Jones Day’s Messy Split From Client Fuels Long-Running Fee Fight

A patent licensing company that squeezed $40 million out of Amazon is still fighting with the law firm that helped it land the settlement, two decades later.

Jones Day says Soverain Software hasn’t paid fees for work after the patent infringement suit against Amazon, which settled on the eve of trial in 2005. The law firm is pursuing a $1.5 million arbitration award it won against its former client in 2015, arguing Soverain conducted an elaborate, fraudulent “shell game” to avoid paying.

The company says it paid the firm more than $22 million before the relationship soured in 2010. The rift came in Soverain’s $34 million lawsuit against electronics retailer Newegg, after a Texas jury awarded the company a small fraction of that amount.

The saga highlights the ongoing fallout from the once lucrative pairing of a powerful law firm and its litigious client. It’s also ensnared Soverain’s founder and its former chief legal officer, who Jones Day accuses of siphoning money from the company.

Soverain made headlines for suing online retailers like Amazon and The Gap Inc., seeking royalties for patents it held on online “shopping carts.” The company has seen its fortunes fade in the decade since a federal appeals court invalidated the company’s key patents in 2013.

“Despite Soverain’s jackpot, it refused to pay the legal fees,” Jones Day said in a 2022 court filing, referring to nearly $12 million that the firm secured for the company in licensing arrangements after the Amazon deal.

A lawyer for Jones Day handling the firm’s dispute with Soverain in Cook County, Ill., did not respond to a message seeking comment. Lawyers for Soverain and the two executives named in the case did not comment beyond their court filings.

Patent Money

Jones Day filed at least five more suits for Soverain after the Amazon settlement, according to Soverain. The firm says it went on to win two more licensing agreements for the company, worth nearly $12 million in total.

The relationship unraveled when Newegg decided to take its chances in court instead of settling a patent infringement suit by Soverain.

Jones Day lawyers asked for $34 million at trial, according to a transcript of the closing arguments. Newegg’s lawyers said the company shouldn’t pay anything more than $500,000.

A jury eventually awarded Soverain $2.5 million.

The company appealed the ruling, this time without Jones Day in its corner. The firm withdrew from the case, saying in a court filing that it was still owed “certain deferred legal fees” and that the parties didn’t agree on the precise amount of the debt.

Soverain’s lawyers said this week that the arbitrator who awarded Jones Day $1.5 million declined to give the firm the more than $10 million it sought after rejecting its contention of “success” under its engagement letter.

The law firm’s court filings don’t say how much it was ultimately paid. Soverain lawyers say Jones Day made roughly $22 million in total for Soverain work, representing “almost half” the licensing revenue it helped the company recover.

Fraud Claims

Jones Day also alleges in court filings that Soverain’s founder Christian Oberbeck siphoned $50 million out of the company. He did that in part by launching a new entity that began regularly loaning money to Soverain, Jones Day says. The company’s bank accounts flirted near $0 by 2018, according to the firm.

Jones Day also has taken issue with what it describes as Soverain’s fraudulent transfer of more than $275,000 to Katharine Wolanyck, the company’s former president and chief legal officer,. Wolanyck is now an executive at litigation funding firm Burford Capital.

“Wolanyck used her insider status within Soverain to execute a large unearned and unjustified payment to herself, even as she knew Jones Day was pursuing payment for already accrued legal fees,” Jones Day said in a court filing last year. “Her conduct amounts to a fraud upon Jones Day.”

Wolanyck, who referred an email seeking comment for this story to her lawyers, said the payment was for compensation, bonus pay, and equity distributions, according to a deposition in 2021 cited by the complaint. Jones Day argues the payment “far exceed any conceivable claim to compensation.”

Soverain’s lawyers this week asked the Cook County court to dismiss Jones Day’s suit seeking to enforce the arbitration award, which the company say was filed too late.

The company also argues that Jones Day can’t go after Wolanyck because the $1.5 million award had been vacated at the time the company made payment to her. It was later reinstated on appeal.

“Wolanyck is not afraid of a trial of this matter,” her lawyers at Chicago-based boutique litigation firm Lynch Thompson wrote in a court filing this week. “However, no trial will be necessary,”

The case is: Jones Day v. Soverain Software LLC, No. 2021-ch-03917, Circuit Court of Cook County, Chancery Division.