A big patent win for e-retailers

May 22, 2012 11:37 AM

After nearly two years of litigation, some of the biggest names in e-commerce have won a key patent infringement case against Kelora Systems LLC.

Kelora, a developer and patent holder of a certain type of site search software, in 2010 filed a patent infringement suit against Newegg, No. 13 in the 2012 Internet Retailer Top 500, Inc. (No. 1), Dell Inc. (No. 5), Office Depot Inc. (No. 6), Newegg Inc. (13), Costco Wholesale Corp. (No. 17), Hewlett-Packard Co. (No. 21), Target Corp. (No. 23), Zappos Inc., eBay Inc. and others for the alleged patent infringement of an application for faceted site search. Faceted search, a feature of many e-retail sites, allows a site visitor to narrow down search results by price, brand, size, color and other parameters.

Kelora sued Newegg and others claiming infringement for patents related to “executing a guided parametric search” and a process for “identifying a single item in a family of items.” But in a 40-page ruling handed down yesterday by Judge Claudia Wilken in the U.S. District Court for the Northern District of California, the court declared that Newegg and other big web merchants weren’t infringing on Kelora’s patent. Wiken’s ruling dismissed Kelora’s patent infringement claim as invalid and ruled that defendants in the case may recover the costs of bringing the motion from Kelora.

Newegg general counsel Lee Cheng says the ruling against Kelora sends a message to other patent holders that target web retailers, often threatening legal action if the e-retailers refuse to pay licensing fees.  “In the Kelora case, the judge is sending a message that the tide is turning against these types of frivolous lawsuits,” Cheng says.

Cheng says retailers are also encouraged because in many cases they are able to move cases from plaintiff-friendly courts to venues closer to home. “We are still seeing lots of suits like this,” he says, “but it’s getting easier for us to change the case to a venue— and take it in a different direction—that helps us.”

While Kelora filed this suit in Wisconsin, patent holders often have filed suits in the relatively remote Eastern District of Texas. Patent holders filed 299 complaints in the Eastern District of Texas in 2010, making it the most popular venue for such lawsuits, according to the Patentlyo patent law blog. E-retailers and others defending against patent infringement claims gained new rights to move cases closer to home in a patent reform law called the America Invents Act, which President Obama signed in September.

Kelora hasn’t said if it will appeal the ruling, but the company does continue to aggressively defend its patents—and sign software patent license agreements with retailers. Since November Kelora, which is based in Cupertino, CA, says it has entered into patent license agreements with BrandsMart USA, American TV and Appliance Inc., USA Light & Electric, operator Systemax Inc. (No. 25), Foot Locker Inc. (No. 54), Sur La Table Inc. (No. 394), Michael Stars Inc., K-Swiss and others. Kelora also says it has signed patent license agreements with The Wine Enthusiast Cos., No. 701 in Internet Retailer’s Second 500 Guide, and Shopko Store Operating Co. (No. 550 in the Second 500 Guide).

Cheng will speak at the Internet Retailer Conference & Exhibition 2012 on June 6 from 1:45 p.m. to 2:30 p.m. during a session titled “Fighting back against patent suits: What to do and how to do it.”




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