Techdirt. Stories about "newegg"

Newegg's 'Screw Patent Trolls!' Strategy Leads To Victory

Mike Masnick — Mon, 28 Jan 2013 12:48:46 PST

During CES, there was a panel discussion on patent trolling, and panelist Lee Cheng, Newegg's top lawyer, made some strong statements about how the company had made the decision that it will never give in to patent trolls, because if it does, more will just come knocking. That strategy may be costly upfront, but it also may have just saved the public from paying a massive online shopping tax. Joe Mullin, once again, has the fantastic story concerning Newegg's big victory over Soverain Software, who claimed that its patents (5,715,314, 5,909,492 and 7,272,639) covered basically any online shopping cart. As we noted back in 2010, Soverain was a pure patent troll which purchased the patents that had originally come from Open Market, and was suing everyone (with a ton of companies settling).

However, Newegg chose to fight it, and despite losing at the district court level (in East Texas, of course), the Appeals Court has invalidated all three patents. Incredibly, the East Texas court had refused to let Newegg make the argument that the patents were not valid.

At district court, the judge hadn't even let those invalidity arguments go to the jury, stating there wasn't "sufficient testimony" on obviousness, and that it would be "very confusing" to them.

That's fairly incredible. The validity of a patent is a key issue in any patent trial, and for a judge to reject it even being brought up for being "too confusing" to a jury is astounding. Thankfully, the appeals court completely rejected not only that idea, but the patents as well -- and it means that some other recent verdicts in favor of Soverain are now dead as well.

Mullin's article also highlights some of the bogus nature of Soverain:

It's all a sham. Court records show Soverain hasn't made a sale—ever. The various voice mailboxes were all set up by Katherine Wolanyck, the former Latham & Watkins attorney who is a co-founder and partial owner of Soverain. And the impressive list of big corporate customers on its Web page? Those are deals struck with another company, more than a decade ago. That was OpenMarket, a software company that originally created these patents before going out of business in 2001. It sold its assets to a venture capital fund called divine interVentures, which in turn sold the OpenMarket patents to Soverain Software in 2003.

"Thank you for calling Soverain technical support," says Wolanyck, if you press option 2. "If you are a current customer and have a tech support question, please call us at 1-888-884-4432, or e-mail us at support@soverain.com." That number, like the "customer support" number on Soverain's contact page, has been disconnected.

Mullin also includes a fantastic interview with Lee Cheng about why Newegg was willing to do this. It's worth reading in full, but here's just a snippet:

Patent trolling is based upon deficiencies in a critical but underdeveloped area of the law. The faster we drive these cases to verdict—and through appeal, and also get legislative reform on track—the faster our economy will be competitive in this critical area. We're competing with other economies that are not burdened with this type of litigation. China doesn't have this, South Korea doesn't have this, Europe doesn't have this.

Just in our experience, we've been hit by companies that claim to own the drop-down menu, or a search box, or Web navigation. In fact, I think there's at least four that claim to 'own' some part of a search box.

It's actually surprising how quickly people forget what Lemelson did. [referring to Jerome Lemelson, an infamous patent troll who used so-called "submarine patents" to make billions in licensing fees.] This activity is very similar. Trolls right now "submarine" as well. They use timing, like he used timing.

Then they pop up and say, "Hello, surprise! Give us your money or we will shut you down!" Screw them. Seriously, screw them. You can quote me on that.

Of course, once again, we wonder how companies like Amazon, who "settled" with Soverain, paying them tens of millions of dollars, feel about this. Why is it that the companies who settled over patents later declared invalid aren't able to seek their money back? Seems only fair.

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'Geek Power': Best Buy Sends C&D To Newegg Over Marketing Campaign

Mike Masnick — Fri, 10 Jun 2011 14:27:00 PDT

Ah, Best Buy. It's apparently decided to get into the trademark bullying business. The company sent well known online electronics retailer Newegg a cease & desist (shown below) because Newegg is running a marketing campaign called "Geek On" with the "O" in "On" made to look like a "power on" button. Best Buy claims that this is biting off its own Geek Squad logo, which similarly uses a power on button (though, with a tie): The shirt is Newegg. The callout is Best Buy. And, yes, they look nothing alike. No moron in a hurry is going to be confused here. To make it even more crazy, Best Buy, in true conspiracy theory mode, decides that Newegg is also violating its trademarks because of the following commercial, which pokes fun at Best Buy: Best Buy takes offense at all this and claims that it's trademark infringement:

The fake Best Buy employee is depicted as being slovenly and uninformed about computer products, in contrast to your employees who are portrayed as "experts."

Your misuse of our valuable trademarks and your negative portrayal of our employees violate our trademark rights and misleads consumers about our services, in violation of federal and state law. While we welcome fair competition, we cannot tolerate unfair competition that disparages our employees, confuses customers and damages our valuable trademarks and the goodwill associated with those marks. We take great pride in our employees and the high quality of customer service they offer and find your company's focus on our employees in this advertising campaign to be particularly offensive.

Of course, there are all sorts of problems with these claims. The logos looking nothing alike, as we've already discussed, but the whole thing about the TV ad is just ridiculous. There's clearly no trademark issue there, as competitors are absolutely allowed to poke fun at each other. No one is going to think that Best Buy "sponsored" the Newegg commercial. There's no consumer confusion at all. More amusingly, the fact that Best Buy thinks that Newegg is portraying Best Buy employees says a lot about how Best Buy views its own employees.

Of course, as many are pointing out, this whole thing has done the exact opposite of what Best Buy probably wanted. First, it's driven a ton of attention to Newegg's commercial, but more importantly, it's made Newegg supporters -- who are generally quite tech savvy -- really dislike Best Buy even more than they may have already. Newegg had posted the C&D letter on its Facebook page, and the response are almost universally anti-Best Buy: Perhaps next time Best Buy will think about the consequences of sending out such a bogus C&D before all of this happens.

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Ancient Online Shopping Cart Patent Still Biting Retailers

Mike Masnick — Fri, 10 Sep 2010 10:41:54 PDT

This one goes way back. If you've been following the absolute ridiculousness of software patents for a while, you're probably aware of the infamous Open Market "online shopping cart" patents (7,272,639, 5,715,314 and 5,909,492). While Open Market failed, the patents have lived on. There was an internet company in Chicago, called Divine, that went through more business models than you can imagine, and somewhere along the line it bought the remains of Open Market. In struggling for some way (any way, please!) to make some money, the company realized it had Open Market's shopping cart patents and announced plans to sue way back in 2002. Next we heard of them, was in 2004, when Amazon was sued over those patents, by a company called Soverain software -- who bought the patents in 2003 or 2004 out of bankruptcy from Devine. Because fighting patent battles is costly, Amazon eventually just paid off Soverain.

I hadn't heard much about the patents, but it appears that Soverain has been busy again, and sued popular online tech retailer Newegg... and, unfortunately, as reader Ron Murphy let us know, a court in East Texas (of course) found that Newegg infringed... though, the details show that the jury did not find "direct" infringement, but rather "indirect infringement." However, last month, the judge's ruling sided with Soverain over Newegg, meaning that Newegg may have a huge bill facing it.

Even if Newegg fights this, Soverain has been suing all sorts of companies over the years, with many of them just agreeing to license the patent to avoid having to go through a lawsuit. And, because of that, Soverain has the ability to just keep on suing. The Newegg case originally involved six other companies (including Zappos), though all of the others settled. And since that lawsuit was filed, Soverain, more recently, sued a whole bunch more companies, including J.C. Penney, Amway, HSN, QVC, Shutterfly, Victoria's Secret and more -- and that case is in front of the same judge who just ruled in Soverain's favor -- so it doesn't look good.

I can't wait to see how our favorite patent system defenders defend this one. They'll say that we can't really say that the idea of an online shopping cart was "obvious" back when these patents were filed, but that's pretty laughable. It's pretty ridiculous to see anyone defend what has become a blatant tax on online retail now, from a company that did nothing to advance the space.

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Fake Processors, Passing The Blame, Legal Nastygrams And More...

Mike Masnick — Mon, 8 Mar 2010 13:33:16 PST

Richard Corsale writes in to let us know about how popular electronics e-commerce site NewEgg apparently received 300 totally fake Intel processors and at least some of them were sold. They're not processors at all. They're just made to look like them from the outside. NewEgg's initial response was to claim that its supplier shipped them demo boxes by accident -- but Intel is claiming that's not true, and the boxes are not official Intel demo boxes, but counterfeit demo boxes. Then, to make the story even odder, many publications reported that NewEgg's supplier for these fake processors was a company called D&H -- and D&H's response to all of these stories is to send out legal nastygrams to anyone reporting on the story and mentioning D&H. Perhaps it's worth giving D&H the benefit of the doubt, but why not just come out and say "hey, it wasn't us," and get NewEgg to confirm or deny who provided the fake processors before sending out a legal threat?

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NewEgg Tells NY Tax Collectors To Take A Hike

Mike Masnick — Mon, 25 Aug 2008 06:33:00 PDT

Earlier this year, we wrote about how NY state had passed a highly questionable law designed to force e-commerce retailers to collect sales tax in the state. As you hopefully know, retailers are only supposed to collect sales tax in states where they have a physical presence. The reasoning for this is pretty straightforward. The taxes are designed to help provide core infrastructure services for those retailers (roads, water, etc.). Without a physical presence in the state, the retailers aren't making use of those services, so it doesn't seem right to tax them for it. The NY state law was sneaky in that it changed the definition needed to establish a "physical presence" to include anyone who acted as an affiliate of the retailer. Most e-commerce sites have affiliate programs that allow others to get a kickback on sales for driving those sales. Affiliates are effectively advertisers, driving traffic to an e-commerce site. It's quite a stretch to suggest they represent a physical presence for the company. But, NY politicians did it because they wanted to get more cash out of Amazon.

Different online retailers have reacted in different ways. Both Amazon and Overstock sued over the law -- and Overstock even banned NY affiliates while this law is in place. Online tech retailer NewEgg started collecting the tax, but has changed its mind. It sent a letter to customers saying that it's decided not to collect the tax. There isn't much more of an explanation, but it sounds like it's asking New York to sue it if it wants to get the tax at all:

As a result of recent changes in New York State tax law requiring certain out-of-state retailers to collect and remit sales taxes to the State of New York, we began collecting applicable sales tax for all orders shipped to New York addresses starting June 1, 2008.

After careful review and consideration, we are pleased to inform you that we have stopped collecting New York sales tax, effective August 21, 2008. This decision was driven by your direct and candid feedback and our continued commitment to you as our valued customers.

Your move, New York.

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