
Newegg vs. Patent Trolls: When We Win, You Win - nkurz
http://blog.newegg.com/newegg-vs-patent-trolls-when-we-win-you-win
======
grellas
What Newegg does _is_ highly commendable.

To achieve a decisive victory in these cases, Newegg typically has to take the
defense of its case through a full trial and possibly an appeal.

People often fail to appreciate just how risky a trial can be. We stand on the
sidelines and laugh at how absurd this or that flaky patent appears. And yet -
and yet - the law itself went through a phase in which such patents were
almost routinely granted. Standards may have tightened over time but, still, a
patent claim in a hotly litigated case will not survive to trial unless it has
been able to withstand a host of pretrial challenges by which a defendant has
already asked a court to rule that the patent, as a matter of law, should not
stand. It is only when a court tosses the patent claim in the pretrial phases
that a defendant avoids the risk of a potentially absurdly high verdict after
trial. If the claim survives such challenges, then the defendant has no choice
but to settle or to play it out through trial while incurring just a risk of
having a large verdict entered against it. This is the point at which most
defendants - even large, deep-pocket defendants who can otherwise afford to
pay the costs of defense - will fold. Newegg, on the other hand, has made the
tough decisions, incurred the major risks, and largely managed to defeat such
patents on the merits.

In doing so, it incurs the very large costs of defense typical in such cases.
And it has the guts to take the potential liability risks of going through
full trials to take the cases to verdict.

Large, institutional defendants have occasionally (though rarely) adopted such
policies in the past. For example, over decades, GM adopted a policy of never
settling injury claims if its own experts had determined that the GM autos
were not at fault. In doing this, it would often incur defense costs that far
exceeded the value of the claim being defended. But it did so to send a firm
message to the plaintiff's bar that prosecuted such claims - that is, "if you
want to sue GM, your case had better have merit - you will get no nuisance
settlement from us."

Newegg effectively is delivering the same message but with an important twist.
If GM successfully defended a particular injury claim, that ended the case for
that claimant but had no preclusive effect on other, similar claims. If Newegg
successfully defends and defeats a patent claim by having the patent declared
invalid, the law of what the lawyers call "res judicata" (meaning, "a matter
adjudged") kicks in and kills that patent off forever.

So, not only does Newegg take out the garbage, it makes sure it won't
accumulate ever again.

This is a true public service for which we all must tip out hats.

~~~
IndianAstronaut
Vote with your wallet. Support companies which provide this service with yout
purchases.

------
mcherm
I really appreciate Newegg's approach here -- one of the main reasons that
patent trolling is so successful is that the cost of settling is smaller even
than the cost of winning a suit. Newegg is performing an (expensive) community
service. How should I be supporting them (other than making them my "first
place to check" for electronics shopping)?

~~~
throwawaykf05
_> one of the main reasons that patent trolling is so successful is that the
cost of settling is smaller even than the cost of winning a suit._

Is the underlying reason for this strategy the low costs of settlement, or the
extremely high costs of lawsuits? What if the value of a patent really is only
a few thousand dollars?

Note that this very tactic is used by big companies to avoid licensing valid
and useful patents owned by smaller entities. Licensing discussions often
begin with the potential licensor saying "sue me", or these days, outright
suing you first with a Declaratory Judgement. Can an individual afford to take
on a large company? Trolls appear to simply be a symptom of this disparity in
the market.

~~~
ikeboy
If you know you have a valid case (you aren't a troll), how hard would it be
in practice to find someone to front the money for a lawsuit? Or for that
matter, could you go to the competition and sell your patent? That is, say
Apple's infringing on my patent; will Samsung buy the patent from me for a
fair price and then sue Apple?

~~~
startupfounder
> how hard would it be in practice to find someone to front the money for a
> lawsuit?

What about paying into an troll insurance policy every month so that if a
troll wanted to sue you they would see that you were protected and would fight
the lawsuit with a giant pile of money. This might deter the troll from suing
in the first place.

~~~
rollback
There is a whole ecosystem that is funding these lawsuits. It also operates
somewhat anonymously, with funding sources working directly with law firms and
indirectly with inventors (if they are even involved anymore). I've seen
emails between law firms and the inventor that literally title the investors
as "the funding source." The original inventor need not put any money at risk,
and the law firms and funding sources do their own diligence to decide if it's
worth proceeding to file suits. In most cases, the entity filing suit is
created for each series of attacks so that if they actually lose a suit and
are supposed to pay out, there are no assets from which to pay. Therefore, low
risk and potentially very high reward.

The biggest factor for that is not the validity of the patents, but the
breadth and ability of the patents to be filed against "juicy" targets with a
lot of cash. The cost of filing a suit is literally in the hundreds of dollars
(I think ~$750) and most of these cases get settled out fairly early because
of the immense cost of the defendants to complete the discovery process.

------
x0054
Perhaps a solution to this would be a Kickstarter like anti patent troll site.
Patent trolls usually go after smaller businesses at first, businesses who
could not possibly afford to fight, even if they wanted. The site would allow
a business to post their legal case online, and other businesses who face
similar exposure, could contribute to the defense fund.

The "perk" of contributing would be that you would get access to all of the
expert witness prepared statements and legal work, so if a patent troll comes
after you next, you would have a lot of your defense work already done for
you. Plus, once the patent troll looses a case, especially on appeal, that
decision can be used as precedent.

~~~
ScottBurson
This is an intriguing idea, but I think it would have a big marketing problem.
Most of the people who are at risk of being sued by a patent troll aren't
aware of that risk, or so I imagine. Maybe that's changing as the problem gets
more press, but I still think the necessary outreach would be difficult.

~~~
notahacker
Lawyers specialising in handling IP cases would probably have an interest in
such a service though; potentially far more work for them than agreeing with
the client that settling probably is the cheapest option. Insurers
underwriting intellectual property liability insurance (it exists!) also have
a very strong incentive to encourage, or even require their clients to use
such a service.

And for some non-software industries many firms might have a pretty good idea
which competitors/suppliers/clients of theirs are likely to be threatened by
the same patent.

------
andresmanz
> An example of this is Sovereign who bought the rights to a shopping cart.

If anyone wants to google them and can't find anything (like me), that's
because the name is _Soverain_ , not _Sovereign_.

------
devy
Erich Spangenberg is America's most notorious patent troll mafia head. I
blames him for taking full advantage of the broken U.S. patent system to
squeeze upward of $30 billion each year and the tremendous waste of use our
legal system resources.

EFF[1] and NYT[2] ran full reports on him previously.

[1] [https://www.eff.org/deeplinks/2013/07/times-profiles-
patent-...](https://www.eff.org/deeplinks/2013/07/times-profiles-patent-troll)

[2] [http://www.nytimes.com/2013/07/14/business/has-patent-
will-s...](http://www.nytimes.com/2013/07/14/business/has-patent-will-sue-an-
alert-to-corporate-america.html)

~~~
sliverstorm
There's parasites in nature, no reason to think there wouldn't be parasites in
human society...

~~~
harry8
What do we do with parasites when they attack us? That.

------
sytelus
As everyone knows in industry, this is not really a "win". Patent trolls are
setup in such a way that if they win they make lot of money and if they lose
then they lose very little. In many cases, they don't have to even pay damage
or lawyers fee for other party. If they are ever ordered to do so then they
would just announce bankruptcy of their shell company. They don't even lose
their portfolio because it's allocated in to hundreds of shell companies. So
in nutshell, Newegg has done very little damage to the troll. The troll
already made $45M and now they will just move on to next patent in their next
shell company.

All the other efforts like preventing bad patents through StackExchange etc
also have very little impact on troll business model. The only real weapon you
can use against them is crafting laws that strongly discourage trolling. One
would think tech industry with 100s of billions in bank have enough lobby
power to get this done quickly. The issue again is that tech industry itself
want to own such lousy patents to use against each other. So the industry will
only support weaker forms of laws against trolling. I would highly suspect
there would be end of trolling anytime soon. Industry as a whole would be more
than willing to absorb this cost instead of giving up on their own ammo.

~~~
rawdisk
"... tech industry itself want to own such lousy patents to use against each
other."

I recall a story where Steve Jobs called Eric Schmidt from Burning Man and
threatened Schmidt with "nuclear war" over Android. What did he threaten him
with? Legitimate competition? Guess again.

Junk patents are a perfect vehicle for vexatious litigation.

This is just my biased opinion but the IT industry appears to have no shortage
of child-like executives.

World's largest patent troll co-founded by former Microsoft CTO and a
licensing lawyer from Intel who coined the term "patent troll". Two
individuals who had certainly seen their share of trolling by smaller entities
against MSFT and INTC. I believe the lawyer blogged about the problem of
"patent trolls" anonymously for while at Intel in the late 90's, but was later
"outed".

The industry was aware of this problem very early on.

------
jvdh
Reading that the patents were about SSL and RC4, I had an evil thought. A
patent troll with these patents would actually help make the Internet a safer
place.

Companies that are still using those should be sued for not securing their
consumers' information properly. Failing that, this would be an even better
way of achieving the same thing.

------
emirozer
Please excuse my ignorance on this topic.

\- Why is this happening in the first place?

\- Who is this entity that grants a loose patent?

\- Why isn't this entity being interrogated ?

~~~
masklinn
> Why is this happening in the first place?

Because US patent laws and practices allow for it

> Who is this entity that grants a loose patent?

The United States Patents and Trademark Office.

> Why isn't this entity being interrogated ?

Because there would be very little point. One part of the issue is patent laws
themselves, the other part is that the USPTO is taken to task for both overly
lengthy examinations[0] and insufficiently rigorous examinations. I don't have
much experience with the USPTO themselves, but knowing people working in
european patent offices:

1\. they are judged pretty much solely on the number of patents examined and
their responsiveness

2\. patent offices are funded through maintenance fees (fees paid to renew the
patents and keep them enforceable) creating a fucked up incentive to accept
patents by default at the cost of the already very loose and subjective
patentability criteria ("novelty" and "inventive step or non-obviousness")

3\. especially given patent offices are generally underfunded and short-
staffed, especially in high-flying specialists able to actually evaluate
patents which are either complex or in novel fields (being a patent examiner
is few people's idea of a great career, even less so once you've built
experience and respectability in your field, and that's assuming the patent
office could even hire and pay you), even more so compared to the high-powered
business they face

4\. this is compounded by states routinely "diverting" (plundering) patent
offices's funding, in the US Congress diverts about 10% of the USPTO's
collected fees to the general treasury

5\. it is also compounded by the opening of whole new and novel patent fields
("business method" patents) which generate even faster growth than the
historical patent fields and are the source of much of the bullshit patents

that's not even considering that the existing patent system simply isn't a
good fit for software, more generally the whole field of business method
patents seems incredibly fucked up and created specifically to be abused (good
thing europe has declined to implement it)

[0]
[https://en.wikipedia.org/wiki/Backlog_of_unexamined_patent_a...](https://en.wikipedia.org/wiki/Backlog_of_unexamined_patent_applications)

~~~
vermontdevil
Good points.

Don't forget the Court in Eastern Texas which is a popular place for patent
lawsuits. Popular because the court is friendly to patent trolls due to the
revenue the court generates. [1]

[1]
[https://en.wikipedia.org/wiki/United_States_District_Court_f...](https://en.wikipedia.org/wiki/United_States_District_Court_for_the_Eastern_District_of_Texas)

~~~
nandhp
And the frequent charitable donations Samsung makes to causes in Marshall, TX,
home of many of the the court's jurors.

[https://ipcloseup.wordpress.com/2015/02/25/for-samsung-
chari...](https://ipcloseup.wordpress.com/2015/02/25/for-samsung-charity-
begins-at-home-marshall-texas/)

~~~
kevin_thibedeau
> And the frequent charitable donations Samsung makes to causes in Marshall,
> TX, home of many of the the court's jurors.

I'd love to be a fly on the wall when an East Texas jury convenes: They all
know what their verdict will be going in so I imagine they just hold out for
one last free lunch and chit chat to fill up the time while they "deliberate".

------
samch
Seriously excellent work by Newegg. I'm worried, however, that they've now
made themselves well-known enough in the industry to avoid future targeting by
patent trolls. Honestly, who would go after Newegg at this point with their
current track record? In the long run, this probably helps Newegg a lot with
good PR and fewer trolls attacking them. With the exception of the specific
cases they've already won, I just don't see this really helping the little
guys over the long run. Patent trolls are going to remain a huge headache
until we get serious reform.

------
yenda
No patent for ideas in Europe, problem solved.

~~~
ghayes
The Alice[1] opinion moved US law closer to what you are looking for,
rejecting patents that are simply ideas "by means of a computer."

[1]
[https://en.wikipedia.org/wiki/Alice_Corp._v._CLS_Bank_Int%27...](https://en.wikipedia.org/wiki/Alice_Corp._v._CLS_Bank_Int%27l)

~~~
jcranmer
It's worth noting that the Supreme Court has generally given rulings that
suggest that intimate that software patents are broadly unpatentable. The key
decision that allowed software patents in the first place was State St., which
was never heard by the Supreme Court (indeed, in Bilski, every opinion went
out of their way to emphasize just how _wrong_ State St. was).

Between Bilski, Alice, and even the older decisions of Benson, Flook, and
Diamond v. Diehr, SCOTUS has generally held that most software patents are
basically inherently invalid. It should also be pointed out that many patents
favored by trolls would also fail obviousness and/or prior art tests: the
problem isn't that the patents are valid, it's that trolls can extract money
from people by charging them somewhat less than the cost to go to court to
prove that the troll's patents are invalid.

One way you could fix the system is to punish the trolls for knowingly
peddling invalid patents: if an entity gets three patents invalidated by the
court system and they've been aggressive in suing people for compliance with
those invalid patents, then all patents that they hold are summarily
invalidated and they get prohibited from enforcing any patents for 5 years. On
top of having to reimburse everyone they charged (plus damages… plus interest
☺).

~~~
duskwuff
> One way you could fix the system is to punish the trolls for knowingly
> peddling invalid patents...

Most "patent trolls" spin off separate legal entities for each patent they're
using. This is to minimize losses if a suit goes wrong and they end up having
to pay legal fees. So, trying to punish trolls would be extraordinarily
difficult; you'd have to figure out some way to explicitly link all of these
entities, which is something the trolls are already specifically trying to
prevent.

~~~
Retric
This provides less protection than is often assumed.

'Piercing the corporate veil'

------
kazinator
You don't really win until the legal atmosphere is such that the the key
personalities behind a patent troll operation get 10 years in jail.

~~~
HeyLaughingBoy
Do you seriously want to live in such an atmosphere? Do you really think that
if that situation ever came to be then it would be the only change occurring
in society?

Patent trolls may suck, but IP is a thing we're not going to get rid of. As
long as it's "property" it can be traded. As long as it can be traded, the
possibility that the current owner has desires at odds with the original owner
can arise.

~~~
kazinator
> _Do you seriously want to live in such an atmosphere?_

Certainly. What these people are doing is effectively extortion and fraud;
there should be a legal framework in which such abuses can be identified as
such and treated accordingly.

The "IP" in question is not valid; it is predicated upon a lie. The lie is
that the patented idea is a significant new invention without prior art. The
trolls know this and exploit it by looking for obvious implementations of
everyday things that could conceivably land within the language of a patent,
which is a patent of specifically this type which they specifically acquired
for the purpose of trolling.

------
davesque
It's totally excellent that Newegg is doing this. As a side note, I don't like
when people include silly infographics in articles like this. I think it sort
of cheapens the message and this particular message is important.

------
ild
Another well-known Troll fighter is Vizio.

~~~
yenda
Another well known patent troll is Apple, patenting your hands movements and
phone shape since 1984. Allowing the marketing industry to replace the
hardware industry product after product.

~~~
rimantas
Apple does release products, you might want to check the definition of the
patent troll.

~~~
marcosdumay
Well, last time I checked, "patent troll" wasn't on the dictionary.

But let's all accept the definition that says that big corporations can do
everything they want, while small inventors (yes, they exist) must concede
unilaterally of any rights. No way there's a better definition around.

~~~
oddevan
I thought the accepted definition was a company whose only source of revenue
was patent licenses and lawsuits, not products or services based on said
patents.

------
thinkcomp
For those who prefer specifics of Newegg's litigation history rather than a
summary:

[http://www.plainsite.org/flashlight/newegg-
inc/](http://www.plainsite.org/flashlight/newegg-inc/)

------
FrankenPC
This brings up a good point. I need to buy from the vendor that's doing some
good with my money. Sometimes I hesitate to buy from Newegg because I can
always find the parts cheaper (Hey! Rent's a killer on the West coast right
now!) I think I'll buy PC parts solely from them for as long as they fight the
patent trolls.

------
aidenn0
I wonder if Newegg's much publicized fights against patent trolls could be
advantageous for them by deterring trolls from going after them for royalties.

N expensive lawsuits might be cheaper than M cheap settlements, if M is
sufficiently larger than N.

------
olalonde
> In this latest round of Newegg vs. the patent trolls, Newegg went against a
> company that claimed its patent covered SSL and RC4 encryption, a common
> encryption system used by many retailers and websites.

Maybe rights over patents should be lost if the rights holders fail to
actively defend it (similar to trademarks)? That would at least prevent the
absurd scenario where a patent holder waits for their technology to become
widespread before starting to prosecute.

------
IanDrake
Why would any of these trolls take on newegg?

~~~
altcognito
They have lots of money so they figured they'd get more money out of a quick
settlment. They miscalculated of course on Newegg settling.

~~~
IanDrake
>more money out of a quick settlment

I get why they'd go after anyone but NewEgg for that reason, but EVERYONE in
their business should know NewEgg doesn't settle by now.

------
Natsu
Interesting... I just learned that NewEgg's order page fails gracefully under
NoScript. You do have to turn on scripts for some domains, but it has buttons
that let you continue after doing so. I haven't seen that before.

------
transfire
This system is _sick_ , _sick_ , _sick_. The patent system needs a major
overhaul. It can't be pay to play. Given the state of affairs it would help if
all patent litigation fees were paid for by the government.

------
codezero
In winning these cases has Newegg shared any learnings that might help smaller
companies affected by patent trolls, or is it almost as simple as ponying up
the cash and going to trial?

------
aet
Worthless article that doesn't go into any details

------
jchomali
Nice article! Thanks for sharing this with us!

