May 25, 2016

How Newegg is Winning the Battle Against Patent Trolls [Video]

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Lee Cheng
Lee Cheng of Newegg speaking at Collaboration Summit.

As Lee Cheng explained in his keynote speech at the Collaboration Summit held March 29-31 in Lake Tahoe, California, fighting patent trolls as part of his job at Newegg Inc. is a natural progression from his earliest legal involvement in civil rights advocacy.

In 1994, a non-profit organization that Cheng helped form "filed a lawsuit against the San Francisco Unified School District in Federal Court," recalled Cheng. "This was the first legal windmill that I tilted against, and I've been looking for others ever since."

Cheng, who is now Chief Legal Officer, SVP of Corporate Development and Corporate Secretary at Newegg, said, "When I joined Newegg in 2005, I was very surprised to get our first patent lawsuit, because we don’t actually make anything."

Nonetheless, Cheng has spent much of his time at Newegg fighting pernicious patent trolls -- more than 30 claims over the past decade -- about various aspects of e-commerce and websites, which were often basic functions like an Internet shopping cart, drop-down menus, and search boxes.

"Each troll only wanted a very small percentage of all of our online sales or profits despite the fact that they contributed absolutely nothing to our success," said Cheng. "They all very generously offered to settle for initially high six figures or low seven figures, and they explained to us that litigation costs and risks were so high that we should just cut the check."

Not knowing any better when the claims first started hitting Newegg in 2006, "I started to ask questions. I soon concluded that patent trolling was just a total scam. Settling with trolls might save a little bit of money on the front end but would encourage more lawsuits," said Cheng. “Settling frivolous lawsuits and paying plaintiffs off simply fed the beast of patent trolling while stifling innovation and entrepreneurship.”

Cheng's approach included finding ways to reduce Newegg's legal costs, such as using small boutique law firms, doing as much legal work in-house as possible, and using alternative fee arrangements.

Newegg's victories included a 2010 shopping cart case against Sovereign, who had already received multi-million dollar decisions from leading e-retailers like Amazon, CDW, Gap, and Zappos. "We actually haven’t lost a case of any kind after appeal since 2006," said Cheng.

According to Cheng: "Patent trolls don’t sue Newegg anymore, except ones that are literally too stupid to realize that they sued Newegg. Believe it or not, that actually happens. We had two patents cases filed against Newegg since 2013. In one case, a patent troll sued us in mid-2013, and they dropped the case shortly after one of the younger associates at the plaintiff’s firm explained to their senior partners what Newegg does to patent trolls."

Currently, Newegg "We now mostly focus on pursuing fee motions against patent trolls. We are trying to get the fees that we spent back under Section 285 of the Patent Act, and we try to support other companies, especially small and medium sized business who are still being plagued by abusive patent asserters  -- people who really try to extend specious intellectual property rights to achieve commercial advantage. … We are willing to engage in what I guess can be called corporate pro bono work, because Newegg doesn’t just appreciate technological innovation, we actually need it."

Whether it's fighting patent trolls or pursuing civil rights, "Don’t assume that you can’t make a difference," said Cheng, "or that there’s an insurmountable reason for tolerating something that doesn’t look or feel right to you. Don’t be afraid to lead... Your presence here today means that you are part of one of the greatest collaborative efforts in history, one that crosses borders and languages and cultures."

Watch Lee Cheng's full keynote below:

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