David Beats Goliath In Patent Troll Lawsuit

Is there any hope for small start-up companies involved in patent troll litigation? Underdog company Newegg seems to think so. With a recent win against mega-giant Alcatel-Lucent, Newegg gives hope to the little guy facing large legal power in patent disputes.

“It is truly, truly tragic how the mighty have fallen,” says Chief Legal Officer Lee Cheng about the Alcatel-Lucent corporate trolling activity to ars technica.

In 2011, Alcatel-Lucent looked like it was dominating the e-commerce market. Not in market share, but in market power—the kind of muscle that beats its way to the top. After suing eight major retailers, as well as Intuit, Alcatel-Lucent had settled each suit, one by one.

Even though Kmart, QVC, Lands’ End, Zappos, Sears, and Amazon all eventually folded, Newegg (and Overstock.com) held out.

“It’s an operating company that happens to hold a patent,” said Cheng to ars. “But it does nothing at all to bring the benefit of that patent to society.”

On principle, Newegg pursued the case, and won. First at trial in Texas, then last Friday in Federal Circuit court appeal via summary affirmance. It took the judges just three days to uphold the Texas trial ruling.

Apparently Alcatel-Lucent was not earning $12 million from Newegg for nothing.

“These are the Bell Labs patents,” Cheng explains. “This company was once the pride of American innovation, a company that has roots going back to Alexander Graham Bell. And it ended up selling off its patents for a few bucks. What Alcatel-Lucent did was really offensive.”

Offensive in the strategy sense, as well as the moral stance.

Cheng refuses to let Alcatel-Lucent off the hook. He continues (via ars):

“They systematically sent thousands of letters out saying, ‘Hey, we own 27,000 patents, and here are some patents we think you infringe.’ They had a whole licensing group whose job was to monetize these patents, by threatening litigation and in some cases litigating. It didn’t actually matter if you did your own analysis and got back to them and said, ‘Hey guys, we actually think we don’t infringe.’ The response was something to the effect of, well, we have 27,000 patents—and you probably infringe something, so give us a licensing fee.”

It’s not just a message to patent trolls that companies are prepared to fight for their intellectual property; it’s also a message to attorneys that firms are capable of combatting these suits successfully. With just three days for summary judgment, patent troll suits can even be defeated within a reasonable timeframe.

For companies looking to legitimately protect their patents, Newegg’s experience is also a good lesson in boilerplate legal jargon. Sometimes it’s necessary to pay your lawyers to investigate individual patent disputes and customize letters to infringers. From small to large, companies are no longer afraid of legal threats to sue. In fact, many are looking for you to do just that.

Law firms and their corporate clients should work together on an IP strategy, where an offensive policy doesn’t have to be an offensive one.

Sometimes IP litigation seems more like slinging gunfights in the Wild West, as opposed to educated businessmen deliberating on the bench. For now, Newegg’s president in patent protection should keep bandits at bay.

-WB

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