ArsTechnica has a fascinating article about a significant victory in an online commerce patent battle. The story begins:
Anyone who visited Soverain Software's website could be forgiven for believing it's a real company. There are separate pages for "products," "services," and "solutions." There's the "About Us" page. There are phone numbers and e-mail addresses for sales and tech support, even a login page for customers.
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 Wolanyk, 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 Wolanyk, 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 email@example.com." That number, like the "customer support" number on Soverain's contact page, has been disconnected.
Soverain isn't in the e-commerce business; it's in the higher-margin business of filing patent lawsuits against e-commerce companies. And it's been quite successful until now. The company's plan to extract a patent tax of about one percent of revenue from a huge swath of online retailers was snuffed out last week by Newegg and its lawyers, who won an appeal ruling [PDF] that invalidates the three patents Soverain used to spark a vast patent war.
The ruling effectively shuts down dozens of the lawsuits Soverain filed last year against Nordstrom's, Macy's, Home Depot, Radioshack, Kohl's, and many others (see our chart on page 2). All of them did nothing more than provide shoppers with basic online checkout technology. Soverain used two patents, numbers 5,715,314 and 5,909,492, to claim ownership of the "shopping carts" commonly used in online stores. In some cases, it wielded a third patent, No. 7,272,639.
Soverain will lose the $2.5 million it stood to gain from Newegg, as well as two much bigger verdicts it won against Victoria's Secret and Avon. Those two companies were ordered to pay a total of almost $18 million, plus a "running royalty" of about one percent, after a 2011 trial. The ruling in the Newegg case is a total wipeout for a patent troll that had squeezed many millions from online retailers, was backed by big-firm lawyers, and was determined to collect hundreds of millions more.
For Newegg's chief legal officer Lee Cheng, it's a huge validation of the strategy the company decided to pursue back in 2007: not to settle with patent trolls. Ever. . . .