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MARSHALL, TEXAS—Who is Michael Jones, and what did he invent?After five years of legal battles over Jones’ patent involving hundreds of lawsuits and tens of millions of dollars in payments, that question still has no clear answer.Whatever his invention is, it came before the World Wide Web, which was made available to everyone in 1993. Jones filed for his patent in 1989, and it uses some distinctively pre-Web vocabulary, describing encryption via modems and phone lines.Jones has never spoken publicly about the patent litigation. His lawyers are walking a fine line, trying to describe what he did as broad enough as to justify suing hundreds of websites, yet narrow enough that the case shouldn't be dismissed as irrelevant over the encryption that existed at the time.That will change this week. Jones’ patent is finally going to be challenged at trial, and Jones himself is scheduled take the stand tomorrow. After more than 120 companies have paid confidential settlements to TQP, one company—online retailer Newegg—has at last refused.Newegg’s top lawyer, Lee Cheng, has sworn not to pay settlements to patent holders like TQP, which he and many other critics have called “patent trolls.”Cheng is not clashing with any ordinary “troll,” however. TQP Development is controlled by Erich Spangenberg, one of the most a controversial and successful figures in the patent-licensing business.
Newegg, an online retailer that has made a name for itself fighting the non-practicing patent holders sometimes called "patent trolls," is on the losing end of a lawsuit tonight. An eight-person jury here came back shortly after 7:00pm and found that the company infringed all four asserted claims of a patent owned by TQP Development, a company owned by patent enforcement expert Erich Spangenberg.They also found the patent was not invalid, apparently rejecting arguments by famed cryptographer Whitfield Diffie, who took the stand on Friday to argue against the patent.The jury ordered Newegg to pay $2.3 million, a bit less than half of the $5.1 million TQP's damage expert had suggested.Deliberations immediately followed closing arguments, and lasted just over three hours. The lawyers from both teams took in the verdict without emotion, and shook hands following the verdict.TQP's single patent is tied to a failed modem business run by Michael Jones, formerly president of Telequip. The company has acquired more than $45 million in patent licensing fees, by getting settlements from a total of 139 companies. TQP argues that the patent covers SSL or TLS combined with the RC4 cipher, a common Internet security system used by retailers like Newegg.I asked Jones if he had anything to share on the on verdict. "I feel fortunate to live in a country with a judicial system like this, where a jury can decide these things," he said.With that, both sides left courtroom and walked into Marshall's central square. The weather had shifted dramatically since the beginning of trial, and it was cold and rainy out in the square.The Newegg team was obviously crestfallen, but both teams went around the room and shook hands after the verdict. Newegg Chief Legal Officer Lee Cheng—who has said he will appeal any loss at this trial—made a point of congratulating the inventor after the verdict. "Congratulations Mr. Jones," he said. He added, with a smile—"Get your money up front."...Back at their hotel on the edge of town, Cheng's team was packing their things and preparing to drive to Dallas. I sat down with him in the lobby."We're certainly very disappointed," said Cheng. "We respectfully disagree with the verdict that the jury reached tonight. We fully intend, as we did in the Soverain case, to take this case up on appeal and vindicate our rights."Soverain was the "shopping cart" patent that Newegg had been ordered to pay $2.5 million for, but then knocked out on appeal. Soverain's damage request was huge for Newegg: $34 million.All Newegg cases are budgeted for appeal from the start, Cheng said. Appellate lawyer Ed Reines, who represented Newegg in its other two patent appeal wins, had been present in the courtroom for much of the TQP trial."Of course, we would have preferred to go up as the respondent," Cheng said. "But I'm not going to be upset or unduly disappointed about this. Our team did the best work we could do. We did what we felt in our hearts was right.""Look, I could have lost my job if Soverain had won. $34 million is material to Newegg. I could have taken the path of least resistance. I could have said, 'Everyone else did the same thing, so we're no worse off than anyone else.' But we couldn't afford to pay people off the way some of our competitors were paying. We had to do something different. And it's the right thing to do.""This was a pivotal case that we could not settle," Cheng said. "Mr. Spangenberg has sued us three times."TQP has pending litigation against more than a dozen other companies. Google, LinkedIn, and Sony are all scheduled for trials, in the same court, in early 2014. The law firm that represents Google had various lawyers around throughout the Newegg trial as well, observing and taking notes.As Cheng and I talked, his other lawyers left. Whit Diffie, Newegg's star witness and the co-inventor of public key cryptography, was riding with Cheng and waited for him. His packed bags sat next to him as he worked on his Mac laptop in the hotel lobby. I asked him how he was feeling."Distressed," he said. "I was hoping to be rid of this business."With that, he followed Cheng into the parking lot. They began the long journey, first to Dallas, and ultimately back to California.
