Like many U.S. newspapers and television stations, the Atlanta Journal-Constitution has a website that covers local entertainment and events, which it calls accessAtlanta.com. The organizer of an event can add it to the site by filling out a form. This innocuous feature apparently resulted in the Journal-Constitution’s publisher, Cox Enterprises, being sued for patent infringement. The patent in question, U.S. Patent No. 6,370,535, claims to cover a “system and method for structured news release generation and distribution.” The patented method consists of three steps: specifying the content of several pre-determined sections of a news release, digitally storing the content for those sections, and then assembling the news release by retrieving the sections from storage. The owner of the patent, Gooseberry Natural Resources, LLC, sued Cox and several other media companies in Los Angeles in December for patent infringement.
The Gooseberry lawsuit is yet another illustration that as media companies develop and use innovative business methods and technologies, they face risk of patent infringement claims in addition to the more-familiar risks of defamation, invasion of privacy, and copyright infringement. While many of the patents asserted against media defendants cover various aspects of the Internet, such as providing a click-to-call links in Internet search results, playing games over the Internet, and web browsing, other areas are covered as well, including providing media and content to mobile devices, systems for generating billing statements for published advertising, and electronically displaying advertisements and information in elevators. Patent holding company Acacia Technologies, which says that it controls over 160 patent portfolios covering areas including advertising, digital media, Internet/eCommerce, and wireless mobile, claims to have more than 870 licensees, including Bloomberg, Gannett, and Walt Disney Company, and last year won a patent infringement lawsuit against Yahoo for infringement of a patent covering advertisements in instant messaging.
But media companies are not only defendants in patent lawsuits. They also own patents themselves, and occasionally sue on them. Facebook holds a patent covering “dynamically providing a news feed about a user of a social network.” Gannett Satellite Information Network owns the elevator advertising patents mentioned earlier and sued a competitor, Office Media Network, for allegedly infringing them;TV Guide Online sued Tribune Media Services for allegedly infringing a patent for providing customized television programming information. By understanding the risks and using some defense strategies, media companies can reduce the danger patent infringement claims pose.
An Overview of Patent Law
First, a quick overview of patent law. A patent grants the holder the exclusive right to make, use, sell, or offer to sell the invention it describes within the U.S., or to import it into the U.S. To be patentable, an invention must be a “new and useful process, machine, manufacture, or composition of matter.” In its decision last year in Bilski v. Kappos, the U.S. Supreme Court reaffirmed that the scope of patentable subject matter is broad. So long as a patent does not seek to cover an abstract idea, it can, for example, cover novel methods for conducting business and computer software. A patent is valid for 20 years from the date its application was filed, and may be extended further if the Patent Office unduly delays in issuing the patent.
A patent’s scope is defined by its claims
In a patent, the inventor describes his or her invention in both writing and drawings, and then concludes the patent with one or more “claims,” each of which specifies the details of invention for which the inventor claims exclusive rights. For example, here is one of the claims from a patent covering a method of assembling a news release, which has been asserted against a number of media organizations:
1. A method for structured generation of a news release, the method comprising:
a. separately specifying content of each of a plurality of pre-determined sections of the news release, the predetermined sections and their ordering determining in part a desired format for the news release;
b. storing, in a digital storage medium, the content specified for each of the sections; and
c. assembling the news release by retrieving from the storage medium each of the stored sections in a manner consistent with the desired format.
The patent claims determine whether a patent has been infringed. A claim can be broken down into a number of elements, such as subparts a. through c. in the example above. If every element of at least one claim is found in a device made or a method used by someone other than the patent owner, the patent has been infringed.
Not all issued claims are valid
The patent claims also determine whether the patent is valid. A patent can be obtained only on a new invention, and while the Patent Office tries to ensure that this requirement is met before it issues a patent, it is by no means perfect and frequently issues patents that turn out to be invalid. If all of the elements of a patent claim can be found in a piece of “prior art” — a device that existed or a method that was practiced before the patentee invented his claimed invention — the patent is invalid. But even when some elements of a claim are not found in a single piece of prior art, the patent is also invalid if the claimed invention represents an obvious change to the prior art.
Anyone who believes that published prior art invalidates a patent may present the prior art to the Patent Office and ask that it reexamine the patent and either cancel it, or narrow its claims. Alternatively, an issued patent can be invalidated by a court.
Because the patent claims determine both infringement and validity of a patent, much of patent litigation is devoted to determining how the claims should be interpreted. The patent holder will ask the judge to interpret the claims in such a way that they cover the defendant’s product or activities that are accused of infringement, but must be careful not to have the claims interpreted so broadly that they will cover prior art and therefore be invalidated. The defendant will ask the judge to interpret the claims so that they require something that is missing from its product or activities, so that there is no infringement, or to interpret them so that they cover a piece of prior art, so that the patent is invalid.
Remedies for infringement include damages suffered by the patent holder as a result of the infringement, an injunction against future infringement and, if the patent holder shows that the defendant infringed willfully, the court has discretion to award up to three times the damages proved, and award attorneys’ fees.
Patents on the Internet
The patents that media companies are accused of infringing often are ones covering software or business methods related to the Internet. The development of the Internet coincided with an expansion of the scope of patentable subject matter to cover software and business methods. The result has been the issuance of numerous patents covering various aspects of the Internet, including various business methods that use the Internet, and software used in connection with the Internet. Many of these patents may be valid and cover genuine new and non-obvious advances. Many of them, however, are questionable at best.
The Electronic Freedom Foundation, for example, keeps a “Ten Most Wanted List” of patents that it believes are invalid. These include patents covering sending and receiving streaming audio and video over the Internet, allowing users of a website to create and retrieve information from personally-named subdomains, administering and scoring tests over the Internet, and podcasting. Other patents of at best questionable validity include the one quoted previously covering a method for constructing press releases, a patent covering transfer of money from one account to another over the Internet, and providing “click to call” links for merchants that are included in the results of an Internet search.
The number of questionable Internet and business method patents is due in part to the relative newness of the Internet and of patents on business methods. The Patent Office does best at finding prior art when it takes the form of previous patents. It is not nearly as good at finding non-patent publications or unpublished information about prior public use of technology. When the first wave of Internet patent applications were filed, the relevant prior art was often the unpatented public use of small dot-com startups. Because these companies were often short lived, they frequently left little written evidence of their use that would be found by the Patent Office, with the result that more patents of questionable validity have been issued in this area.
The rapid development of the Internet may also be partly responsible for the large number of infringement allegations. The claims of a patent are usually written with broad language that goes beyond the particular invention that the patentee created. This is done because if the claims describe an invention in precise detail, a minor variation on what the claims describe may avoid infringement but still be within the scope of what the inventor created. But in a rapidly developing area of technology such as the Internet or business methods, general language in a patent’s claims may be broad enough to cover not only what the inventor had in mind when he applied for his patent, and foreseeable variations on it, but also technology developed in the future that was not what the inventor had in mind when he applied for his patent. In some cases patents pre-dating the Internet that cover simple electronic transmission of information may later be found to be sufficiently broad to cover transmission of information over the Internet.
A concurrent development that has increased the threat of patent infringement claims to companies of all kinds, media companies included, is the rise of the “patent troll” or, less pejoratively, the Non-Practicing Entity. An NPE is a company that owns one or more patents but does not practice the inventions that they cover. NPEs derive most or all of their income from enforcing their patents – licensing alleged infringers and suing for damages. Acacia Technologies, mentioned at the beginning of this article, is an example of an NPE. NPEs have changed the face of patent infringement litigation because they are not vulnerable to counterclaims of patent infringement. Traditionally, patents were owned by companies who operated in the areas of technology that their patents protected. Before suing a competitor for patent infringement, an operating company had to assess the risk that the competitor would turn around and sue it for infringing patents owned by the competitor. Often that risk would lead to a decision not to sue. Because NPEs have no operations, however, they are not subject to counterclaims for patent infringement, freeing them from that restraint on enforcing their patents. Also, because NPEs have no operations, it is easy for them to incorporate and set up business in plaintiff-friendly forums, such as the Eastern District of Texas, which has the heaviest patent litigation docket by far of any of the federal judicial districts.
The financial risk from a patent infringement claim can be high. In addition to the threat of a damages award, and an injunction that may require a company to change how it does business, defending a patent infringement suits entails substantial legal costs. The latest Economic Survey of the American Intellectual Property Law Association reports that median litigation costs for a patent infringement suit in which $1 million to $25 million is at risk amount to $1.5 million through the end of discovery and $2.5 million inclusive of all costs. Costs are higher for cases with more than $25 million at risk and less for those with less than $1 million at risk.
The Increasing Patent Attack on Media companies
As media companies innovate and develop new platforms for serving content, they have become an increasingly prominent target for NPEs. For example, Software Rights Archive LLC, known as “SRA,” acquired a family of patents directed to software for use in legal research. The patents claim that by looking at the various connections between cases, such as the manner in which legal opinions cross-cite each other, a search engine can locate pools of cases that may be relevant to the researcher. Between 2009 and 2011, Software Rights Archive sued the major Internet search engines for patent infringement, claiming that their method of ranking Internet search results based on the hyperlink connections between pages infringed their legal research patents. Recently, however, SRA has begun asserting its patents even more broadly. For example, on July 27, 2012, SRA sued LinkedIn, alleging that its method of locating individuals based on their connections to other individuals infringe its patents. On the same day, SRA sued Facebook, alleging that its method for locating and serving relevant news articles also infringed its patent.
In addition to SRA, Unified Messaging Solutions LLC, known as “UMS,” has recently been using its patent portfolio to attack media companies. Like SRA, UMS has no operations and exists only to monetize its patents. The media reports that UMS appears to be a subsidiary of Acacia Research Group LLC, one of the largest patent holding companies. UMS owns a patent family directed at a system for routing incoming faxes to individual recipients. Nonetheless, UMS has taken an expansive reading of its patents and asserted them against websites that allow users to message each other.
UMS has recently filed suit against nearly 100 companies in jurisdictions across the country, each asserting nearly identical claims using a template complaint. UMS has asserted its patents against Time Warner Cable Inc., AOL Inc., American Airlines, Inc., Google Inc., Travelocity.com LP, Twitter, Inc. In one suit, UMS’s attorneys famously forgot to “fill in the blank” and included the following allegation:
38. Defendant has committed direct infringement as alleged in Counts I through V at least through operation of its “Orders & Activity” feature accessible at least through its website, www._______.com
Because UMS filed all of the lawsuits recently, none has gone to trial. In the meantime, many defendants have entered settlement agreements with UMS to escape the lawsuit early. Although settlement agreements are, by their terms, confidential, some estimate a typical settlement with UMS includes “a one-time payment of about $300,000, which is low enough that a public company usually does not have to disclose the amount and makes settling an attractive alternative to the time and expense of a trial, which could cost $1 million to $5 million.”
Lodsys LLC is yet another example of a NPE targeting media companies. Lodsys owns patents that claim methods for obtaining user feedback on a product. Lodsys has filed eleven infringement actions against a variety of defendants, all in the Eastern District of Texas, including a suit against Playboy Enterprises and other defendants for “try and buy” subscription offerings on their website. The case is currently pending. In addition, after Lodsys sent The New York Times Company demand letters, The New York Times sued it in Chicago, asking the court to rule that tracking click-through for ads on its website does not infringe the patents. Lodsys responded by suing the Times for infringement in the Eastern District of Texas. Both cases have now been settled.
Pre-Litigation Defensive Measures
There are numerous preventive actions that can be taken to reduce the risk that patent infringement suits pose. One strategy is to identify higher risk activities and ensure they are undertaken only after a diligent analysis. Another is to position yourself to improve your ability to defend against future suits. These are interconnected strategies that work together to reduce the overall risk. A company that is well equipped to defend any suit makes a less attractive target.
Risk management requires identifying high risk activities
Identifying high risk activities is an important first step. The risk of suit is not the same for all aspects of a media company’s operation. As discussed above, patent only granted for new invention and expire 20 years after the filing date of the application. Operations that have been unchanged for more than 20 years thus are unlikely to be subject to anther party’s valid patent protection. Unfortunately, they may be subject to an invalid patent. Where a company’s operations have been used only internally or maintained as trade secrets, they may in fact be patented by someone else who believes he is the first inventor.
For example, over the last 30 years Company A has been using a particular behind-the-scenes method for associating media content with appropriate advertisements. If Company B independently develops the same method in 2005 and applies for a patent on it, the Patent Office probably will not be aware of Company A’s prior invention and use. Believing the method was first invented in 2005, the USPTO issues Company B a patent. To defend against an infringement claim by Company B on that patent, Company A can prove that it invented the method first. But it is not enough for an employee or officer to simply testify that the method has been in use for ages. Instead, any oral testimony must be corroborated with documentary evidence. To facilitate this future defense, therefore, it is important to implement a policy of keeping documents that record the use and development of your technology and business methods.
Although even traditional practices are susceptible to the risk of an infringement claim, the risk of suit increases when innovating and exploring new business models. When these new business models involve technology areas that are aggressively patented, the risk is even greater. For example, business methods unconnected to any technology are not themselves subject to numerous patents. On the other hand, innovations involving the Internet or computing technology (such as mobile devices) are. Once the high risk activities are identified, it should be determined whether they may be covered by another another’s valid patent.
Careful analysis should be conducted before engaging in high risk activities
There are several ways to determine whether an activity may already be patented, each with its own advantages and limitations. One option to is to obtain a lawyer’s “freedom to operate” opinion. This process involves first conducting a search for relevant patents. These searches are typically done by specialized patent searching companies retained by a lawyer. When the search is completed, the lawyer analyzes the search results and provides an opinion that describes the level of risk a proposed activity poses. When no problematic patents are found, the lawyer may give an opinion that the risk is low. Most lawyers, however, are reluctant to give such opinions without extensive searching and strong cautionary language noting the impossibility of locating all relevant patents. Because even diligent searching cannot guarantee that all potentially problematic patents are located, freedom to operate opinions are often expensive and of limited value.
Another way to locate patents that may cover new business methods or technology is to apply for a patent on that innovation. Although obtaining a patent certainly does not guarantee that practicing the patented invention is free from risk, the examination process may incidentally turn up other relevant patents. Notably, a patent applicant’s examination process includes a prior art search conducted by the Patent Office. Thus, filing a patent application that covers a new innovation essentially enlists the Patent Office to search for related earlier inventions. The application process can therefore be used indirectly to locate patents that may pose a threat. But this process can take a long time to complete. Depending on the specific technology area of the application, it may take nearly four years before the Patent Office before it begins examination. Further, there is certainly no guarantee the Patent Office’s search will uncover all potentially problematic patents.
A more formidable opponent is less likely to get sued
Obtaining patents, however, has other more direct benefits that also help reduce the likelihood of being sued. An effective tactic for defendants when a competitor sues for patent infringement is a counter-claim that the plaintiff is infringing one of the defendant’s patents. Building a defensive patent portfolio to deter infringement suits, however, is effective only against a plaintiff that is operating in an area in which you have patent protection. As mentioned previously, a defensive portfolio is not effective against NPEs, because they have no operations other than suing for patent infringement.
Require licensors to indemnify you
Using the technology of others can also pose patent infringement risks. A company that obtains the e-commerce portion of its website from a third-party vendor, for example, may face patent infringement claims for using that technology, because use of an infringing product or method developed by someone else is itself infringement. It is therefore prudent to demand that technology licenses and service agreements include a warranty against patent and copyright infringement claims arising from use of the licensed technology. Often, however, these warrantees are be limited to the cost of the equipment or services provided, which generally is not much compared to the potential damages and attorneys’ fees in a patent infringement suit. Of course, whether or not a patent infringement warranty is limited in amount, like all warranties it is only as good as the financial capacity of the company giving it.
Defensive Measures after suit has been filed
When patent infringement suit is filed, one of the first steps for the defendant to consider is whether there are any other parties to ally with to build a common defense and pool defense costs and resources. Any co-defendants are natural allies, as are other companies who have been sued on the same patent in other lawsuits. In addition, companies that have not yet been sued may recognize that they are potential future targets and therefore have a common interest in invalidating the patent, and may be willing to contribute resources.
A plaintiff must first prove that you infringe
Whether alone or as part of a joint defense, consideration should be given to whether the patent is actually infringed. To prove infringement, the patent owner must show that a single entity performs each of the steps of a patented method (or sells a device that has each of the elements of a patented device). This requirement may be particularly helpful for media companies, which frequently use technologies that distribute content and advertisements over the Internet or through mobile devices. The method claims of patents covering these technologies often include some steps that take place on the provider’s server and others on the end-user’s computer. In these cases, neither the provider nor the end user performs each of the steps in the claim, and neither infringes. Although a party cannot avoid infringement by acting as a “mastermind” and having others carry out the claim elements on its behalf, mere arm’s-length cooperation between a provider and customer does not give rise to infringement.
Invalidating a patent not only avoids liability, but also destroys a plaintiff’s valuable asset
Even if each of the patented elements is performed, there can be no infringement if the patent is invalid. Proving a patent is invalid often involves locating prior art through a process that often feels like trying to find a needle in a hay stack. There are many methods of searching for prior art that can be used either individually or in conjunction with each other. Traditionally, prior art searches have been done by a patent researcher who performs electronic searches of patents and patent applications, academic publications, and the general Internet as well as contacting companies or individuals likely to have relevant information. Specialized prior art search companies can be retained for this. Experts in the relevant area of technology can also be helpful in locating prior art, even if they do not have much experience with searching databases, because they often have industry contacts and know the key players that working in field during the relevant time period.
Recently, “crowdsourcing” has been applied to prior art searching. Crowdsourcing is the process of bringing together a large community of individuals to work on a task that ordinarily would be done by one person. For example, a company that calls itself Article One Partners has developed a community of thousands of individuals that search for prior art. Article One can be hired to post a “bounty” that will be paid to any of their searchers who locates prior art that invalidates a target patent. This system allows a defendant to harness the power of thousands of individuals searching for prior art and pay only when invalidating art is located. Crowd sourcing can also be done more informally. A public relations company that was sued for infringing the patent on creating press releases mentioned at the beginning of this article set up a website to publicize its predicament and ask for prior art. Similarly, when the software company Blackboard Inc. sued to enforce an e-learning patent that many competitors thought was invalid, the defendants created a Wikipedia page on the history of e-learning and were able to gather a large amount of useful prior art. Also, a carefully drafted and strategically placed advertisement in a trade journal covering the technology at issue may entice individuals with relevant information to come forward. But no matter how it is performed, prior art searching is an amorphous process that depends not only on the quality of the search, but on the existence of prior art.
When prior art is located, there are two procedures available to challenge the patent. First, a defendant can file a counter-claim in the lawsuit and ask that the court declare the patent invalid. Second, if the prior art is a publication that was not viewed by the Patent Office during examination of the patent application, the defendant can institute a “reexamination.” This is a process in which the prior art is submitted to the Patent Office to decide whether the patent should be either narrowed or canceled. While the reexamination is taking place, the lawsuit may be placed on hold. In either case, a strong attack on a patent’s validity or scope not only threatens the plaintiff’s ability to collect damages in the pending suit, but also its ability to enforce the patent going forward. A plaintiff’s desire to avoid the risk of a either a court or the Patent Office publicly announcing its patent’s invalidity often pressures a plaintiff to discuss settlement.
A successful defense minimizes the remedies available to the plaintiff
In addition to arguing noninfringement and attacking the validity of a patent, another defense strategy is to undercut the remedies available to the patent owner. In general, potential remedies for patent infringement include an injunction against future infringement and damages measured as either the profits lost by the patentee or a reasonable royalty. Injunctions and damages, however, are each not always available. For example, an NPE that does not itself make and use the patented invention may not be able to obtain an injunction. The damages available to an NPE are also limited. Most patent holders prefer to seek lost profits over a reasonably royalty, which is typically between one third and one fourth of the lost profits. Lost profits, however, are not available to an NPE who does not itself make and sell the product or service covered by the patent. Thus, when an NPE’s valid patent is infringed, the primary remedy it will have available is limited to a reasonable royalty.
Patent damages can also be limited if substantially all patented products sold by the patent owner or its licensees are not marked with the patent number (i.e., “Protected by U.S. Patent No. X,XXX,XXX). If products were not marked, no damages are available until the defendant received actual notice of infringement, usually in the form of a demand letter. This marking requirement can be problematic for NPEs who target multiple defendants. Often, such suits are settled with licenses that do not require the defendants to mark their products with the number of the NPE’s patent. By failing to require marking, an NPE may waive its ability to collect damages accruing before a defendant receives actual notice. Thus, even if infringement of an NPE’s valid patent is found, it may not be able to obtain an injunction or collect substantial damages.
Whether the defense is noninfringement, invalidity, an attack on damages, or a counterclaim, it is unlikely that defense will be a silver bullet that cleanly knocks out a plaintiff’s claim. But likewise, it is unlikely the plaintiff has a patent that is clearly infringed and unquestionably valid. In most cases, there is a balance of uncertainty that leads to settlement. Plaintiffs risk that their patent will be held invalid, or that their legal fees exceed the damages they collect. Conversely, defendants risk an injunction or a large damages verdict. These risks provide both parties with a strong incentive to settle and avoid a jury trial. Thus, simply because a defense is not a silver bullet, it remains valuable—the stronger the defense, the more likely is a favorable settlement.
As media companies creatively grow their business and use the Internet and computing devices, they become increasingly tempting targets for NPEs. These suits are expensive to defend and may result in a substantial damages award. Media companies should therefore proactively take steps to reduce the risk of suit. But if sued, careful strategy should be employed to either defeat the infringement claim or position a favorable settlement.