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Newegg Files Opposition to Jones Day Motion to Withdraw as Counsel to Online Shopping Card Patent Holder

Thursday, December 16, 2010

City of Industry, CA -- On December 7, 2010, Newegg Inc., the operator of award-winning Internet retail website, filed its principal appeal brief with the Federal Circuit in its patent dispute with Soverain Software LLC. Newegg is seeking to overturn or substantially reduce the $2.5 million judgment the US District Court for the Eastern District of Texas entered in August 2010. The parties' dispute centers on Soverain's claims that Newegg infringed patents allegedly covering common e-commerce functionalities like the online shopping cart.

Soverain's principal brief is due in mid-January 2011. Law firm Jones Day Reavis & Pogue currently represents Soverain, but on November 19, 2010, the firm moved to withdraw in both the lawsuit it filed for Soverain against Newegg in the District Court and Newegg's Federal Circuit appeal. In its motion, Jones Day stated that Soverain had "failed to make its payment obligations" and that its relationship with Soverain had "deteriorated such that the representation has been 'rendered unreasonably difficult.'" Jones Day has represented Soverain for a number of years, including throughout the litigation Soverain initiated against Newegg in 2007. Jones Day's motion came more than three months after the District Court's August 2010 judgment and more than two months after Newegg's September 2010 notice of appeal.

In a rare point of agreement between the two parties, Soverain and Newegg both oppose Jones Day's request to withdraw. Soverain claims it "has not breached its payment or any other obligation to Jones Day under the parties' retainer agreement." Newegg's opposition is based primarily on the threat of delay and the harm Newegg would suffer if Soverain is permitted to change counsel. Newegg's General Counsel, Lee Cheng, issued the following statement:

"In a very real sense, in this matter, justice delayed is arguably justice denied. In November 2007, Soverain and Jones Day filed suit against Newegg with no notice or attempt to negotiate. For three long years, we have sought justice. A further delay in the judicial process without good cause is grossly unfair and harmful to our business and interests in getting this matter finally resolved. Jones Day is one of the highest grossing and most profitable law firms in the world. Its interest in maximizing its financial outcome from representing Soverain cannot possibly outweigh Newegg's legitimate interest in avoiding the cost and prejudice of delay.

"At the trial level, we spent considerable time and resources to defend ourselves against Soverain because we believe its claims do not have either a strong legal or factual basis. We continue our fight because the District Court proceedings suffered from numerous and intolerable legal errors. As one example, the court did not allow Newegg to submit to the jury that Soverain's patents are invalid for obviousness. But Soverain's patents are obvious because they claim ways to conduct Internet shopping and sales transactions that mirror basic procedures long used by brick and mortar stores. As the Federal Circuit reiterated in a decision this week, '[b]ased on the Supreme Court's reasoning in KSR [Int'l Co. v. Teleflex Inc.], we have subsequently held that applying computer and internet technology to replace older electronics has been commonplace in recent years.'

"Moreover, we believe the District Court wrongly allowed the jury's unsubstantiated and inflated damages award to stand. The record was replete with evidence of licenses for Soverain's asserted patents that were for lump-sums less than $500,000 -- well below the jury's unfounded award, which included $2.5 million in damages plus ongoing royalties. The court permitted Soverain to present a damages theory based on all of Newegg's sales profits, notwithstanding the facts that Newegg is not accused of selling any products that themselves infringe and the asserted technology is a tiny part of Newegg's overall business success. If a large brick and mortar retailer was accused of infringing a patent on a physical shopping cart, it would be outrageous for the patent holder to base its damages on the value of the products placed in the cart. That is basically what Soverain is doing here and it is equally outrageous.

"In some respect, we view Jones Day's request to withdraw as vindicating our beliefs and positions. But we are eager to obtain, and deserve, the timely justice for which we have fought so long and hard. Newegg filed its principal brief without seeking any extensions. We hope Soverain will do the same and look forward to promptly completing the appeal process."


Newegg Inc. is the second-largest online-only retailer in the United States. It owns and operates ( which was founded in 2001 and regularly earns industry-leading customer service ratings. The award-winning website has more than 13 million registered users and offers customers a comprehensive selection of the latest high-tech products, detailed product descriptions and images, as well as how-to information and customer reviews. Using the site's online tech community, customers have the opportunity to interact with other computer, gaming and consumer electronics enthusiasts. Newegg Inc. is headquartered in City of Industry, California.

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