Newegg loses trial against patent troll TQP

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Newegg LogoFor the past month or so, online retailer Newegg has been up against patent enforcement company TQP, who claims that Newegg is infringing on their patent of the RC4 encryption algorithm, which is used almost universally across the Internet. TQP managed to settle out of court with many big names. Amazon paid $500,000 to TQP and Microsoft paid $1 million. Newegg, however, refused to give in to TQP’s demands, which can be described as basically rewriting history. Because of this, the case went to trial, at which a number of famous witnesses testified on Newegg’s behalf. However, a jury found Newegg guilty last week, and ordered Newegg to pay $2.3 million in damages to TQP.
This mishap began with a man named Michael Jones. Who is Michael Jones? Most people, including those in the computer science industry, will not recognize his name. He supposedly grew up in New Jersey and got his college degree before being hired to make encrypted models. TQP, however, claims Michael Jones was a “visionary” who “was thinking about e-commerce before e-commerce was even a phrase”. [1] They claim that Jones quite literally invented encryption on the Internet. The real issue, though, arises in the fact that Jones filed for a patent for his “invention”. He became a consultant at TQP and sold this patent to Erich Spangenberg, the company’s owner. Spangenberg and his various companies have engaged in over 800 lawsuits, all of them with the purpose of making money off of the defendants.
Newegg did not want to settle out of court with TQP. Michael Jones clearly did not invent encryption, and Newegg was not about to give in to patent trolls, especially Erich Spangenberg, who is famous in the patent-licensing business. The trial was held in a federal district court in Marshall, Texas, where both sides fought hard to win their case. Perhaps the most notable moment was when Newegg called cryptography legend Whitfield Diffie to the stand to testify. Diffie is one of the pioneers of encryption and asymmetric cryptography, having created public key encryption while working at Stanford’s Artificial Intelligence Lab. In a quote from the trial, Newegg lawyer Alan Albright asked Diffie, “we’ve heard a good bit in this courtroom about public key encryption, are you familiar with that?” Diffie responded, “I invented it.” [2] TQP responded by attempting to discredit Diffie’s lack of academic degrees, before attempting to refute that Diffie even invented public key encryption.
The jury took three hours to reach a verdict. They found that TQP’s patent was valid and that Newegg indeed infringed upon it. They levied $2.5 million in damages against Newegg, which is about half of what TQP was asking for. Newegg’s chief legal officer Lee Cheng said after the trial, “we’re certainly very disappointed. We respectfully disagree with the verdict that the jury reached tonight. We fully intend […] to take this case up on appeal and vindicate our rights.” [3] Since this is the third time Newegg has been sued by TQP, they are not willing to let up. Hopefully Newegg will obtain some justice on appear, but either way this trial sends a strong message to inventors and companies that the legal system can easily be used against you for profit.
[1] http://arstechnica.com/tech-policy/2013/11/newegg-on-trial-mystery-company-tqp-re-writes-the-history-of-encryption/
[2] http://arstechnica.com/tech-policy/2013/11/newegg-trial-crypto-legend-diffie-takes-the-stand-to-knock-out-patent/
[3] http://arstechnica.com/tech-policy/2013/11/jury-newegg-infringes-spangenberg-patent-must-pay-2-3-million/

About the Author

Tyler Romeo
Tyler is a staff writer for The Stute, and a fifth-year Computer Science major at Stevens. He is also involved in a number of other on-campus organizations, including the Student Government Association, the Honor Board, and the Anime Club.