The next status conference for AT&T’s embattled T-Mobile merger proposal has been postponed until December 9, due to a scheduling conflict. AT&T and Deutsche Telecom, parent company of T-Mobile, have withdrawn their FCC applications after FCC Chairman, Julius Genachowski, expressed strong doubts that the $39 billion deal would serve the public interest, citing instead the likelihood of job losses and stifled competition.

HTC’s purchase of S3 Graphics Co. may not be as fruitful as originally anticipated. HTC made the $300 acquisition in hopes that Apple would have to license graphics technology or risk patent litigation, but the U.S. International Trade Commission declared last week that Apple’s Macs and iPhones did not infringe on two S3 patents. S3 and HTC still have other outstanding patent disputes with Apple.

Onlookers are turning a critical eye on Zynga as the company gears up for its IPO. Reports have surfaced about the hard-nosed culture of the startup, which has grown to 2,200 employees since its inception in January 2007 and produced social gaming blockbusters such as FarmVille and Words with Friends. In the wake of Groupon’s falling share price, others are concerned about the strength of Zynga’s business model, which requires ongoing development and large marketing budgets to stave off the user boredom.

ShopCity, a website that helps local businesses sell products, has filed a complaint and added to Google’s antitrust worries. ShopCity alleges that the search giant favors its own competing service, Google Places, and pushes ShopCity listings onto later results pages that few web surfers ever check.

Opposition to the proposed Stop Online Piracy Act continues to grow, with more than one million emails and 87,000 phone calls flooding Congress to date. If passed, SOPA would enable the Department of Justice and private rights holders to block access to sites accused of hosting infringing content.

AT&T presented three main points designed to show that the cases by Sprint and
Cellular South should be dismissed. First AT&T argues that because Sprint and Cellular South are competitors—not consumers—in this market, both lack standing to bring an antitrust suit. The economic justification behind enjoining a horizontal merger among competitors, such as AT&T and T-Mobile, is based on the theory that the merger will lead to a more concentrated and less competitive market which will, in turn, lead to higher prices and reduced innovation. AT&T argues that even if the merger were to result in less competition and higher prices—a result AT&T says would not occur—any losses would be felt by consumers not competitors. AT&T goes on to argue that what Sprint and Cellular South are actually concerned about is increased competition from a more efficient unified AT&T/T-Mobile. AT&T argues that antitrust law does not provide any recourse for a competitor’s concern about losses resulting from a rival’s increased efficiency and competitiveness. AT&T also submitted a very powerful piece of evidence against Cellular South in this case. In their motion to dismiss the case, AT&T included an email it received from Hu Meena, CEO of Cellular South. Mr. Meena wrote that if the companies came to an agreement through which Cellular South would build a next generation LTE network in Mississippi which AT&T would use for roaming, and AT&T guaranteed reasonably priced access to its networks for Cellular South’s roaming needs for the next 10 years, Cellular South’s antitrust concerns would be alleviated. AT&T used the email to suggest that Cellular South was exploiting the lawsuit as a way of advancing its own strategic interests.

AT&T’s second point is a response to claims by Sprint and Cellular South that an AT&T/T-Mobile merger will reduce Sprint’s and Cellular South’s access to new wireless devices. Sprint and Cellular South argue that after the merger AT&T will be able to “coerce exclusionary handset deals” from device manufacturers effectively freezing competitors out of the market. AT&T responds that it is well recognized that exclusive handset deals are generally pro-competitive and encourage company differentiation. The only way that exclusive deals hurt competition is when they allow one party to unreasonably deprive another of access to goods. AT&T argues that such an outcome is extremely unlikely in this market as there are a great variety of handset manufacturers who produce many different handset models. Between 2006 and 2010 the number of handset manufacturers that distribute their products in the U.S. market increased from 8 to 21 and these manufacturers produced 302 different models. Therefore, AT&T contends that Sprint and Cellular South failed to provide any factual allegations which indicate they would be frozen out of the handset market.

AT&T’s final point was in response to claims by Sprint and Cellular South that the merger would have an effect on the market for roaming services. AT&T argues that Sprint fails to point to any effect on a market for roaming services in which Sprint is a participant. Sprint does not currently purchase roaming services from either AT&T or T-Mobile, nor would it be possible for them to do so. Sprint’s cell phone network uses CDMA technology which is incompatible with the GSM technology used by AT&T and T-Mobile. Cellular South uses GSM service for less than 3 percent of its customers and fails to show that it would be affected. AT&T goes on to argue that any claims by Sprint or Cellular South which state that the merger would increase the price they pay for Verizon roaming services lack any factual basis. AT&T argues that both Sprint and Cellular South are ignoring the fact that FCC regulations require all mobile wireless carriers to provide roaming on a just, reasonable and non-discriminatory basis.

Regardless of how one feels about the competitive effects of an AT&T/T-Mobile merger on the wireless industry, whether there is anything to gain by allowing Sprint and Cellular South to sue on the back of the DOJ is a separate question. The DOJ and the seven state attorneys general which have joined in the suit (New York, Washington, California, Illinois, Massachusetts, Ohio and Pennsylvania) seem well positioned to represent the welfare of wireless consumers and it is difficult to see what additional benefits would be provided by allowing wireless companies, primarily concerned with the merger’s effects on their own bottom lines, to sue as well. It is now up to Sprint and Cellular South to show why their suits should be allowed.  Oral arguments in the case are schedule for October 24^th.

• Sprint is urging the FCC to quickly hold hearings to rule on whether the transfer of spectrum licenses from T-Mobile to AT&T serves the public interest. AT&T’s proposed $39 billion acquisition of T-Mobile is currently under review by the FCC after the US Justice Department sued to block the proposal.

• Senators Blumenthal (CT) and Franken (MN) introduced a bill on Tuesday that would prohibit wireless companies from having contract clauses that require consumers to use binding arbitration rather than suing in the case of a contract dispute.

• On Wednesday, members of the House reviewed the FTC’s recommendations to the Children’s Online Private Protection. The proposed changes would require greater permission from parents of children under the age of 13 before information could be collected from them on the Web.

• Also on Wednesday, Senator Coons (DE) and Kohl (WI) proposed amendments to the pending Currency Exchange Rate Oversight Reform Act of 2011. The amendments would allow private federal civil actions for trade secret infringement and would allow Customs & Border Patrol to share information on suspected counterfeiters with US rights holders.

• Samsung wants courts in France and Italy to prohibit Apple’s iPhone 4S, claiming that the iPhone infringed two of its patents. Samsung and Apple are currently in around 20 patent infringement legal disputes.

• AstraZeneca returned to court this week to defend its US patent on Crestor, a multibillion-dollar cholesterol drug, against generic drug makers who are appealing a decision from the US District Court in Delaware. In June 2010, the court ruled that generic firms failed to prove the patent was invalid because it was obvious.

As Core Business Fades, TiVo is Turning to IP Licensing

People love their DVRs.  More specifically, they love their TiVo DVRs.  TiVo was one of the first DVR providers (RIP Replay TV and one-click commercial skipping) and holds broad pioneer patents.  It’s a practicing plaintiff, not a naked patent troll.  And despite some gripes, its products have consistently won accolades for usability, especially compared to competitors’ DVRs.

TiVo was the first company to deliver on the promise of easy-to-use time-shifted television.  But TiVo has been a victim of the success of its own technology.  It has languished for the last decade as cable and satellite companies deployed their own (usually mediocre, occasionally execrable) set-top box DVR recorders to a captive customer base.  TiVo’s subscriber base is way off its highs.  Its third quarter 2009 revenues were an anemic $56.9 million.  And TiVo’s share price has been flat for a decade, hovering around $1 billion market cap.

But while TiVo’s own products and services founder, its IP posture is increasingly puissant.  TiVo has partnerships with DirecTV, Comcast, Cox, and Virgin Media, and has patent licensing agreements with Pioneer, Sony, and Toshiba.  In its second incarnation as an IP holding company, TiVo wants to get patent licensing rents from all of the players in the DVR/set-top box market.  However, those revenue streams aren’t as profitable as having a larger base of customers: TiVo averages 93¢ a month from licensed subscribers and $7.65 from its own customers.  To survive, it needs to bend the DVR market to its will and get all of the major players to join its harem of captive patent licensees.

TiVo Does Patent Trolling Right

TiVo is in a uniquely sympathetic position as a practicing pioneer facing seemingly undeserved losses at the hands of patent infringers.  As a result, TiVo has been spectacularly successful in a grueling six-year patent fight with EchoStar and Dish Network.

TiVo’s legal Death Star is U.S Patent No. 6,233,389 (“Multimedia time warping system”), issued on May 15, 2001.  The ‘389 patent covers fundamental DVR technologies for recording video from TV.  TiVo scored an initial $73.9 million win and permanent injunction against EchoStar for infringement of the ‘389 patent by EchoStar’s Dish Network DVR.  On appeal at the Federal Circuit, the case was argued by appellate heavyweights Seth Waxman and Donald Dunner, and the lower court verdict was upheld.  Then, TiVo got $200 million more in damages, contempt sanctions, and attorney fees for violation of the injunction when EchoStar unsuccessfully attempted to design around the patent.  TiVo pegs the total litigation revenues from EchoStar at $400 million plus attorney fees.

The ‘389 patent has also been upheld on ex parte re-examination by the PTO, and is now on its second re-examination.  Although the PTO has preliminarily rejected two important claims in an office action, TiVo characterizes the rejection as simply a procedural matter pending full re-examination; indeed, in the prior reexamination, claims were initially held invalid and then ultimately upheld.

If TiVo comes out of the second reexamination with the ‘389 patent mostly intact, it will have a gold-plated patent that has been repeatedly validated in District Court, the Federal Circuit, and the PTO.  The patent will be a license for TiVo to print money, and will form the keystone of TiVo’s strategy to extract licensing revenues from the entire DVR industry.

A Challenger Appears

Perhaps sensing blood, TiVo opened a new litigation front by suing AT&T and Verizon in the Eastern District of Texas on August 26, 2009, alleging that AT&T’s U-verse service infringed on TiVo’s DVR patents.  This dragged Microsoft into the DVR wars: AT&T uses Microsoft’s Mediaroom system in its U-Verse TV service.  If TiVo were able to crush AT&T like it whelmed EchoStar, the U-Verse venture could be in jeopardy – a permanent injunction is still a normal remedy in patent litigation for practicing plaintiffs, even post-eBay v. MercExchange.

Microsoft intervened in the case and separately sued TiVo on January 19, 2010, for infringing a different set of DVR patents.  Microsoft’s complaint alleges infringement of U.S. Patents No. 6,008,803 (“System for displaying programming information”) and 6,055,314 (“System and method for secure purchase and delivery of video content programs”).  Microsoft admits it is asserting these two patents to force a settlement with a cross-licensing agreement: “We remain open to resolving this situation through an intellectual property licensing agreement, and we have initiated discussions to engage TiVo in negotiations”.

Should TiVo be concerned about Microsoft’s patents?  Are they enough to force TiVo to the table?

From an admittedly cursory look, they are about as threatening as a limp noodle.  Neither of the patents has been tested in court.  The PTO patent application system is ex parte; patents issue without being tested adversarially.  Although there is a presumption of patent validity once issued, the presumption may be overcome in court in a variety of ways.

The ’803 Patent

The ‘803 patent (“System for displaying programming information”) was filed on August 7, 1998 and issued December 28, 1999.

It immediately loses brownie points for mentioning the “information superhighway” in a non-ironic manner in the specification.  It also misspells “information” “informaton” in Claim 1.  We’re not off to a very good start!

Claims 1-21, 23, and 25-32 cover sundry variations on two- or three-pane information displays, all clearly anticipated in the prior art by myriad computer displays dating from the dawn of windowing systems (or even from text displays).

Claims 22 and 24 are where the meat is.  Claim 22 claims a “system” with an “information display” and a “category display.”    Claim 24 claims “[t]he system recited in claim 22, wherein each of the information tiles comprises at least a program name, program date and start time, and program channel.”  Claim 24 is the only claim mentioning TV programming data.  As there are innumerable prior art information displays with generic data in a format that would anticipate the other claims, Claim 24 is the only claim that could realistically be asserted against TiVo.

Even if there is no prior art with TV programming data displayed in a format like Claim 24 (doubtful), the ‘803 patent faces other enforcement obstacles.  An exact prior art reference will invalidate a patent for lack of novelty.  But even if there is no exact single prior art reference that practices the claim, two or more prior art references may be combined to void a patent for obviousness.  Here, a prior art reference teaching the compilation and organization of TV programming data (e.g. TV Guide magazine) can be combined with the prior art screen data formats to show that Claim 24 was obvious and therefore not patentable.

Even if the ‘803 patent survives what will surely be a searching obviousness inquiry, it may encounter an issue of patentable subject matter under the currently-valid (pending a Supreme Court decision expected in Spring 2010) machine-or-transformation test articulated by the Federal Circuit in In re Bilski.

§ 101 of the Patent Act enumerates four types of statutory (that is, eligible) subject matter: processes, machines, manufactures, and compositions of matter.  Claims are supposed to indicate in their preamble what category they fall under.  Generally, “system” is susceptible to interpretation as a machine or as a process.  If the claimed system doesn’t clearly describe a machine or apparatus, then it may be interpreted as a process claim.  A process must be implemented with a particular machine or transform an article from one thing or state to another.  Clearly, there is no transformation happening in Claim 24.  Is there a particular machine?  The claim language may be too vague – there is no context for “category display” or “information display.”  Furthermore, reference to a generic computer or set-top box may be insufficient.

The ‘314 Patent

The ‘314 patent (“System and method for secure purchase and delivery of video content programs”) was filed on March 22, 1996, and issued April 25, 2000.

On its face, the ‘314 patent appears to be on much more solid ground than the ‘803 patent.  It’s bigger: 74 claims.  It actually appears to deal with technology!  There are method, device, and several varieties of system claims: “video content delivery system,” “interactive entertainment network system,” “system for purchasing video content programs,” etc.  Overall, the patent covers video decryption technologies for set-top boxes.  It has a bit tacked on at the end concerning the use of the encrypted network to purchase video-on-demand.  Without having more technical knowledge of TiVo’s encryption setup it’s hard to get a feel for how well the claims map to TiVo’s devices.  The analysis is on shakier ground here due to the increased complexity of the ‘314 patent.  However, a few issues do stand out.

Claims 27-33, covering an “integrated circuit card for use in decryption of video content programs” or “a video decryption device” arguably cover the now-standard cable TV decryption standard CableCARD.  The CableCARD decryption approach for digital cable was a product of the Telecommunications Act of 1996, and has been blessed by the FCC.  TiVo DVRs use it.  To the extent that TiVo infringes because it implements support for CableCARD, it may have a claim that the CableCARD system pre-empts the ‘314 patent – not because CableCARD is prior art, but because it is a specific technological industry mandate from a regulatory agency and should therefore not become a vector for a patent infringement suit.

Claims 34-41 are method (process) claims.  Claim 34 is the only independent claim.  The rest are dependent on 34.  Unfortunately for Microsoft, Claim 34 (“method for delivering video content programs”) appears to violate the rule of BMC v. Paymentech: a single entity must directly or vicariously (i.e. by ordering a minion) carry out all of the steps of a process claim in order to infringe.  Claim 34 describes a series of operations involving encrypted video streams, including 1) encrypting and decrypting a program key, 2) encrypting and decrypting the video stream, and 3) transmission of an encrypted video stream.  But TiVo doesn’t transmit video from the cable company: the cable company does.  And consumers typically lease their CableCARD from the cable company; any decryption that the card performed couldn’t be attributed to TiVo.  On the other hand, if TiVo stores data encrypted on hard disk and uses a non-CableCARD means of decrypting it prior to viewing, it may arguably infringe.

Claims 43-53, covering the purchase of  video streams, again run into the Paymentech issue because the claim steps purport to cover both the actions of the video purchaser (i.e. the viewer) and the “video merchant” (e.g. Amazon, Netflix, etc.).

A few, more broadly written claims (e.g. Claim 42 and 54-58) appear to recognize this limitation.  These claims only cover decryption of a video data stream.  However, their extremely wide claim scope may run into prior art novelty anticipation from other TV decryption technologies – of which there are many.

Is Microsoft’s Suit Credible?

The ‘803 patent is clearly a non-starter, but it’s much harder to evaluate the ‘314 patent.  Neither patent has been tested in court, so they’ll initially have discounted bargaining weight compared to the battle-tested, blood-spattered ‘389 patent.  If the ‘314 patent proves valid, it may be enough to parry TiVo’s attack on U-Verse, which, with barely 2 million subscribers, is nowhere near the mother lode that EchoStar was.  This wouldn’t affect TiVo’s ability to take on other targets (Time Warner may be especially tempting), but it may blunt the strong momentum that TiVo has built up with its string of EchoStar victories.