Newegg defeats patent troll

A “patent troll” is a company that is set up just to make money off of patents it owns. Usually, such companies do not do any R&D themselves. Instead, they strategically purchase patents from other companies, especially companies that are going bankrupt or having other financial difficulties. Then they use these patents to make money from other larger companies. They say, “Hey, you use technology that we have patented. Either pay us some royalties or we will sue you.”

It is important to be aware that patents are different than copyrights. A copyright covers the creative work itself — that piece of data itself, as written or recorded. Examples include source code, an executable binary, some song lyrics, a book, a musical recording, a photograph, a video, etc. A patent covers an invention, in other words, an idea. So, for instance, you could have a certain kind of pulley system patented. And you could have the blueprints (or CAD drawings, etc.) copyrighted. Roughly, the patent covers the idea, while the copyright covers a data object.

According to Title 35 §101 of the US Code, the things you can patent are these: “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof”.

Well, what if someone had a patent on e-commerce? That is the issue in this Ars Technica article about the legal fight between Newegg and Soverain Software. (Read the article. It’s great.) Soverain Software is a patent troll, in the sense described above. And, at one point, they acquired a patent for the idea of an internet shopping cart. They didn’t actually do the “invention” or file for the patent. Apparently they got it from a software outfit that was going out of business in 2001. Well, who uses web shopping carts? Everyone. Soverain has sued the likes of J.C. Penney, TigerDirect, Avon, Victoria’s Secret, Best Buy, Office Max, Home Depot, IBM, and others. Not all the cases have been resolved, but Soverain was pulling in millions of dollars.

Newegg was also being sued by Soverain, and they said, “This is bullshit.” (That’s a quote from Newegg’s Chief Legal Officer.) Instead of settling with Soverain, they fought. Finally, they got Soverain’s patents declared invalid. This saves them and many other e-commerce businesses tons of money.

It seems extreme to be able to patent an idea as general as internet shopping cart. But are there other ideas that potentially should be covered by patent protection? What would be the justification for that? Would copyright be enough by itself?

My guess is that act utilitarianism would favor a policy of no software patents but some level of copyright protection for software and source code. However, I haven’t worked through the act utilitarian evaluation step-by-step. Furthermore, there are many ways copyrights can be structured, and that is another complication. We will be talking about this more in class in a couple of weeks. But please weigh in with your initial thoughts!

6 Responses to Newegg defeats patent troll

  1. At TechDirt today, another timely story about the use and misuse of patents:

    OXO Shows The Right Way To Respond To Bogus ‘Outrage’ Over ‘Copied’ Product

    Looking at OXO and Soverain side-by-side, I think we can see a nice contrast between well-intentioned and ill-intentioned orientations to patents and innovation.

  2. SmellsLikeLavender

    2 things: Neweggs qouted response from there chief legal guy is priceless. and was newegg the first to fight back? If they were raking in millions wouldn’t there be one court case over the idea, then the rest of the law suits using that as precedent since this was over the same patent. Did no one else fight back at all?

  3. This post goes to show the limits of the American Judicial system. Patent Troll companies should not be allowed to exist. The worst part about it is that companies like Sovereign Software have actually sued other companies for using “an online shopping cart” or something that they have a patent on and everyone seems to use and have won those cases. I’m glad that Newegg decided to fight back and actually won this case. However, I believe that software patents are necessary. While the patent system in general has it’s flaws, software patents have their positives. They allow software to be used only for the author’s intended purpose. Think about how different the computing world would be if Windows or Mac OS did not have software patents, and users did whatever they wanted to do to them? I believe that companies like Sovereign Software run on the subjective relativism rule, that an action is morally right if and only if it is in accord with a rule endorsed bu the actor, or in this case the company itself. Their rule is to do whatever it takes to get as many patents without working for them, and make money off them by suing other companies already “using” the patent.

    • Regarding your comment about Windows and MacOS: I worry that you are not being careful about the distinction between patents and copyrights. Windows and MacOS are covered by copyrights. Isn’t that enough?

  4. Zak Bainazarov

    Yeah, the patent system right now seems to have a lot of problems. Many companies are spending millions on securing patents and also trying to remove other companies from the market. For example, here’s a decent visual of the Apple vs Samsung battle.

    But I’m not even sure what a good stance is regarding this subject. I think we need to figure out a better way of deciding whether something is just a similar technology or an exact copy of something that has been patented. I do agree with Cailin that a good patenting system should be in place. I’m not too clear on Soviet history but I do remember hearing that some of the poorly implemented patent laws made it difficult for people to pursue ideas and make new innovations.

    However, if you think about the patent issues from an Act Utilitarian standpoint, it may be morally right, or at least morally acceptable to copy technologies because this allows more competition causing cheaper technology, which makes everyone happy. Though, one may be able to say that the copying of technology will force companies to constantly reduce costs which may have an overall effect on the salaries of people and GDP of the country thus counteracting the happiness produced.

    I also agree with

    • The Apple v Samsung graphic is great. I was already planning to focus on that issue when we get to intellectual property. I might make that graphic assigned reading. Thanks.

      Also, I think your act utilitarian framing of this issue is very accurate. From a utilitarian standpoint, we always worry about consequences. With these intellectual property questions there seem to be two distinct sets of consequences: (1) The consequences resulting from greater freedom of everyone to use the ideas. (2) The consequences resulting from the company losing revenue. Of course, each of these primary consequences has consequences of its own. That makes it quite difficult to see the ethics of this issue clearly.