Policy —

After 20-month delay, a furious Newegg still can’t appeal $2.3M patent loss

A judge's inaction leads Newegg to file an extraordinary petition.

Newegg's former Chief Legal Officer Lee Cheng.
Newegg's former Chief Legal Officer Lee Cheng.

Online retailer Newegg has developed a reputation for taking on so-called "patent trolls," even when that means going through lengthy litigation and unpredictable jury trials.

The company's last patent trial concluded in November 2013, when Newegg faced off against a patent troll called TQP Development. TQP used US Patent No. 5,412,730 to make a vast claim to basic Internet encryption technologies, saying that anyone using the common combination of SSL and the RC5 encryption algorithm was infringing. By the time of the trial with Newegg, TQP had sued more than 120 companies and earned $45 million in settlement payments.

At trial, a jury ordered Newegg to pay $2.3 million to TQP. But the verdict against Newegg didn't end the case—and not because it's stuck in a grinding appeals process. In fact, the case never even advanced to an appeal at all. US District Judge Rodney Gilstrap, who oversaw the trial, has simply never entered a final judgment. He has also given no indication of when he might issue such a judgment, which Newegg needs in order to file an appeal.

Now Newegg is taking the extraordinary step of going over Gilstrap's head. In a petition (PDF) filed today, Newegg lawyers call the delay caused by Gilstrap's inaction—currently 20 months and counting—"excessive and unreasonable." Newegg lawyers have asked for the US Court of Appeals for the Federal Circuit to issue a "writ of mandamus," to consider their patent case immediately, and to rule in their favor.

"We are taking this extraordinary measure with great reluctance and at considerable expense, but simply do not feel that we have any other choice to obtain justice," said Newegg Chief Legal Officer Lee Cheng in an e-mail exchange with Ars about the petition. "We have asked Judge Gilstrap to rule on this case no less than four times since November 2013. He has not taken any action. Unless and until he rules, we do not have the ability to appeal the unjust verdict that we believed we suffered in his courtroom."

The Eastern District of Texas continues to be a favorite for patent holders, with Gilstrap's methods of case management coming under recent scrutiny. Cheng emphasized that he's not interested in speculating as to the "motives or rationale" of the district's judges in general or of Gilstrap specifically. Cheng added:

Judge Gilstrap was considerate enough to ask us immediately after trial in 2013 if we thought we had received a fair trial. But we need justice and judicial relief in this matter now. The facts of this matter are objectively egregious, and we have not received guidance or explanations from Judge Gilstrap for the extended delay.

"20 months is far, far too long to wait for a judgment," Newegg lawyers write in today's petition. "Newegg respectfully urges this court to issue a writ of mandamus and grant Newegg the relief to which it is entitled."

Frozen money

After the November 2013 jury verdict, Newegg moved for "judgment as a matter of law" (JMOL), saying that it should win the case despite the jury verdict against it because the law was on its side (juries decide only about the "facts" of a case). In April 2014, it asked for an oral hearing, suggesting it could help resolve "the numerous issues presented in the [post-trial] motions." Gilstrap didn't take action on the request.

Usually such post-trial motions are a longshot, but two months later, a ruling from another case suggested Newegg might have a good chance. An appeals court judge, sitting by designation in East Texas, ruled that Intuit didn't infringe TQP's patent.

The ruling in Intuit's favor was based on testimony from the Newegg trial, and Intuit's system was technically identical to Newegg's. Newegg filed notice to bring the decision by US Circuit Judge William Bryson to Gilstrap's attention. Again, Gilstrap took no action.

The following month, Bryson denied TQP's motion to reconsider. Again, Newegg informed Gilstrap about the results in Bryson's court; again it asked, more strenuously, for the chance to present additional oral argument, but was not granted permission to do so.

Slower than 98.8%

The delay in reaching final judgment in TQP Development v. Newegg is "several times longer" than similar cases that went before the same judge around the same time, Newegg lawyers write in today's filing.

Newegg's motion includes research it compiled comparing its own case to others in front of Gilstrap. While other patent cases in front of the judge didn't exactly move at warp speed, they did move along. Four other patent cases, which went to Gilstrap around the same time as TQP v. Newegg, went from trial to appealable judgment in five to seven months. Newegg's case has been pending "longer than 98.8 percent of cases filed before the same judge," the company states, based on data from Lex Machina.

Gilstrap's docket is fairly efficient, with only one civil case pending more than three years as of September 2014 and no motions pending for more than six months. "For a docket that, while very busy, seems remarkably efficient... it is especially surprising and disappointing to Newegg that its motion has yet to be resolved," says the company.

Newegg claims that it has suffered "two serious prejudices" from the delay.

First up is that $2.3 million. Because of accounting rules, Newegg had to put aside the $2.3 million for the verdict and not touch it.

"A $2.3 million contingent liability is equivalent to dozens of full-time salaries and employment opportunities lost," Newegg notes in today's filing. "That sum in 2015 alone would have allowed Newegg to expand its work force, conduct research and development, acquire a small business, build or lease an additional warehouse, offer more free shipping and lower prices to its customers, or take any number of other measures to enhance Newegg's business in the highly competitive online retail market."

Second, the delay also means that TQP, a shell company designed just to hold patents, could "disperse its funds and assets" to stop Newegg from recovering fees and costs, Newegg writes. Newegg lawyers describe the 20 months since trial as "nearly two years of unnecessary and unduly burdensome business uncertainty."

“Judges aren't gods”

The crux of Newegg's legal argument comes down to this: Newegg's encryption system doesn't change to a new "key value" after transmitting each byte of data. Instead, multiple bytes are transmitted "all at one time," as TQP's own expert admitted on the stand.

Lawyers for Newegg hope appeals judges will consider that argument, which Gilstrap seems to be ignoring. The petition is careful not to lay any blame on Gilstrap himself, who oversees far more patent lawsuits than any other US judge.

"Newegg's petition does not depend on any finding of bad intent on the part of the district court... or even on a conclusion that the district court has actively decided not to rule," Newegg lawyers write. "As the maxim goes: justice delayed is justice denied." The appeals court has a duty to remedy "failures by district courts to properly administer justice."

"Judges aren't gods," Cheng told Ars. "They also have to follow the laws of the land. Parties in the legal process have a duty to challenge injustice whenever possible, or at least to call injustice out. They may not win in the short run, but at least they will shine a light on inequity and create a record that can benefit future litigants, and if necessary, lawmakers who seek reform."

The TQP patent expired in 2012. TQP's former owner Erich Spangenberg told Ars he sold the company after the Newegg trial. The new owner, hiring new lawyers, filed a few dozen lawsuits in April 2014, all of which have been settled. No new cases have been filed since then.

Channel Ars Technica