrong. I agree with the Court’s decision on this, and hope it discourages companies from forming with the intent of purchasing patents and litigating them – you know, companies like Soverain.

    Also, Edison was a patent troll in some cases and kind of a jerk generally. He used the patent system and legal system to his maximum benefit, but at least his lab actually developed many of the patents he aggressively litigated.

  22. Nick-

    I will accept your apology after you read these:

    http://www.ipwatchdog.com/2013/09/04/is-soverain-software-v-newegg-supreme-court-bound/id=44936/

    http://www.ipwatchdog.com/2013/12/30/the-cafc-got-it-wrong/id=47141/

    So clearly not lazy, and clearly no agenda. It is unrealistic and a little bizarre that you would expect me to write the same article over and over and over again. Perhaps you like reading and rereading the same article, but it is completely incorrect to state I have been deceptive about the case.

    As far as your comment about Thomas Edison, only someone truly ignorant and out of touch with reality would characterize Edison as a patent troll.

    I look forward to your apology.

    -Gene

  23. “…companies from forming with the intent of purchasing patents and litigating them – you know, companies like Soverain”

    Rockstar would be much better example, dude

  24. angry dude-

    Bite your tongue! We can’t criticize Apple, Microsoft et al… I mean Rockstar! Acquiring patents and enforcing them is only a problem when it is done by those who are not considered the elite of Silicon Valley.

    Of course, you are correct. It is funny that Soverain, which is actually an operating company that supports the software with customers, is considered a troll while Rockstar and Spherix, which apparently do nothing other than own patents with the intent to sue, get a free ride.

    -Gene

  25. Gene,
    it;s not funny for me anymore as I am angry as hell to see the good old
    principle “Quod licet Iovi, non licet bovi” applied again and again
    Rockstar paid $4.5 billion for 4000 (mostly junk) Nortel patent s (that’s over 1 mil a patent)
    Google paid $12 billion for a bunch of (mostly junk) Motorola patents ($750,000 per patent)
    Google paid IBM 1 billion for 1000 of (mostly junk) IBM patents ( 1 mil per patent)
    I offered all of those large companies (through patent brokerage firm) to buy my patent for significantly less money, but they would not give me a dime (I mean it literally – not a dime, zero, zilch…)
    Are patents property or not ?

  26. Gene,
    Interesting commentary relative to Sovereign vs. NewEgg but your political analysis regarding Chris Christie weaken your case. Stick to the facts, your case doesn’t need unnecessary, non-legal, commentary .

  27. Bob-

    Not sure how a statement that is 100% correct about how liberals constantly talk about Christie’s weight in seemingly innocuous ways is any different than what Cheng did here, so I think the reference is completely appropriate and does nothing to weaken what I am saying.

    -Gene