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It’s All a Game to Newegg’s Lee Cheng


Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Zies, Widerman & Malek
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Posted: January 15, 2014 @ 2:56 pm
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On Monday evening I wrote an article titled Supreme Court Refuses Soverain v. Newegg. It seems that this article caught the attention of Newegg’s Chief Legal Officer, Lee Cheng, who proceeded to contact me through LinkedIn and berate me in bizarre fashion throughout the day yesterday.

In the aforementioned article I pointed out that upon receiving news that the Supreme Court would not take the case, Lee Cheng made comments that could easily be interpreted as misogynistic. He proclaimed: “The witch is dead,” which is hardly the type of thing that your typical successful defendant in a patent infringement lawsuit would first think to say. It seemed relatively clear to me based on what I know of Cheng that the comment was directed at Katharine Wolanyk, Soverain’s President and CEO.

If Cheng was in fact calling Wolanyk a witch it was an extraordinarily inappropriate statement, not to mention incredibly offensive. But was this just a poor choice of words? As the bizarre rantings of Cheng came through LinkedIn periodically throughout the day on Tuesday it became clear to me that Cheng is emotionally unstable and that he really does have tremendous ill will toward Wolanyk. Quite telling, for example, despite my claim that his statement carried misogynistic undertones, he made no denial and never once said he didn’t intend or mean to call Wolanyk a witch. Had this been a slip or simply a poor choice of words it seems to me that he would have walked the comment back or apologized, but that never happened.

Indeed, Cheng seems to have something of an obsession, repeatedly bringing her into his diatribe and expressing the belief that all of my information about the case came from her. As it turns out, I actually read the patents, reviewed the claims, read the original Federal Circuit decision, read the filings on the Petition for Rehearing, read the Federal Circuit decision on rehearing, read the district court decision, read the Petition for Certiorari, read Newegg’s response (which was really quite awful and difficult to labor through) and talked with numerous lawyers knowledgeable about the case. But Cheng’s accusation that I merely printed what Soverain wanted me to print seems to be rather conclusive proof that he is a blissfully ignorant, uninformed and not interested in ever being informed bully that cares little about factual reality. He makes wild, unprofessional accusations without consequence. How or why any organization would put someone with this personality profile in position as the top legal officer of the company is a mystery to me.

Cheng first reached out to me with a simple message: “You are hilarious.” I responded: “Thanks for reading IPWatchdog.com. I hope you learn something.” And then I got a real look into the top legal mind of Newegg. The only word I can use to describe Cheng, at least based on this exchange, is schizophrenic. He went from telling me I was “a smart guy ” that he wanted to meet to someone who was nothing more than an incompetent patsy on the patent troll payroll. This occurred over the span of only several e-mails.

After I thanked Cheng for reading IPWatchdog.com, and expressing hope that he would become better informed, he wrote back:

would like to chat some day. you’re clearly a smart guy with a strong work ethic. I am always curious about the strength of my own beliefs and thinking and enjoy testing them with conversations with smart people who have a different perspective to see what I might be missing. beer usually helps.

not sure how you could conclude that soverain is really anything other than a lawsuit business, from inception and in operation–did you ever see their books, or just talk to Katharine? wrt your statements about newegg, I am curious where you got your information and your assumptions. I am presently assuming that you want to be fair and objective in your own assessments, but I guess I could be wrong…

The lack of capitalizations and informality represents exactly how the message came to me.

My response to Cheng was:

I’m not adverse to meeting and talking over coffee or another beverage.

I know Newegg made a big deal out of the fact that most of their revenue comes from licensing. So what? By necessary implication that means that not all of their revenue came from licensing, which means they are not a non-practicing entity. But even if 100% of their revenue comes from licensing that can’t make an entity a patent troll. Deep down you know that  to be true, so why the grandstanding, erroneous statements in the press? Is it win at all costs for you?

Just remember that if licensing revenue makes one a patent troll then Thomas Edison was a patent troll because all he did was invent and license. No one believes Edison was a patent troll, and eventually the pendulum will swing back. It always does.

I obviously hit a very deep, raw nerve. Cheng responded again, and after taking issue with my statement that deep down I expected he really knew that licensing activity couldn’t make one a patent troll, he questioned whether my belief that he had to know better meant that I somehow lacked friends. Cheng said: “Weird. Probably why you don’t have many friends… you know deep down.”

If Cheng would mock me so quickly after telling me I was a smart guy he wanted to meet, I wonder how Cheng would have responded if I engaged in any kind of real, hard, cutting inquiry. If a rather innocuous “deep down you have to know…” sets him off the book on him has to be that he is easily irritated. Cheng seems to be the type of person that I used to love to depose when doing litigation work. If I were ever litigating against Newegg I would do everything I could to get him under oath and just sit back and let the stenographer capture everything.

In any event, Cheng’s rant continued. After arguing that Soverain had the audacity to make money through a licensing regime he said: “I would note that Soverain never invented anything, nor did Katharine Wolanyk. They just identified an opportunity to exploit. I’d imagine that a real inventor like Edison would have considered them pustules too.”

To keep the tally running, Wolanyk is a witch, Soverain is a “pustule” and in another statement to the press Cheng called Soverain (or perhaps Wolanyk) a vampire. I’m not sure this is the type of commentary most would deem appropriate in any setting, but coming from a chief legal officer it is bizarre to say the least.

From a substantive standpoint, my communications with Cheng make it clear that he continues to actually believe the Newegg position, as logically flawed as it is. In Cheng’s opinion if you engage in licensing activity with respect to patents that you acquired  you are a patent troll, period. It doesn’t matter whether you service clients, as Soverain does. What matters is whether you license patents you purchased. But this rather narrow-minded definition of a patent troll means that Cheng and Newegg believe that virtually all technology companies of any size are patent trolls, as are Universities and Federal Laboratories, as well as garage inventors and start-ups. For example, Microsoft, Cisco, Apple, Sony, Google are all patent trolls. I suppose this type of non-enlightened, head-in-the sand position is what you would expect from someone like Cheng. After all, Newegg is not itself an innovator and looks for every excuse possible to ignore patent rights. Taking a position that everyone is an evil patent troll, while intellectually bankrupt, does serve the Newegg purpose.

But Cheng did not stop here. As if he were going to pull the wool over my eyes the same way he can with the popular press and those who haven’t actually done an independent investigation, Cheng proclaimed: “The ONE time their patents were tested, they got invalidated.” Of course, the trouble with this statement is that it is factually wrong.

As I have written, and was painstakingly explained in the Soverain filings, the patents in question were not only granted by the U.S. Patent Office, but each survived two separate rounds of reexamination at the Patent Office. That means the Patent Office checked and authorized the claims in question three separate times, and two of those times the patent claims were in fact challenged and Soverain prevailed. These same patent claims were also challenged in a previous litigation, in which Soverain prevailed. At trial in this particular case the district court judge found that it wasn’t even a close call and that Newegg had failed to demonstrate any of the claims were invalid. So if is just factually incorrect to say, suggest or even pretend that the patent claims invalidated by the Federal Circuit in the underlying case represent the only time the claims were challenged.

So not only did Cheng go from saying I was a smart guy he wanted to meet, to implying that I am an idiot on the take without any friends, but he also continues to feel the need to misrepresent the truth.

I responded:

I see. I mistakenly believed you were an intellectual. Obviously you’ve actually drank your own Kool-Aid. You know as well as I do that Soverain’s patents were repeatedly upheld in every forum prior to the CAFC.

I should have expected as much. But thank you for the very interesting conversation. I will have a lot more to write now!

Even after being informed that I planned to write about this exchange Cheng couldn’t help himself but to respond. Again Cheng invited me to meet with him when I am in Los Angeles to talk about issues over drinks. He also said that if he gets invited to an event or conference to speak about these issues he will urge those putting the programming together to invite me because “[t]he two of us would amuse any audience,” as if this is nothing more than a game. But after the invitation for drinks, which he would buy, came only after he insulted me several more times, and after he insulted himself, questioning his own intellectual abilities! Indeed, this final communication from Cheng started with him berating his own intelligence, saying: “Your belief that I am an intellectual is yet another mistaken assumption on your part.” Unbelievable.

Cheng then wrote:

Please keep writing. When patent trolls give you money directly or indirectly for your ink, it takes away resources that they could use to harm society. I’d be more worried if anything you wrote convinced any but the few who already agreed with you, so their funding is generating poor ROI. Most people I know would look at your blog (not that very many look at your blog), cross themselves, and pray that some day, you will recover from your delusions…

Hardly surprising really that Cheng would make completely inaccurate and wholly unfounded claims. The only people who pay IPWatchdog are very conspicuously shown as sponsors or advertisers. It would be unethical, and in the view of the FTC illegal, to take money from someone and write favorably about their products, services, offerings or views without disclosing the relationship. So without any information or investigation Cheng is apparently content to believe I am breaking the law. But that is the type of intellectually dishonest, factually inaccurate nonsense that seems to flow from Cheng’s lips as easily as calling a woman witch.

There were also several other interesting things about Cheng’s messages. For example, Cheng confirmed what we all know to be true, that the only decision that matters comes from the Federal Circuit. He wrote: “Doesn’t matter if Soverain’s patents were upheld prior to the CAFC. That tribunal is the one that matters.”

This should be a wake-up call to all of the Judges on the Federal Circuit. The lack of certainty created by the Federal Circuit means that those who wish to challenge patents will simply continue to fight until the Federal Circuit has ruled. District Court rulings are meaningless. Decisions from the Patent Office are meaningless. All that matters is that the defendant has a really good chance of prevailing at the Federal Circuit if they draw a favorable three-judge panel. Of course, that is not supposed to be what happens and is exactly why the Federal Circuit was created. Patent disputes should not approximate a game of craps at a Las Vegas casino, but sadly that is where the Federal Circuit has taken things as the result of an obsession with de novo review and a complete and utter refusal to give any deference on factual findings.

Finally, Cheng also acknowledged that the patent troll problem is on the decline. He wrote:

We’re probably now on the downslope of the abusive patent assertion phenomenon. Enough light has been shed and attention generated that I suspect abusive patent assertion is now moving solidly in the direction of other types of abusive litigation (securities class action, etc.) that have plagued American society pretty uniquely over the years. I don’t think the phenomenon will ever end, but the easy, big money has been made and those who continue to want to advantage take will find their going harder and their returns lower.

Cheng makes a persuasive case here that there is no need for Congress to enact patent reforms since the problem is “on the downslope” and those engaging in abusive litigation are moving away from patent filings and into other areas. Thus, Cheng challenges the very rationale that is at the foundation of the currently pending patent reforms.

Who is this guy Cheng and how did someone so crass and uninformed rise to such a high level in Newegg? It has to really make you wonder who is really the miscreant, doesn’t it?

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Posted in: Gene Quinn, IP News, IPWatchdog.com Articles, Patent Litigation, Patent Trolls, Patents

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.

 

22 comments
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  1. Excuse me, but how can CAFC or SCOTUS possibly evaluate e.g. some highly technical patents on e.g some mathematically intense compresion/encoding technology for e.g. live video/audio streaming etc. ???
    (This is not what my patent is all about but it”s similar in nature)
    Are they better equipped than PTO examiners to read and understand those patents ?
    Those judges are technically ignorant at best . And now they are anti-patent too…
    Scary indeed…
    no more public patent disclosures from me
    thanks but no thanks

  2. If I remember Thumper the rabbit says to Bambi: “If you’ve got nothing nice to say, don’t say nothing.” Not bad advice, on the whole.

    And in reply to Angry Dude, Richard Linn, at least, is an electrical engineer.

  3. Paul, I think there is a legitimate argument to no longer file patents if you’re an individual inventor. There is just no way to know if there is any protection at all until the CAFC crap shoot is over. I think that is what Angry Dude is saying.

  4. Paul, I think it is a matter of disclosure and evidence.

    A well-written disclosure should pass the USPTO and be granted. The resulting patent should be upheld if the right evidence is forthcoming. But if you have non-technical judges you need good evidence and clear explanation. Examiners grant patents based on the technical merit of the disclosure and judges affirm or invalidate patents based on the evidence and arguments of counsel. It is all a matter of thoroughness and preparation at every stage.

  5. Paul Cole

    “Richard Linn, at least, is an electrical engineer” :):):)

    dude got his BSEE in 1965… the same year I was born and it was also the year Cooley and Tukey
    (re)invented FFT algorithm (the workhorse of all modern digital signal processing in case you don’t know)

    I guess the old dude knows a lot bout “software” patents…

  6. In this month’s issue of the Oxford University Press Journal of Intellectual Property Law and Practice there is a good article by Darren Smyth on the dangers of entrusting non-technical judges in supreme courts with the last word on highly technical patent law matters. He looks at SCOTUS cases ansd also one at the UK supreme court. I’m sure that Darren will post a Link as soon as he sees this.

    That said, Paul Cole is right: Supreme Court judges have a lifetime of experience in weighing evidence and listening to argument. Our challenge is to draw up the evidence that is needed, then support it with argument framed in a way that will carry weight with those judges, bearing in mind of course their public policy Agenda.

    I’m just thankful that, in Europe, de facto, the last word on substantive law of patent eligibility and validity lies with SCOTEPO, the Enlarged Board of Appeal of the EPO. There at least, they do understand the science, the technology and the law and thus, after 30+ years, their substantive law is by now well-settled. The Supreme Courts of the EPC Member States are free to continue to argue about what constitutes an infringement. DoE, yes or no, for example. That’s of course much more tricky, from a public policy point of view.

  7. Gene,

    Why the continued fascination with the Newegg case?

    IIRC, the latest CAFC version was directed to a dependent claim 35 going down together with its base claim 34, right?

    In that case, there was no major issue for SCOTUS to resolve.
    As to the personality quirks of the principals, that appears to be unrelated to the broader public policy discussions. Or are you saying that our patent policies are being driven by potentially unstable personalities?

  8. MaxDrei at #6:
    I’m afraid my friend that you are misinformed about how the USA appoints the justices who populate the current US Supreme Court (SCOTUS). One need not even have a law degree to sit on SCOTUS. It is purely a political appointment –which is why consistently we in the USA have 5-4 decision splits on SCOTUS right along our political party lines. In a true “appeals” court in the USA, the judges are not supposed to make any direct findings of fact. Instead they are supposed to rule only on whether proper process was provided in the court below.

  9. p.s. Similarly the CAFC, as a purely appellate court was not supposed to make any findings of fact, which is why its knock down of claim 35 on obviousness grounds was a troubling one given that the patent owner had not had an opportunity to be confronted with a case against claim 35 and had not been given an opportunity to defend claim 35.

  10. Angry Dude-

    Actually, Judge Linn does know a lot about software patents. He has written the seminal pro-patent decisions in the area of software patents. He is most certainly one who gets it on the Federal Circuit.

    -Gene

  11. Gene,

    OK, thanks, that should make me a happy dude .. knowing that at least one judge out there knows the difference (or rather lack of difference) between software- and hardware-implemented inventions

    what about the others ?

  12. step back-

    The major issues for the Supreme Court to resolve were procedural and fundamental. First, is it proper for the Federal Circuit to review facts de novo, which is what they do in obviousness and in many other areas. Patent law is full of mixed questions of fact and law and findings of fact get no deference whatsoever. Second, is it appropriate for the Federal Circuit, or any appellate court, to decide a case on issues not presented by either party without asking for further briefing first. Third, and most important, a patent is no longer a property right. If a patent can be invalidated after it has been upheld over and over again in various forums how exactly does that approximate property? The Supreme Court has a long line of cases that talk about the need for certainty with respect to real property, even saying that an unjust rule when dealing with property is better than fixing the rule in order to achieve justice and thereby altering the playing field that everyone relied upon. Finally, obviousness is now so subjective that different people can and do come to completely different determinations based on the same prior art. I realize this last issue was never going to entice the Supreme Court because they like that patents are invalidated whimsically. But if multiple district court judges and multiple reexamination proceedings all come to the same conclusion on the same or similar prior art and the Federal Circuit panel comes to a completely different decision that suggests that the law is arbitrary, which we all know that it has become.

    So I have a fascination about this case for many reasons. The case is one I have followed ever since I noticed Seth Waxman got involved, which I thought meant that there was a real chance it would go to the Supreme Court.

    As for the fact that there are any number of cases I could dig into and follow to demonstrate arbitrary Federal Circuit application of the law, that is of course sadly true. Now that the Supreme Court hasn’t taken this case I will move along. I just couldn’t pass up writing about the bizarre communications from Newegg’s top internal lawyer.

    -Gene

  13. step back-

    You say: “its knock down of claim 35 on obviousness grounds was a troubling one given that the patent owner had not had an opportunity to be confronted with a case against claim 35 and had not been given an opportunity to defend claim 35.”

    From what I have seen and have been told, this puts your finger on one of the biggest issues and why this was not an ordinary obviousness case. Because the Federal Circuit went to find their own facts and decide the case on issues not presented Soverain was not afforded the opportunity to brief the dispositive issues. They briefed the questions presented and the Federal Circuit decided on other grounds and different facts. A strong argument can be made that this did not afford Soverain with appropriate due process, which is very troubling. But that is what you get when the Federal Circuit has an infatuation with de novo review, as Chief Mayer has accused in dissent from time to time.

    Frankly, if I were the CEO of Soverain I would continue to sue on the patents and argue that the decision of the Federal Circuit is not binding because the Federal Circuit did not provide due process. A reach? Perhaps, but what is a patent owner to do?

    -Gene

  14. Gene,

    Seth Waxman brings bad luck to all of us, small patent holders, ever since infamous (and unconstitutional) EBay SCOTUS decision

    But what really annoys me is that how those stupid SCOTUS or CAFC decisions on “business method” patents screw the rest of us – little patent holders with purely technical patents

  15. Gene,

    Thanks for clearing that up. You make some good points in favor of cert.
    But as I mentioned in response to MaxDrei, our USA SCOTUS is not necessarily a body of legal scholars with personal experience in all areas of law but rather more often a collection of political hacks who are there to do the bidding of them that brought ‘em to the party in the first place. Example: Citizens United. Example: ACLU v. Myriad (latter lets the Pharma Industry know they can be taken down a rung or two if they don’t play nice with the PTMB).

  16. @Gene @12: Regarding the several assertions that the CAFC decided some facts de novo, what are the “facts” that the CAFC decided de novo. I can’t find any in the original decision which addressed claim 34. The decision which addressed claim 35 (and both Soverain’s and Newegg’s sloppy failure to even mention claim 35 on the original appeal) seemed supported by the rule that when the patentee argues claims as a group, the all fall together (though they did mention the trial testimony that might have supported invalidity had it been argued separately). The same rule applies to applicants in USPTO appeals.
    Also, why do people assert that the CAFC decided the issue of claim 35 without further briefing, when the second decision (regarding claim 35) was based on a fully briefed rehearing?
    Also, invalidating a patent after it survives reexam is pretty straightforward because everyone knows that the evidence presented by Newegg at trial could not have been used in a reexam. Is that unfair. I see that it is complicated, but is it unfair?

  17. K. David-

    I’m not sure why the Federal Circuit rule that claims rise and fall together matter at all for this case. The patent owner prevailed. Judge Newman acknowledged that neither party briefed or argued claim 35. It seems like it was Newegg’s responsibility to argue claim 35, not the patent owners responsibility to defend claim 35, which is supposed to be presumed to be valid. Frankly, I think Judge Newman’s reliance on that proposition misses the point altogether. The patent owner prevailed so it was up to Newegg to demonstrate that the claims were invalid, not for the patent owner to prove they were invalid. If Newegg didn’t raise claim 35 in their brief or on appeal, which seems to be what Judge Newman says, then why didn’t they waive the issue?

    As for fairness, how is it fair that the Federal Circuit decides the case on issues that were not raised, briefed or argued by Newegg? That seems to prevent Soverain from addressing the issues the Federal Circuit found dispositive.

    -Gene

  18. The use of personal holding files in the CompuServe Mall is easily within this definition.” –this being a finding of fact made by judges NEWMAN, PROST, AND REYNA in SOVERAIN SOFTWARE v. NEWEGG:
    http://www.cafc.uscourts.gov/images/stories/opinions-orders/2011-1009.Opinion.1-17-2013.1.PDF

    These non-artisan judges noted that “The agreed claim construction for “shopping cart database” was “a database of stored representations of collections of products,” where “database means a collection of logically related data stored together by one or more computerized files.”

    Problem is that these non-artisan judges apparently had no clue as to what “logically related” means in the database arts.

    The judges reversed the burden of proof by ruling: “Dr. Shamos conceded that a database would have been a “reasonable design choice” for [in place of?] the personal holding files, and his statements that the prior art did not “necessarily disclose a database” are not evidence [that meets the patent holder's burden? to prove] nonobviousness.”

    “We [the non-artisan appellate judges on this basis] conclude that the prior art CompuServe Mall system, by clear and convincing evidence, rendered obvious [to one skilled in the art] the “shopping cart” claims: claims 34 and 51 of the ’314 patent and claim 17 of the ’482 patent. These claims are invalid; the district court’s contrary ruling is reversed.”

    OK Gene.
    Now having reviewed the details …
    I see what you are all upset about.

  19. funny that Lee Cheng would accuse someone else of “not invented anything” when Newegg is simply an online catalog of products from other companies. Slapping together such a storefront in 2001 after the dotcom bust not only required little thought but also was simply one of many many who did so. I see no innovation or advancing of technology by Newegg, while it is clear Soverain, who filed the patent before Netscape Navigator was even released – did advance technology.

  20. Gene – I have not had the pleasure conversing Mr. Cheng. From what you wrote, it seems like one to be avoided. It is interesting that he alleges you are taking money from patent trolls because you expressed an opinion on the validity of Sovereigns patents. I suppose that everyone who opines that a patent is invalid or not infringed (after a jury finds the opposite) is just taking money from big tech.

  21. Apparently Newegg has a new monkey on its back: TQP
    http://arstechnica.com/tech-policy/2013/11/jury-newegg-infringes-spangenberg-patent-must-pay-2-3-million/

    Newegg infringes Spangenberg patent, must pay $2.3 million

  22. @17 Gene- The record reflects a lot of lack of clarity as to which claim (34 or 35) is being addressed by the trial judge, Soverain, Newegg and the CAFC. Could it be that both parties appealed re claim 34 by mistake, and only realized that claim 35 was at issue after the main hearing and decision? I listened to the oral argument, and no one mentioned a claim number, and no one mentioned the limitations of claim 35. The briefs of both parties are foggy on which claims are being addressed. Newegg said only claim 34 was asserted. The original opinion said only claims 34 and 51 were asserted. But the jury forms used the wrong number 35. The order granting rehearing summarizes this.
    Overall, in answer to your question, it is not clear that Soverain was arguing claim 35, since they did not discuss its additional limitations, so it seemed like they were defending claim 34, and Newegg was definitely attacking claim 34. Maybe when both parties asked the court to address claim 35, the court decided it could address claim 35.
    The court seems to have concluded that the claims stood or fell as a group by agreement of the parties. It would take hours of research to determine if any of this was appropriate, but the CAFC did cite a case supporting the procedural step of treating the claims as a group.
    I understand your position that absent specific discussion by Newegg attacking claim 35, Soverain might have been able to establish waiver. Soverain did not raise that issue, and unless they tell us why, we will never know.