from streamingvideo.com
District Court Delivers Blow to Acacia
The recent Markman Order may be the first step towards invalidating some of Acacia's DMT patent claims, but the case still has a long way to go.
By Geoff Daily
July 14, 2004 - From streamingmedia.com
On July 12, U.S. district judge James Ware announced the first results of the Markman hearings in the Acacia Media Technologies v. New Destiny Internet Group, et al. patent infringement case. While the Markman Order does not invalidate Acacia's Digital Media Transmission (DMT) patents, it shows weak spots in patents that some regarded as bulletproof.
In patent litigation, Markman hearings are used for claim construction. Typically, the plaintiff and defendant set out a list of claim terms whose definitions are in dispute. To clarify the meaning of these terms (and subsequently the scope and validity of the patents), a trial judge weighs evidence and definitions as presented by the plaintiff and defendant and makes a ruling in the form of a Markman Order.
According to experts, the news for both Acacia and the defendants, all part the adult entertainment industry, was mixed. "Acacia got the construction on remote locations that they wanted," says Marc Kaufman, a patent attorney from Washington, D.C. firm Nixon Peabody who sat on the the Acacia panel at this year's Streaming Media East. "On the other hand, they did not get the construction they wanted on identification and sequence encoding. It doesn't strike me as a huge victory for either side."
Out of the19 disputed terms, Robert Berman, executive VP of business development and general counsel for Acacia, says, "For seven of the terms, the court adopted Acacia's proposed definition; for five they adopted the defendants'. For three, the court said that they needed more information from experts. For four they came up with their own definitions."
One of the most significant passages in the order addresses the definition of "identification encoding means." The order states, in part: "The Court invites the Defendants to file a motion for summary judgment that the term `identification encoding means' is indefinite, rendering claims 1, 3, 4, 5, 9, 10, and 11 of U.S. Patent 5,132, 992 to be invalid, respectively, pursuant to 35 U.S.C. 112." Thus, if a motion were made to move to summary judgment, it would mean that Acacia would have to defend against an assertion that the patent office erred in determining that the patent satisfies Section 112 when it issued the patent. Kaufman says it's rare for an issued patent to be declared invalid based on failure to comply with 112. "If the patent office deems that the patent satisfies 35 USC 112-i.e., to contain an adequate disclosure of the invention-most courts will defer to that," says Kaufman.
What makes this language significant is that "judges don't often litigate the case on behalf of one of the parties," says Kaufman. "When a judge encourages a party to file a motion on a new issue, it indicates that [he or she] is favorably disposed to ruling in their favor, but that doesn't mean that that's going to happen."
Berman reads it somewhat differently. "Summary judgment is one of the methods by which the court can get expert testimony in front of it," he says. Both sides will have an opportunity to present this expert testimony to the judge. "I almost guarantee you the defendants are banging out a summary judgment as we speak," says Kaufman.
What's at stake is quite simple: if the judge rules in the defendants' favor, then any patent claim that contains "identification encoding means" would be ruled invalid. This doesn't mean that the patents themselves would be invalid, just that the claims containing the invalid term could no longer be used to indicate patent infringement.
Jason Schultz, a staff attorney at the Electronic Frontier Foundation (EFF), believes that the defendants could reap great benefits from a successful summary judgment. "It would significantly lower the costs for the defendants' long term, because they can knock out these main claims and then focus their efforts on those last six." The EFF recently listed Acacia at the top of the "ten most-wanted patents-the ones that pose the biggest threat to the public domain." Schulz firmly believes that the results of the Markman Order count as a win for the defendants. "If you look at the stock price, the public has agreed with that," says Schultz.
After the announcement of the Markman Order, Acacia Technologies' stock price dropped more than 30%. "The market tends to overreact based on the early spin," says Berman. In a conference call with investors, Acacia asserted its belief that it still has six valid claims by which they can use to demonstrate patent infringement (see Acacia's official statement). Acacia only needs to have one of its claims ruled valid to be able to pursue patent infringement litigation.
Even if this current litigation against the adult entertainment industry renders Acacia's patents invalid, FightthePatent.com (Web developer Brandon Shelton's one-man crusade against Acacia) believes that current and pending licensees of Acacia's patent may have trouble breaking free from their licensing agreements. Kaufman concurs that this might be the case, depending on the language of the licensing agreements. Berman, however, says the agreements specifically provide that if the claims are ruled invalid, then the licensees can stop paying.
"Are we 100% thrilled with the court ruling?" Bergman continues. "No. Are we devastated? No. In most Markman cases you win some terms and you lose some."
Assuming the defendants file a summary judgement, it will most likely be several months before this litigation moves to trial, depending on how many other motions are presented. In the meantime, this case may evolve into a class action lawsuit. According to Berman, Ware suggested a class action suit might be more appropriate, due to sheer number of adult entertainment companies-tens of thousands, according to Berman-and Acacia submitted a motion requesting the New Destiny Internet Group, et. al. suit be converted to class action. The judge has yet to rule on that motion, Berman says.
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