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Jury Finds Newegg Infringed Patent, Owes $2.3 Million

Posted by Soulskill on from the battle-lost-war-continues dept.

Jah-Wren Ryel sends this quote from Ars: "Newegg, an online retailer that has made a name for itself fighting the non-practicing patent holders sometimes called 'patent trolls,' sits on the losing end of a lawsuit tonight. An eight-person jury came back shortly after 7:00pm and found that the company infringed all four asserted claims of a patent owned by TQP Development, a company owned by patent enforcement expert Erich Spangenberg. The jury also found that the patent was valid, apparently rejecting arguments by famed cryptographer Whitfield Diffie. Diffie took the stand on Friday to argue on behalf of Newegg and against the patent. In total, the jury ordered Newegg to pay $2.3 million, a bit less than half of the $5.1 million TQP's damage expert suggested. ... TQP's single patent is tied to a failed modem business run by Michael Jones, formerly president of Telequip. TQP has acquired more than $45 million in patent licensing fees by getting settlements from a total of 139 companies since TQP argues that its patent covers SSL or TLS combined with the RC4 cipher, a common Internet security system used by retailers like Newegg."

32 of 324 comments (clear)

  1. Good advertising? by Anonymous Coward · · Score: 5, Insightful

    Hopefully this turns out to be good advertising for NewEgg - I know I'll be making my next computer purchase from them to help support them in fighting a patent troll.

    1. Re:Good advertising? by Chameleon+Man · · Score: 5, Insightful

      Is there anywhere else you should buy computer parts from? Their hardware all seems to be competitively price, and their customer service is outstanding. My buddy bought a mouse at Best Buy that didn't work. When they didn't take it back, Newegg did and gave them a full refund.

    2. Re:Good advertising? by cdl · · Score: 3, Insightful

      Ahh - did your friend tell Newegg that the mouse was bought at Best Buy? If so, props to Newegg for helping your friend out. If not, I think that's called fraud (and no props to your friend).

    3. Re:Good advertising? by keytoe · · Score: 3, Informative

      Lately, I've found that Amazon usually meets or beats Newegg's pricing for most things I buy, with free 2 day shipping (for Prime members).

      This was when I stopped using Newegg as well - the moment my wife signed us up for prime. We actually did it for the video and kindle, but once you experience free shipping like that it's pretty hard to accept anything else.

      Add in that they allow me to pay using my Discover card rewards right at checkout and it's a dangerous combo.

      Well played, Amazon.

      --

      Culture is more than commerce

    4. Re:Good advertising? by Smidge204 · · Score: 4, Informative

      Amazon.com charges a restocking fee under exactly the same circumstances that Newegg does... except Amazon can hit you for 20%-50% of the item's price instead of just 15%.

      That said, it's always worth shopping around - but I find Newegg pretty consistently has better prices, and lately they even have a price guarantee on some things.
      =Smidge=

    5. Re:Good advertising? by larry+bagina · · Score: 5, Insightful

      NewEgg stands up to patent trolls.

      Amazon... well, one-click.

      --
      Do you even lift?

      These aren't the 'roids you're looking for.

    6. Re:Good advertising? by Shakrai · · Score: 4, Interesting

      Amazon.com charges a restocking fee under exactly the same circumstances that Newegg does

      No they don't, unopened items returned within the return window are refunded in full, minus the return shipping cost if the return was a result of an error made by the customer. You only eat a percentage of the product if it's returned outside of the usual 30 day return window, which is certainly fair.

      In Newegg's case, they attempted to tried to ding me 15% of an unopened $600 video card, despite their CSRs claim that they would waive the fee. The return was completely my fault, I ordered the wrong card, and was open about that fact during my communication with them. I initially reached out to them in the hope that they would simply recall the shipment, since I hadn't received it, but they claimed this was impossible. They also told me that I could not refuse delivery (an option with Amazon, FYI), because that would be a return without an RMA, and suggested I go through the standard RMA process. I asked what would happen, they said I would get a total refund and only be on the hook for return shipping, which was more than I expected (eating the S/H charges in both directions would have been fair, since the mistake was mine), but I assumed they were being nice since I had placed an order for the correct card prior to calling on the bad one.

      Imagine my surprise when I got my credit card statement and found the restocking fee. Numerous phone calls ensued, wherein every single person that I talked to refused to honor the deal. Escalated to supervisors, who also refused to honor the deal, escalated again to people that never returned phone calls. Offered to provide a recording of the original call, but was told that it would be "irrelevant", because the CSR "exceeded his authority", as if that's my problem. I ultimately had to dispute the charge with my credit card company, and the only reason I prevailed there was because of the aforementioned recording.

      The best part? A few weeks later I get an e-mail telling me that I'm prohibited from doing business with them, because of the chargeback. Their prerogative I suppose, but none of it would have happened if they had simply honored their CSRs original promise.

      --
      I want peace on earth and goodwill toward man.
      We are the United States Government! We don't do that sort of thing.
    7. Re:Good advertising? by KingSkippus · · Score: 4, Insightful

      NewEgg stands up to patent trolls.

      Amazon... well, one-click.

      This. Exactly. I'd rather pay Newegg a few bucks more knowing that those bucks will be spent fighting patent trolls than saving a few bucks at Amazon knowing that the reason they're able to offer prices a few bucks lower is because they sued some other company out of existence for having the audacity to put a button on their web page that charges your credit card and checks you out in one action.

    8. Re:Good advertising? by pspahn · · Score: 5, Insightful

      So we have an article that talks about a company "sticking it to the man" (even if they lost) and then we have some /. locals come on to talk about how great "the man" is (Amazon) because their size allows them to offer slightly cheaper prices on stuff.

      It's a bit like seeing a live performance of "Run Like Hell" and everyone in the audience is clapping because Waters said you should.

      And people thought WalMart put a lot of Mom & Pops out of business.

      --
      Someone flopped a steamer in the gene pool.
    9. Re:Good advertising? by Enry · · Score: 4, Insightful

      I'd argue that there's a difference between Amazon and a true patent troll.

      Trolls usually don't use the patent they own and use it solely as an investment tool.

      Whatever you think of Amazon, they use the patents they hold. Maybe they enforce it, maybe they use it as leverage in case a competitor sues them (IBM, Microsoft, Intel, AMD, etc. all do this as well.).

      That's not to say the one-click patent is valid or not, but I don't think I'd call Bezos a troll for patenting the idea.

    10. Re:Good advertising? by lgw · · Score: 4, Insightful

      Well, I'm generally extremely skeptical of such claims in reviews, since people are generally idiots and don't understand why claims are refused to begin with. BUt for sure the rate of complaints about "drive was shipped with no padding, arrived broken" are on the rise at Newegg. It's to bad too, as no good can come of Amazon having an effective monopoly over any product space.

      --
      Socialism: a lie told by totalitarians and believed by fools.
    11. Re:Good advertising? by MobyDisk · · Score: 4, Informative

      I assume you do this after you used Newegg to search for the item. Because Amazon's search engine doesn't have 1% of the power that Newegg's has. I can't go to Amazon and find out which video cards use a 4-pin power connector versus a 6-pin. Stuff like that is what makes newegg awesome.

    12. Re:Good advertising? by danomac · · Score: 3, Insightful

      Actually, it does - almost all pricing includes a float to cover all the expenses from debit and credit cards.

      I went and paid cash to buy a headunit for my car, and they immediately took $60 off the price. Not only does it cost you, it costs everyone else, even those who use debit cards.

      I was kind of surprised, the place I went to reduced the price without me even asking.

    13. Re:Good advertising? by stridebird · · Score: 5, Insightful

      Or one day, amazon will be all that's left. You want that? I agree that many small businesses are badly run, and often can't or don't get the service right, but if you end up with only one or two massive impersonal players, you will regret it. That means, noiw, today even, making a choice to stop that happening by buying from the small guys even if that means paying a couple of dollars more.

  2. Well... by TheSwift · · Score: 5, Insightful

    I need to buy a new desktop anyway. Newegg, my money's coming your way.

    --
    "With patience a ruler may be persuaded, and a soft tongue will break a bone."
  3. Stupid judge/jury. by JustNiz · · Score: 3, Informative

    Trolls 1, good guys 0.
    Stupid judge/jury.

    At least it sounds like NewEgg will take it higher.

    1. Re:Stupid judge/jury. by cdl · · Score: 4, Insightful

      We can fight these stupid decisions coming out of east Texas one by one, or we could be smarter about it. We can try for patent reform, but the $$ involved, they will probably find a way around that as well. How about we start a PR fund with the goal of flooding the East Texas jury pool (buy TV/Radio/Newspaper/Internet in that geography) explaining why this is bad to the people that will be sitting in the jury box. Explain that it's actually killing small, successful companies, and only enriching the trolls/lawyers who actually did nothing. Call it carpetbagging - should resonate with Texans.

    2. Re: Stupid judge/jury. by Scowler · · Score: 4, Insightful

      Playing devil's advocate here... Why is this result some failure of the judge/jury of this case? Like it or not, this patent has previously been granted by the patent office. Jurors and judges don't get to invalidate patent claims because of some flaky idea of who is trolling who. Rather, they have to follow a more or less established legal process, regardless the side they may otherwise be rooting for. You want a "Bad Guy" for this event? Blame Congress, as current law incentivizes patent reviewers to accept questionable patent applications, and the number of years granted to these patents are too many.

    3. Re: Stupid judge/jury. by gstoddart · · Score: 5, Insightful

      Playing devil's advocate here... Why is this result some failure of the judge/jury of this case?

      When the guy who invented public key encryption tells you that the basis of the patent had been around for years, that is a failure of the jury in this case.

      At this point, I think people should just be suing the USPTO for lousy patents which should never have been granted in the first place.

      --
      Lost at C:>. Found at C.
    4. Re: Stupid judge/jury. by jandrese · · Score: 5, Informative

      The most amazing thing is that TQP's argument against Diffie involved them finding potential prior art to show that Diffie wasn't the inventor of public key cryptography. Even if this argument succeeded, then it should have put an even bigger nail in their coffin since it would show even more prior art for the patent.

      This really was the worst kind of patent too. So I see you're doing asymmetric crypto for key transfer...but ah ha, I got a patent for asymmetric crypto for key transfer using RC4! Checkmate! Like wow, you applied the most common (at the time) algorithm to a system that kind of resembles a SSL connection, except that it's with modems and came a few years after the big Diffie-Helmann paper.

      And of course they aren't suing the people who made the SSL offload appliances that got NewEgg into trouble, they're suing all of their customers, for using the thing with the default settings. And they're calling it willful infringement because they didn't go an explicitly disable the RC4 feature to comply with a patent they knew nothing about.

      --

      I read the internet for the articles.
    5. Re: Stupid judge/jury. by the+eric+conspiracy · · Score: 3, Interesting

      People can and do sue the USPTO.

      http://www.patentlyo.com/patent/2012/08/suing-the-uspto-to-cancel-improperly-issued-patents.html

    6. Re: Stupid judge/jury. by 0racle · · Score: 4, Informative

      It wasn't better marketed, it was created and made available by Diffie. That 'and' is important here. The British kept it secret that they even done it until '97. This is an example of parallel invention, only in this case one side made it known he had created it and the other didn't. For creating and publicizing Diffie is correctly attributed as the co-creator of Public Key Cryptography.

      --
      "I use a Mac because I'm just better than you are."
    7. Re: Stupid judge/jury. by Theaetetus · · Score: 4, Interesting

      Playing devil's advocate here... Why is this result some failure of the judge/jury of this case?

      When the guy who invented public key encryption tells you that the basis of the patent had been around for years, that is a failure of the jury in this case.

      Except he didn't, and they didn't. Read page two of this article from yesterday about his testimony.

      Basically, TQP admits that their patent is obvious in view of a combination of two references, one of which is Diffie's work, and the other of which was some work by Lotus: neither Diffie nor Lotus invented TQP's invention, but if you slap the two together in a reasonable way, they teach everything in TQP's invention, so it's obvious.

      Except, Lotus didn't publish their work until after TQP filed their application. And legally, that means it's not prior art, even though they were working on it in secret for some time. In other words, even though someone else invented what they did, it doesn't count, because that someone else kept it secret.

      So, Diffie gets on the stand and talks about his work on crypto, which was the first half of TQP's combination. On cross examination, TQP's lawyer points out that he didn't really invent it, did he? And Diffie says that someone else invented what he did, but it doesn't count, because that someone else kept it secret.

      So, it sounds like the jury was persuaded by Diffie that TQP's patent was valid.

    8. Re:Stupid judge/jury. by petsounds · · Score: 4, Funny

      Or we could just encourage Texas to follow through on their threats and secede from the United States. Problem solved!

    9. Re: Stupid judge/jury. by Darinbob · · Score: 3, Interesting

      The claims weren't really about the encryption. They admitted they did not invent RC4. The claims were about the transactional model (SSL). I still feel it's bogus though, but reading the full articles and history can help.

      The real issue may be the locale. Patent trolls love that court house. And no one in the court room was allowed to use the term "patent troll". The juries there seem to love standing up for the little guy who's being bullied by the big company. So the Newegg company and its lawyer, from the distant land of California, versus a locally based company and a lawyer from Dallas. Even the local Marshall Texas newspaper in the article saying that the trial had started took care to point out that the lawyer was from Dallas. Liberal big business California versus local home grown salt of the earth folks.

  4. Diffie was awesome by Gothmolly · · Score: 5, Informative

    "And how is it that you're familiar with public key encryption?"

    "I invented it."

    --
    I want to delete my account but Slashdot doesn't allow it.
    1. Re:Diffie was awesome by Anonymous Coward · · Score: 5, Interesting

      Let's stop this jury are morons myth. The judges gives the jury a list of very specific questions to answer in these cases, taking 2-5 hours. It's not like 12 Angry Men, where people debate what they're heard and sway opinions.

      The judge controls the entire jury thought process and has clearly spent a long time crafting the question list beforehand. Being an expert at law, they have already determined the result and knew precisely how to ensure their verdict is the one reached, but they still need to go through the proletarians to reinforce his chosen result.

      I've been on jury duty in a bullshit patent suit, and despite the obvious sane result, the judge's contrived question list ensures you cannot come up with any result other than what (s)he has already determined. There is no "let's discuss this" based on what was presented. Any jury not doing so will be kicked out and the trial starts from fresh.

      The massive issue here is that this is all behind the scenes, none of it is allowed to become part of the public record, hence posting AC.

    2. Re:Diffie was awesome by jandrese · · Score: 4, Insightful

      NewEgg's lawyers spent a fair bit of time proving Diffie's claim. They had a textbook, his original paper, and he gave a very informative talk about the early days of public key crypto. I suspect what happened here is that they took TQP's argument to heart that said TQP has a piece of paper that says they own it, so the law says the must find in favor of TQP, despite whatever feelings the jurors might have on the issue.

      TQP managed to make the trial about "Did Newegg infringe on this patent?", not "Is this a bad patent that should be overturned?" In that case, the answer is probably a yes.

      --

      I read the internet for the articles.
    3. Re:Diffie was awesome by Anonymous Coward · · Score: 5, Interesting

      I've been on jury duty in a bullshit patent suit, and despite the obvious sane result, the judge's contrived question list ensures you cannot come up with any result other than what (s)he has already determined. There is no "let's discuss this" based on what was presented. Any jury not doing so will be kicked out and the trial starts from fresh.

      Meaning a Jury could stall a verdict by doing what is right and debate the issue. correct?

  5. Newegg made its name on appeals by AnalogDiehard · · Score: 5, Informative

    Newegg lost the trial but has prevailed on appeal with past cases against patent trolls. Newegg had budgeted its legal warchest to include appeal, so the fight ain't over yet.

    --
    Eternity: will that be smoking, or non-smoking? I Corinthians 6:9-10
  6. Re:SSL? by fuzzyfuzzyfungus · · Score: 4, Insightful

    What is somewhat surprising is that Newegg had, as expert witness, Whitfield Diffie, as in 'Diffie-Hellman' Diffie. I didn't even know that it was possible to lose an assymetric-key encryption related case with him on your side, especially against nobody in particular.

  7. Is it possible that patents are an undue burden? by Press2ToContinue · · Score: 5, Insightful

    As a developer of original software products, I consider it impossible - just my opinion - to determine if any software I create infringes on existing patents. There are usually thousands and often tens of thousands of ideas, algorithms and design approaches in a product that would need to be checked, and patents are so wordy that the time it would take to determine if there was infringement would always far exceed the time it takes to make the product. This seems to me to pose an undue burden, and is therefore unconstitutional?

    Does anyone have any thoughts on this?

    --
    Sent from my ENIAC