Patent troll's victory over Newegg bodes ill for online retailers

Texas jury says online electronics retailer has infringed on patent covering SSL encryption, but Newegg will appeal

What's bad news for Newegg this week may be bad news for many other online retailers as well -- and maybe even the whole Web.

Newegg, the online electronics retailer that's made a name for itself by taking on patent trolls in court, has lost a lawsuit instigated by one of the more mysterious and troubling patent trolls, according to Ars Technica.

The lawsuit, courtesy of a patent-holding company named TQP, involves a single patent that according to TQP covers the use of encryption via SSL using the RC4 algorithm. TQP has been going after hundreds of companies since 2008, demanding royalties for the use of a technology that is, in its view, employed by just about every website that uses encrypted connections.

The target companies in question are typically deep-pocketed, high-profile outfits: Intel, Hertz Corporation, Google, eBay, Expedia, and many more. Many of the suits, like those against Apple or TD Ameritrade, have been dismissed before they reached trial, sometimes (as in Apple's case) because of a confidential settlement.

But Newegg has been sued before by patent trolls and has refused to take any such suit lying down. Previously, when sued for the use of a patent that allegedly covered online shopping cart technology, the company fought back in court and ultimately invalidated the patent in question.

Newegg was equally adamant that TQP's "730 patent," as it's called, wouldn't stand up in court and was originally designed only to cover a small range of modem hardware anyway. They brought in a roster of expert witnesses that included none other than Whitfield Diffie, a co-inventor (along with Martin Hellman) of distributed-key cryptography. He argued that the TQP patent was anticipated by other work done in the same field, including RC4's implementation in Lotus Notes in 1988-9.

But in the end, the jury sided with TQP, and ordered Newegg to pay $2.3 million.

The fight's far from over, though. Newegg does plan to appeal, since its victory over the shopping cart patent only came through on appeal as well. In the meantime, TQP is still free to sue, and few others -- even among those with a sizable war chest for legal battles -- have shown the kind of willingness Newegg has to fight back.

With software patents, retailers and small businesses tend to take it most on the chin, which explains why they're among the first to fight back and among the loudest to praise patent reform. Larger companies, on the other hand -- the Googles, Apples, and Microsofts of the world -- can afford to pay out a settlement without blinking. Larger companies also may be reluctant to challenge patents out of a sense that they might be undermining, either directly or indirectly, their ownpatent portfolios.

BSA | The Software Alliance made a similar argument when it and its allied companies -- some of whom were sued by TQP -- objected to the provision in the recent Goodlatte patent reform bill that would have eased re-examination of potentially invalid patents. The bill has since lost that provision, although it retains a great many other useful reforms.

This story, "Patent troll's victory over Newegg bodes ill for online retailers," was originally published at InfoWorld.com. Get the first word on what the important tech news really means with the InfoWorld Tech Watch blog. For the latest developments in business technology news, follow InfoWorld.com on Twitter.

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