After six years of litigation, the online retailer Newegg Inc. and its appellate lawyers at Weil, Gotshal & Manges have delivered a major blow to Soverain Software LLC, which has raked in tens of millions of dollars asserting patents related to e-commerce.
Siding with Newegg in a 25-page decision issued Tuesday, the U.S. Court of Appeals for the Federal Circuit invalidated three of Soverain's patents on obviousness grounds. The patents cover concepts like using an Internet receipt, putting items in an online shopping cart, and using identifiers to keep track of online shoppers. The ruling vacates a $2.5 million jury verdict that Soverain won against Newegg in 2010, and it also casts doubt on an $18 million verdict Soverain won in 2011 against Avon Products Inc. and Victoria's Secret Stores LLC, which Soverain accused of infringing the same three patents.
Soverain asserted five e-commerce patents against Amazon.com in 2004 and secured a $40 million mediated settlement in 2005. Emboldened, it went on to assert three patents against Newegg and six other online retailers, including Zappos.com and CDW Corp., in U.S. district court in Tyler, Texas, in 2007. All of the defendants settled except for Newegg, which was represented at the district court by Dallas-based Sayles & Werbner and the Webb Law Firm in Pittsburgh.
At a 2010 trial, the defense lawyers argued that Soverain's patents were invalid on obviousness grounds and that, in any event, Newegg didn't infringe. To Newegg's dismay, Judge Leonard Davis refused to instruct the jury on obviousness, ruling that Newegg failed to present a prima facie case. The jury awarded Soverain $2.5 million in damages.
IPWise called that verdict a "pyrrhic victory," since Soverain's trial counsel at Jones Day pegged damages at $34 million. After the verdict came down, Newegg urged Davis to vacate it on obviousness grounds. As one of Soverain's lawyers, Michael Smith, put it in a blog post, Newegg was "in the unusual procedural posture of arguing that it had proved the essential elements of the claim to a certainty, when Judge Davis had previously concluded that it had not even made out a prima facie case of obviousness so as to get the jury." As you might expect, Davis refused to set aside the verdict.
Soverain's litigation campaign has been chugging along ever since. In November 2011, a set of Soverain lawyers at Quinn Emanuel Urquhart & Sullivan won the company's $18 million verdict against Avon and Victoria's Secret. And in 2012, Soverain filed a raft of new infringement complaints in Eastern Texas against PayPal Inc. and eBay Inc.
Soverain's winning streak may now peter out, however. In Tuesday's decision, the Federal Circuit ruled that three of Soverain's core patents are invalid on obviousness grounds. "The district court's conclusion that a prima facie case of obviousness was not met is not explained by the court by Soverain, and does not accord with the record," the appellate panel ruled. "[T]he trial record contains extensive testimony of the experts for both sides, discussing every claimed element of the patented subject matter and the prior art system."
Edward Reines of Weil, Gotshal & Manges argued for Newegg at the Federal Circuit. Robert Wilson of Quinn Emanuel made the case for Soverain.
In an email, Reines credited his client for showing "fortitude in the face of meritless claims." He added that "the Federal Circuit's clear refusal to honor obvious patent claims will help keep the patent system in balance."
Jan Wolfe is a senior reporter with The Litigation Daily, a Recorder affiliate.
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