Encryption patent that roiled Newegg is dead on appeal
Another Newegg patent victory, though Lee Cheng has moved on.
Patent-holding company TQP Development made millions claiming that it owned a breakthrough in Web encryption, even though most encryption experts had never heard of the company until it started a massive campaign of lawsuits. Yesterday, the company’s litigation campaign was brought to an end when a panel of appeals judges refused (PDF) to give TQP a second chance to collect on a jury verdict against Newegg.
The TQP patent was invented by Michael Jones, whose company Telequip briefly sold a kind of encrypted modem. The company sold about 30 models before the modem business went bust. Famed patent enforcer Erich Spangenberg bought the TQP patent in 2008 and began filing lawsuits, saying that the Jones patent actually entitled him to royalties on a basic form of SSL Internet encryption. Spangenberg and Jones ultimately made more than $45 million from the patent.
Newegg finally took the TQP patent to a jury trial but lost in 2013 when a jury said Newegg should pay $2.3 million for infringement. But after a long delay, Newegg still won the lawsuit on post-trial motions. US District Judge Rodney Gilstrap agreed with Newegg’s lawyers that because the company’s encryption scheme didn’t change “key values” with each block of data, it couldn’t possibly fit into the description of the Jones patent.
TQP appealed its case, and oral arguments were heard at the US Court of Appeals for the Federal Circuit on February 8. Yesterday, the three-judge panel found in Newegg’s favor, issuing a short two-page order that did not explain its reasoning. While TQP could theoretically still appeal to the full Federal Circuit or to the Supreme Court, it’s far from clear there’s any legal issue in the case that would compel either of those bodies to take the case.
Newegg and its former chief legal officer, Lee Cheng, have long taken an uncompromising view on the necessity of fighting what they term “patent trolls” in court. The TQP Development trial, in which Cheng faced off against Spangenberg, may end up being Newegg’s last high-profile patent trial. In October, Cheng left Newegg for Nashville-based guitar maker Gibson Brands.
The Newegg win did not invalidate the TQP patent, which expired in 2012. No new cases have been filed since 2014.
After the trial against Newegg, the TQP patent was sold, according to former owner Spangenberg. The new entity’s ownership is unclear, but it is still represented by the same lawyers from Los Angeles-based Russ, August and Kabat. TQP lead attorney Marc Fenster didn’t respond to a request for comment on the appeals court ruling.
“Newegg’s e-commerce encryption systems never infringed TQP’s patent, which is directed to outdated modem technology from the 1980s,” Newegg lawyer Dan Brean told Ars via e-mail. “The differences are clear and fundamental in terms of how and when data is encrypted and transmitted. That is why Judge Gilstrap entered judgment in Newegg’s favor despite the jury’s verdict, and the Federal Circuit has now affirmed that judgment.”
“I’m glad that this is finally over,” added Newegg lawyer Kent Baldauf. “We have lived with this a long time as it was filed in 2011. This patent troll case was particularly troubling as it not only involved an antiquated technology that has never been used by modern Internet retailers such as Newegg, but it was also asserted to cover the foundational developments of luminaries in the field of encryption such as Ron Rivest and Whit Diffie. We are thankful that Newegg once again stood up to a patent troll and refused to settle based upon a patent that it did not infringe.”