Soverainv. Newegg: Not an Ordinary Obviousness Dispute

On October 16, 2013, Soverain Software submitted its Petition for Certiorari to the United States Supreme Court, seeking a review of the United States Court of Appeals for the Federal Circuit in Soverain Software LLC v. Newegg (January 22, 2013). The seeming late filing of the Petition for Certiorari was due to the fact that a  limited grant of rehearing was ordered by the Federal Circuit on June 13, 2013. The rehearing was for the purpose of clarifying the status of claims 34 and 35 of U.S. Patent No. 5,715,314. The other patents at issue in the case are U.S. Patent No. 5,909,492 and U.S. Patent No. 7,272,639.

The original January 2013 opinion was authored by Judge Neman with Judges Prost and Reyna in agreement. In that opinion the Court identified claim 34 as representative of the “shopping cart” claims, and held claim 34 invalid on the ground of obviousness. The parties stated, on petition for rehearing, that the Federal Circuit ruling should have been for claim 35, which would conform to the judgment entered on the jury verdict. Ultimately, the rehearing was not successful and claim 35, like claim 34, was ruled invalid because it was obvious. See Soverain Software LLC v. Newegg, Inc. (Fed. Cir., September 4, 2013).

The Newegg brief in opposition to Soverain’s Petition for Certiorari was due on November 18, 2o13, but Newegg’s attorney requested an extension until Thursday, December 12, 2013, so we await the filing of Newegg’s opposition brief. I have been told that Soverain plans to file a reply to whatever Newegg files, so it will be some time before we know whether the Supreme Court will take this important case.

The Pioneering Technology

Before diving into why this case matters and everyone should pay close attention, allow me to point out that the technology involved in this case is THE original shopping cart technology. In fact, the ‘314 patent matured from a patent application that was filed on October 24, 1994. Despite what you may have heard, this is not an example of a bad patent, nor is it something that wasn’t new or was legitimately obvious at the time it was invented, which would have been some meaningful time before October 24, 1994. This is an example of a pioneering invention that came about at the dawn of Internet as we know it today.  The fact that it is ancient in Internet terms does not mean that the claims are bad, it merely means that the innovation embodied in the patent is fundamentally important. Indeed, the Soverain’s enterprise software product has been in use for nearly 18 years, and has been used by over 1,000 customers in over 25 countries, including companies such as Time-Warner, AT&T, Sony, Disney, BusinessWeek and Reuters.

Widespread adoption should be celebrated rather than mocked by those who ignorantly believe that widespread adoption is somehow proof that the invention is obvious. Exactly when did we stop celebrating innovations that are widely adopted and start pretending that such widespread adoption has to mean that the patent system has run amok? Those poking fun at this patent and ridiculing the patent system as a result are simply not being honest, or they simply don’t know enough to actually form an informed opinion. But pretending that this innovation wasn’t groundbreaking over 19 years ago when the patent was filed is at best misguided and at worst misleading and demonstrative of some kind of hidden agenda.

The absolute truth known to everyone in the innovation community is that pioneering innovations become commonplace.  What was revolutionary at the time the invention was made becomes taken from granted.  In hindsight pioneering innovations look insignificant because they have become ubiquitous. The public, judges and critics find it difficult (assuming they try) to determine whether that which is commonplace today was really, truly obvious decades earlier as of the critical date.  Even when an honest and fair obviousness inquiry is undertake it can be exceptionally difficult to put yourself back to before the invention was made in order to determine what was known and what was obvious at the time. But let’s dispense with the ridiculousness, shall we? The overwhelming majority of the world was not at all knowledgeable about or clued into the World Wide Web at the time this innovation was first made. So let’s dispense with the histrionics.

Not an Ordinary Obviousness Dispute

Of course, many will look at this matter and see only an obviousness dispute, which is generally speaking not of grave concerns to the broader patent community. But I first clued into this case when I noticed that one of the preeminent Supreme Court advocates of this generation was representing Soverain at the Federal Circuit. Clearly there was more to the case than your ordinary garden variety obviousness dispute.

Soverain is represented by Seth Waxman (WilmerHale), who is listed as the Counsel of Record, as well as numerous other attorneys including Robert Sterne (Sterne, Kessler, Goldstein & Fox) and David Nelson (Quinn Emanual Urquhard & Sullivan). This is an all-star cast lead by Waxman, who over recent years has enjoyed great successes at the Supreme Court in patent matters.

The Question Presented by the Soverain petition is stated as follows:

But how is this more than an ordinary obviousness dispute? The first clue is this: The patents in question were granted in the first instance, were upheld twice in reexamination despite being challenged with substantially the same prior art, and the patents were found valid and infringed by a jury. Indeed, it seems that every time these patents had been previously considered they have been found to have valid claims, but then the claims are invalidated by the Federal Circuit? In the not to distant past we could have said that no patent claims that had ever escaped reexamination had ever been determined to be invalid by the Federal Courts. Sadly, those days have been gone for at least several years.

The fact that a patent can be reexamined twice and then still found to have claims that are invalid due to obviousness should capture the attention of everyone in the patent community. If the Federal Circuit can merely review matters of obviousness de novo even after the Patent Office has twice found the claims to be valid in reexamination what is the point in even attempting to obtain a patent?

But let’s dive a bit deeper the reexamination facts:

• 5 of Soverain’s patents, out of a portfolio of 60 patents/apps, have been reexamined a total of 8 times.
• Throughout these 8 reexaminations, all of the reexamined claims except one unasserted claim have been confirmed, with none of the other claims ever being amended.
• Throughout these 8 reexamination Soverain managed to add 270 new dependent claims.
• 3 of Soverain’s patents (the ‘314, ‘492 and ‘639, which are the ones asserted in the Newegg litigation) have each been reexamined twice.

This makes it exceptionally difficult to understand why obviousness, which is supposed to be a mixed question of fact and law, should be considered start to finish in a de novo manner. Appellate Courts are not equipped to determine facts de novo, which is why they are supposed to limit themselves to the record and accept the facts found as correct unless there is an egregious error.

The Erosion of Patent Rights

There is a disturbing trend over the last 8 years to chisel away at the rights of a patent. This started with the Supreme Court prohibiting permanent injunctions as a matter of right to a victorious patent plaintiff despite the patent grant giving the owner an exclusive right. It got worse when the Supreme Court said that obviousness is to be determined based on common sense. It gotten even worse still when Congress passed the America Invents Act and ushered in multiple new ways to challenge issued patents. It has gotten worse still as the result of the Federal Circuit and the Supreme Court preferring to use patent eligibility to make determinations never intended by the statute and calling into question patentability of all software, genetics related innovations and medical diagnostics. The problem of patent erosion will get even worse still, and much worse, if the Innovation Act becomes law, which will usher in fee-shifting and guarantee serial challenges to issued patents due to changes in the AIA estoppel provisions.

In short, a patent is not nearly as strong today as it was at the beginning of 2006. Patent rights continue to erode and at some point we have to acknowledge that if a patent can be stripped after many years, or even a decade, of litigation that have upheld the rights granted then it really isn’t a property right any more. Property rights settle and title becomes quieted. Title to patents never quiets any more, which is an enormous problem that has negatively impacted investors willingness to fund start-up companies and will only continue to get worse unless something is done.

Fight Until the Patentee Loses

Now factor into your consideration the fact that the Federal Circuit invalidated the patents for reasons not asserted by Newegg, invalidating the claims at issue on the Court’s own initiative.

I guess the two questions that have to be asked as the result of the Soverain/Newgg dispute are these:

1. What is the point in having a trial in the first place?
2. What is the point in reexamination in the first place?

It seems that the Federal Circuit really should be the tribunal of first instance for everything from reexamination, to litigation, to exclusion orders to post-grant review because they pretty much do what they want. While I understand that sometimes disparate treatment is caused by different standards of review, at the end of the day aren’t claims either patentable because they are novel and nonobvious or not? That should certainly be the case, but what we are increasingly seeing are cases where the patent owner wins and then has to keep fighting over and over in multiple forums until they finally lose. Then when the patent owner loses it is over. How is that fair?

Patent litigation has continued to increase in cost over the years because challengers will fight in every forum, lose over and over and then ultimately prevail on appeal despite every other tribunal determining that the claims should survive. If a patent is a property right then this constant challenge after challenge in search of a different result has to stop. At some point a patent has to settle and the rights granted must quiet. When patent rights don’t settle all innovators are getting is some kind of expectation of exclusive rights that never seem to materialize, and that is even if the innovation is commercially relevant in the first place.

Conclusion

Call me cynical if you want, but it seems to me that the patents that are most vulnerable are the ones that cover the most commercially important innovations of the day. Widespread adoption of a technology that proves to be foundationally important is almost the kiss of death. At the same time infringer companies will settle garbage patent troll cases while litigating against solid patents that are infringed for half a generation. This would be comically funny in a Monty Python way if it were not so gut wrenchingly sad.