Judge Sides With eCommerce Merchants in Patent Dispute

Some of the biggest names in e-commerce – including Amazon,  eBay and Zappos – have persuaded a federal judge in Oakland to dismiss a patent infringement lawsuit filed by a company claiming to hold exclusive rights to search-filtering technology.

If you own an e-commerce website that uses a search filter, chances are you’ve heard of, or been contacted by, Kelora Systems LLC. Kelora aggressively tries to extract licensing fees by suing or threatening to sue business owners who purportedly infringe its patent.

The trouble, at least for Kelora, is that the patent didn’t hold up in court. In her 40-page ruling this week, U.S. District Judge Claudia Wilken found five of Kelora’s patent claims invalid and tossed the remaining infringement claims against Target, Amazon.com, Dell, Office Depot, Newegg, Costco Wholesale, Hewlett-Packard, Audible and Zappos.com.

“We were delighted that the court recognized that Kelora’s claims had no merit,” said Lee Cheng, general counsel for Newegg, a California-based online electronics retailer. “We believe that Kelora, like most patent trolls, was simply engaged in an effort to abuse the legal system to extract payments from e-commerce companies eager to avoid the cost of defense.”

Judge Wilken also ordered Kelora to pay the internet merchants’ legal costs. Those costs do not include attorney’s fees, however, which Cheng said can be difficult to obtain in court. “Unfortunately, patent trolls, like litigants in other fields of extortionary litigation, rarely face tangible consequences for filing often-frivolous, poorly researched lawsuits,” he said.

Kelora’s patent, called “Method and System for Executing a Guided Parametric Search,” stems from a patent application filed in October 1994 by inventors Sherif Danish and Kris Kimbrough. It covers a guided search “to isolate a subfamily of items within a family of items,” such as narrowing results by price, color or brand.  The patent was later bought by PartsRiver, which sued eBay, Microsoft and others in 2009 for alleged infringement.

Microsoft and eBay fought back, arguing that the patent wasn’t valid because it covered systems that already existed when the patent was issued in 1998: In 1992, Danish’s company had demonstrated – and, crucially, tried to sell – a navigation tool with a faceted search feature. Under patent law, an invention is no longer patentable if it’s been on sale for more than a year – what courts call the “on-sale bar.”

As these counterclaims were being litigated, the U.S. Patent and Trademark Office (PTO), at the retailers’ urging, reexamined the disputed patent and deemed parts of it invalid based on the earlier navigation tool, which the PTO hadn’t seen the first time around.

PartsRiver tried to fix the problem by tweaking the language of its patent. But Judge Wilken, who had rejected the parent patent in 2009, also found the amended patent invalid, this time due to “obviousness” – that is, the invention would have been obvious to a person of ordinary skill in the field.

The now-nullified patent belongs to PartsRiver’s successor, Kelora, a company Danish co-founded in 2010. Kelora claims to have struck licensing agreements with several web retailers, including Foot Locker Retail, CircuitCity.com and K-Swiss. It has also gone after the little guys – small to medium internet businesses that use Magento and other e-commerce platforms with search-filtering software. Many of the smaller players couldn’t afford a prolonged legal battle and were forced to license the technology for tens of thousands of dollars, sometimes more.

“Anyone who ‘settled’ with Kelora already is out of luck,” Cheng said of the ruling’s impact on existing deals. He said companies like Kelora “specifically insist on no-refund clauses in their ‘licenses’ – i.e., it doesn’t matter if their patents are valid or if a victim actually infringes.”

Kelora attorney Robert Becker with Manatt, Phelps & Phillips said he was surprised by Monday’s ruling, but said Kelora had not yet decided whether to appeal. “We’re considering our options,” he said. “I need to have some more discussions with our client.”

Cheng said Newegg would welcome an appeal: “We hope Kelora … does appeal so that we can make a binding precedent on their dime.”

Microsoft declined to comment on the ruling.