Newegg Asks Appeals Court For Help After Waiting Nearly Two Years For East Texas Judge To Actually Rule In Patent Case

You may recall that back in November of 2013, we wrote about an absolutely insane ruling by a federal jury in East Texas, arguing that e-commerce vendor Newegg infringed on an absolutely laughable patent, held by a patent troll named TQP, which claimed to cover encryption. Newegg immediately promised to appeal the ruling — so you may be wondering where that appeal is right now. So is Newegg. Yesterday, the company filed a petition for a Writ of Mandamus basically asking the appeals court to tell the district court to do its damn job and issue a final ruling (either on behalf of Newegg, or against it so it can appeal). Basically, Newegg has been stuck in limbo for nearly two years on this case for no clear reason. The judge in the case, Rodney Gilstrap, has just been sitting on the case, doing absolutely nothing for nearly two years, leaving Newegg unable to appeal.

The now-expired patent in question, 5,412,730, and here’s the entirety of the claims:

1. A method for transmitting data comprising a sequence of blocks in encrypted form over a communication link from a transmitter to a receiver comprising, in combination, the steps of:

providing a seed value to both said transmitter and receiver,
generating a first sequence of pseudo-random key values based on said seed value at said transmitter, each new key value in said sequence being produced at a time dependent upon a predetermined characteristic of the data being transmitted over said link,
encrypting the data sent over said link at said transmitter in accordance with said first sequence,
generating a second sequence of pseudo-random key values based on said seed value at said receiver, each new key value in said sequence being produced at a time dependent upon said predetermined characteristic of said data transmitted over said link such that said first and second sequences are identical to one another a new one of said key values in said first and said second sequences being produced each time a predetermined number of said blocks are transmitted over said link, and
decrypting the data sent over said link at said receiver in accordance with said second sequence.

2. The method as set forth in claim 1 further including the step of altering said predetermined number of blocks each time said new key value in said first and said second sequences is produced.

TQP, a company controlled by notorious patent troll Erich Spangenberg (who now claims to have left the patent trolling business), claimed that this covered basically any encryption online and it sued hundreds of companies with most choosing to settle rather than fight — with a variety of companies paying out over $45 million to settle TQP lawsuits. But, you know, that’s not how NewEgg rolls, with its pledge to never settle with patent trolls.

The company went to court fighting this patent, even bringing out some of the biggest guns possible, having Whit Diffie and Ron Rivest appear as expert witnesses, explaining how ridiculous the patent in question was and how everything in the patent was in use in the market well before the “inventor” on this patent, Mike Jones, applied for it. And yet, because it’s east Texas, back in November of 2013, the jury sided with the patent troll.

That’s the stuff you already know. As mentioned, Newegg promised to appeal, but first it asked Judge Gilstrap to set aside the jury’s verdict, as he is able to do. And then… nothing. As you can read in the petition for the Write of Mandamus and the even lengthier appendix to the petition, Newegg is getting pretty damn tired of waiting around. If Gilstrap rejects the company’s request, then Newegg will appeal, but without him doing anything, the company is stuck in limbo, unable to actually move forward on appeal.

This Petition involves a case tried in November 2013 that still has not reached any appealable judgment. Although the jury found infringement and awarded $2.3 million in damages to TQP Development, LLC (“TQP”), it is beyond any reasonable debate that Newegg does not infringe the asserted claims, and Newegg sought appropriate post-trial relief on that basis. In the absence of a judgment, however, Newegg has been unduly burdened with an untenable $2.3 million liability on its books for 20 months and counting, which prejudices Newegg’s ability to make business decisions regarding that considerable sum.

Newegg has respectfully encouraged the district court to decide Newegg’s motion for judgment as a matter of law no fewer than four times, and has communicated the prejudice caused by the delay. It is now approaching two years after trial and no action has been taken by the district court on Newegg’s motion. This is several times longer than the time it has taken most other patent cases, tried before the same judge and around the same time, to reach final judgments. With no appealable judgment, and none ostensibly forthcoming, Newegg has no realistic recourse aside from seeking a writ of mandamus.

Newegg further points out that in the very same court, with a different judge, it was ruled that Intuit did not infringe on TQP’s patent, despite using the identical encryption system on its site, and making the same arguments as Newegg.

Moreover, in a closely related case brought by TQP asserting the same patent and the same claims against Intuit, Inc., Judge Bryson of this Court (sitting by designation) granted Intuit summary judgment of non-infringement on the same grounds Newegg argued. Judge Bryson’s ruling applied to Intuit’s accused systems that were identical to Newegg’s, was based on testimony from the Newegg trial, and was made under a claim construction slightly broader (and thus more favorable to TQP) than the one given in Newegg’s case. Although Newegg was already entitled to judgment of non-infringement prior to Judge Bryson’s ruling, the force of collateral estoppel from the ruling further vindicates Newegg’s positions. This is not to mention the principles of comity that strongly encourage deference by Judge Gilstrap to Judge Bryson’s prior ruling on the exact same issue.

Newegg’s filing goes through the full timeline, in which it has repeatedly asked the court to actually issue a final ruling one way or the other so it can get on with things. And… nothing.

Newegg notes that it’s been sitting there with this giant $2.3 million liability that it can’t do anything about and it also fears that the longer it waits, the more likely it is that TQP dissolves, leaving Newegg with no way to go after the company for fees and “other relief.”

The failure of the district court to act while Newegg’s prejudice compounds cannot be remedied by awaiting the ordinary course of a final judgment and appeal. Nor can Newegg effectively do anything before the district court to avoid further delay. Indeed, Newegg attempted to encourage prompt resolution of this case in the district court no fewer than four times—twice requesting an oral hearing and twice submitting controlling dispositive supplemental authority—but can only do so much at the district court level to move things along. Newegg has been patient but firm, and filed the present Petition only as a last resort when no action from the district court appeared to be forthcoming 20 months after trial.

Newegg’s post-trial appealable judgment has already been delayed up to four times longer than other patent cases that went through trial around the same time as Newegg (November 2013) before the same judge. See, e.g., Hitachi Consumer Elecs. Co. v. Top Victory Elecs. (Taiwan) Co., No. 2:10-cv-260-JRG (5 months from April 2013 trial to appealable judgment); Wi-Lan Inc. v. HTC Corp., No. 2:11-cv-00068-JRG (5.5 months from October 2013 trial to appealable judgment); Cassidian Comms., Inc. v. microDATA GIS, Inc., No. 2:12-cv-00162- JRG (7.5 months from December 2013 trial to appealable judgment); Google Inc. v. Beneficial Innovations, Inc., No. 2:11-cv-00229-JRG (7 months from January 2014 trial to appealable judgment). Even considering the time from the close of post-trial briefing to judgment, the delay in Newegg’s case is still excessive— while Newegg has been waiting 15 months since briefing closed on its JMOL motion, the cases cited in the preceding sentence received judgments only two to five months after post-trial briefing closed. All told, data pulled from Lex Machina shows that Newegg’s case has been pending longer than 98.8% of cases filed before the same judge. Newegg’s case has taken far, far too long to reach an appealable final judgment.

In the filing, Newegg notes that it “makes no assertions” of “bad intent” by Judge Gilstrap. However, in an email from Newegg’s Chief Legal Officer, Lee Cheng, you can sense his frustration:

Many have expressed concern and dismay about the rules, practices and rulings of various federal judges in the Eastern District of Texas (“EDTX”) in patent cases, including Judge Gilstrap. There is a common perception that the judges in EDTX adopt rules, engage in practices and issue rulings (or instructions that lead to jury verdicts) that favor plaintiffs, or which encourage or force defendants to settle even meritless cases to avoid the cost and risk of trial in EDTX. Some examples of such rules, practices and rulings are identified in the Petition. Commentators have speculated as to the judges’ motivations. Statistical evidence on patent infringement filings in EDTX generally, and with Judge Gilstrap specifically, seems to support the proposition that the venue and Judge Gilstrap are indeed favorites of the patent plaintiffs’ bar.

While he insists that the company does “not wish to speculate as to the motives or rationale” behind what’s happening, “actions speak louder than words.”

The facts of this matter are objectively egregious, and we have not received any guidance or reasonably acceptable explanations from Judge Gilstrap for almost 2 years for the incredibly prejudicial and extended delay in providing us with an appealable judgment. We need, and we deserve, justice and judicial relief in this matter now, under these exceptional circumstances.

This really is an incredible story. The whole thing is ridiculous and provides yet another reason why people should raise serious questions about the way in which the district court in East Texas handles its business.

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