CommLawBlog : Broadcast & Communications Lawyers & Attorneys : Fletcher Heald & Hildreth Law Firm : Telecommunications, FCC Regulation, Communications Act

The NIRC reflects that 19 of the 30 claims made under the 246 Patent have been “confirmed and/or allowable”, while three claims have been cancelled. And the “final rejection” of the 867 Patent reflects that six of the ten claims under that patent have been “confirmed and/or allowable”, while two have been rejected and two have been canceled. As to the resulting status of the patents, we’re fairly certain that: (a) they still exist in some way, shape or form, but (b) they are not broader (and almost definitely are narrower) than when the second reexamination process began.

All of this provides us with a reminder (which we really didn’t need) that we are not patent attorneys. There is obviously much going on here, but we are not now in a position to try to explain it. (We expect to be getting with patent counsel in the near future to review all of these developments so that we can have a better handle on them.) But based on our experiences thus far in the MAD saga, we expect that these developments may cause MAD to begin another high-pressure outreach effort to sign radio stations up to patent license agreements. Because of that, we think it important to provide our readers with access to the underlying documents – the order from the Delaware judge and copies of the USPTO’s actions – so that they can review them first-hand and share them with their own counsel.

As we have repeatedly suggested in previous posts, radio operators would be well-advised to consult with their own patent experts before making any decisions as to how best to proceed. The PTO’s recent decisions will have to be carefully parsed to determine, among other things:  (a) precisely what aspects of MAD’s patents may remain; (b) whether any particular station’s facilities in fact can be said to infringe on what’s left of the patents; and (c) even if there may be some infringement, what the likely exposure would be if MAD were to sue for damages. Again, the area of patent law is complicated, as the March 25 developments plainly demonstrate. Before you try to tiptoe through the minefield, you’d best get yourself some expert advice from patent-savvy folks.

The complaints are rather simple, sparse even.  They identify each respective defendant, describe MAD’s two patents, and note that, in July, 2012, the USPTO issued a “Reexamination Certificate” confirming the validity of certain claims made in each patent.  According to each complaint, the defendant is infringing the patents and, despite DigiMedia’s repeated attempts (by mail, phone and email) to resolve the infringement, none of the defendants has “ taken a license to the ’867 and ’246 patents [or] provided adequate information detailing why no license is required”.   DigiMedia seeks the usual damages, with a request for “trebled” (damages multiplied by three) if appropriate, as well as an injunction preventing the defendants from utilizing the allegedly infringing technology.

You may be asking the same question we are.  Why are these cases being filed against these defendants just now?  As we said, we’re not patent attorneys, so we’re hoping that some actual patent attorneys might offer up their thoughts.

To the non-expert eye, DigiMedia’s timing is curious. When the USPTO issued its second reexamination order regarding the two patents in December, it looked like the end of the line for DigiMedia. Then they moved – again – to lift the stay that has stalled their Delaware lawsuit for more than a year, and the court there scheduled a hearing on that motion for March.  Could it be that there’s still some life in DigiMedia’s claims?

Or is there a reason that these defendants were singled out from all possible candidates around the country that have also refused to sign the licensing agreements that MAD and its cohorts have been pushing?   One theory: might these stations have been chosen because they are all located in an area under the jurisdiction of a federal court reportedly known for fast-track processing of patent cases. (That would be the U.S. District Court for the Eastern District of Texas, Marshall Division.)  Is this simply a last roll of the dice, a double down, an “all in” at the best table it could find?  Is MAD trying to get a quick win to revive its flagging campaign before they have nothing left in their wad? 

It does appear that they’re trying to move fast.  The choice of the Eastern District of Texas, with its reputed “rocket docket”, is one clue. Additionally, it looks like DigiMedia didn’t spent a lot of time on putting these complaints together.  As we said, they’re all pretty bare bones and identical to each other – so identical, in fact that the complaint filed against one defendant referred to that defendant with an abbreviation used for one of the other defendants, which suggests that the complaints may have been just a bunch of cut and paste jobs. 

What’s peculiar about the complaints is that they don’t mention the USPTO’s December, 2012 further reexamination of MAD’s patents. MAD clearly is aware of that reexamination – they have indicated that they intend to respond to it this month – so why DigiMedia would rely in its complaints on the USPTO’s reexamination action from last July but not say diddly about the more recent reexamination in December is something of a mystery. (Of course, the fact that the December action arguably gutted MAD’s claims might be one serious disincentive, but still, does DigiMedia really think that the court isn’t going to find out about that action sooner or later?)

Whether the latest flurry of lawsuits is anything more than a bluff remains to be seen. We may know more on that score when we get the answers to a few more questions, such as:

Will MAD sue anywhere outside the Marshall Division of the U.S. District Court in the Eastern District of Texas?

What will MAD produce in its response to the USPTO in the second reexamination proceeding that might finally convince the USPTO of the validity of MAD’s various patent claims?

Will the United States District Court for the District of Delaware lift the stay in the first lawsuit and, if so, what will it then do?

At a minimum, DigiMedia’s suits have gotten the defendants’ attention, and our attention, and probably the attention of other similarly situated, small- to mid-sized radio stations. Check back here for updates.

In a nutshell, MAD, a patent troll, acquired a couple of patents that had been issued back in the 1990s with respect to using computers to store and retrieve music files for broadcast. MAD then commenced a full-court press against much, if not most, of the radio industry. It claimed (often, it seemed, without any solid factual support) that broadcasters were using gear that relied on MAD’s patents. MAD generously offered to overlook any possible infringement that might have occurred . . . if, that is, the broadcaster would enter into a pricey licensing agreement with MAD.

Litigation ensued, as a number of the targeted broadcasters sued MAD in federal court in Delaware. They claimed that MAD’s patents were invalid. Meanwhile, at least one equipment manufacturer pressed the USPTO, which had issued the original patents, to take another look. The USPTO agreed to do so, at which point the court in Delaware stayed further proceedings in the broadcasters’ suit pending further USPTO action.

The USPTO initially appeared to rule against MAD in the fall of 2011, but MAD sought further review.  Last summer MAD seemed to be claiming victory when the USPTO appeared to un-toss some of MAD’s patent claims that had appeared to have been tossed in the 2011 action. With that new USPTO ruling in hand, MAD launched another round of FedEx-borne licensing offers (along with follow-up telephone sales pitches) to many radio licensees; it also asked the Delaware court to lift the stay.

Not so fast, said the broadcasters. Further USPTO proceedings were going to be sought, so let’s not be acting prematurely. And sure enough, such further proceedings were sought. The end result (at least as of now): the USPTO’s latest “Detailed Actions”, which appear to reject all of MAD’s claims. It seems that the patent examiners identified a number of technologies similar to MAD’s that had been in existence prior to the issuance of the patents MAD holds. In the examiner’s view, many aspects (possibly all) of MAD’s technology were simply obvious extensions of the earlier technology, and were therefore not properly patentable.

This, of course, is what the radio industry has been arguing from Day One. Not surprisingly, MAD has disagreed, claiming in a June, 2012 blog post of its own that its patents were valid. In that post, MAD also pooh-poohed its initial USPTO set-back (in fall, 2011), saying that such reexamination and reissuance of the patents was statistically normal and of little bearing on the patents’ ultimate validity and value.   (Personal note: in its blog post MAD even went out of its way to take issue with statements I had made in earlier posts here on CommLawBlog; I stood by my statements then and I stand by them even more now.) Whether MAD will continue to stick with this story in the wake of the USPTO’s latest action remains to be seen.

Is this the end of the line? Don’t bet on that. For one thing, we understand that MAD has until January 19 to respond to the USPTO’s latest decision. Following that date, the USPTO could either issue a “final action” formally rejecting MAD’s patent claims, or it could once again re-issue the patents. In the latter case, though, any reissued patents would likely be narrower in scope than they are today (which – and this is disputed by MAD in its blog post – are narrower than the original patents). No matter what, the reexamination procedure is likely to go on for some time – this is something no one disputes.  (Another thing that no one disputes -- we here at FHH are not patent lawyers.  We strongly encourage any radio broadcaster to consult with competent patent counsel before doing anything based on the USPTO's latest actions.)

Still, there’s no doubt that the latest development at the USPTO favors the broadcasters more than MAD. The passage of time and likely narrowing of the MAD patents will limit any eventual damage recovery MAD might get via court order or licensing agreement. So while the saga may not yet have come to its final end point, broadcasters can and should enjoy the end-of-2012 holiday season thanks to the early treat left under everyone’s tree by the USPTO – everyone, that is, except MAD.

While the mere raising of questions doesn’t rise to the level of final conclusions, we suspect that it can’t be a good sign for anybody hoping to rely on the patent subject to such questions. We’ll just have to wait and see how the further reexamination proceeding comes out.

When might that be? Not until early 2013, at the soonest – or so it would appear. According to the USPTO’s order, MAD has until October 21 (i.e., two months after the issuance of the order) to file a response, should it so choose. (It’s hard to imagine that MAD would choose not to respond.) And then, should it so choose, the party who requested the reexamination gets another two months after that to respond to anything that MAD lobs in. A quick glance at the calendar indicates that the pleading cycle would thus wrap up a couple of days before Christmas. Once you factor in some time for the USPTO folks to enjoy their holidays, read through the various submissions, and crank out a further order, you’ve got to figure 2013 is the magic number.

The reexamination order could also have an impact on MAD’s lawsuit in the U.S. District Court in Delaware. That litigation has been stayed since last year, when the USPTO announced its first reexamination of the MAD patents. Once the initial reexamination was completed this past spring, MAD promptly asked the court to lift the stay. That request is still pending (at least as of August 22). Now that the USPTO has cranked up the reexamination process relative to one of the MAD patents, the court may be more inclined to leave the stay in place. We shall see.

Check back here for updates.

[d]efendants and their industry appear to have taken a sophisticated and multi-pronged approach to derail [MAD’s] licensing program. Apparently through coordination with state and national broadcaster associations, the Defendants have engineered a licensing blockade, worked with BEI to attack the asserted patents in the PTO, and petitioned this Court to delay the resolution of this litigation pending multiple reexamination requests. Defendants’ conduct represents a calculated effort to prejudice [MAD] by stripping the asserted patents – which expire in less than two years – of their licensing value through delay.

“Sophisticated, multi-pronged approach”? “Calculated effort”? “Coordination”? “Licensing blockade”? Hoo, boy – why not “vast anti-MAD conspiracy”, too?  (Also, how come CommLawBlog wasn’t mentioned? As I have previously observed, MAD has identified us – and this blogger in particular – on its website as a source of “some misconceptions” about MAD’s “licensing program” and “ongoing litigation”.)

So, apparently frustrated by the fact that MAD’s target audience doesn’t seem to be buying what MAD’s selling, MAD ascribes that circumstance to some massive conspiracy. Of course, more obvious, and far less paranoid, explanations exist for the circumstances in which MAD finds itself.  MAD shouldn’t be surprised that parties which MAD has chosen to sue are defending against its claims. Nor should MAD be surprised that equipment manufacturers – who might be on the hook to their customers if MAD’s patents are as broad as MAD claims – are also contesting those patents in an appropriate forum.  And as the Delaware litigation clearly demonstrates, there is considerable disagreement about exactly what MAD’s patents cover and, thus, exactly what MAD has to sell.  Prudent businesspeople tend not to make five-figure commitments when it’s not clear what, if anything, they’ll be getting in return.

But we digress. With the filing of MAD’s reply, the ball is now in the judge’s court. Our understanding is that it could take as long as two-three months for the District Court to decide whether to lift the stay. Check back here for updates.

Among those readers was MAD itself, which has taken me, in particular, to task for supposedly failing to grasp some of the subtleties of its positions. Hey, as we’ve said before, we’re not patent lawyers, and we haven’t pretended to be. And that’s why we’ve tried to provide readers with direct access to various documents relevant to this whole deal, so that readers can make their own determinations.

Like a couple of weeks ago, when MAD asked the Delaware court to lift the stay on the proceeding there. We provided a link to MAD’s pleading. (That link might have come in handy for at least one MAD rep I spoke with, who had been assuring me that the stay had already been lifted. Oops.) And now the broadcast defendants have filed their response to MAD’s request. Here’s a copy for your late-night reading pleasure. We haven’t included the 150 (or so) pages of attachments, but if anyone is interested, we can get them posted, too.

At this point it’s hard to say who’s right and who’s wrong. But the broadcasters’ response sure seems to rebut a number of the points that MAD sales reps have been making (at least they made them to us, in a couple of phone calls we’ve had with them). The response addresses procedures at the U.S. Patent and Trademark Office, the likelihood of further modifications of MAD’s patent claims, the significance of modifications that have already been made by MAD, and MAD’s own conduct in the Delaware litigation. (For example, according to the broadcasters’ response, when asked to clarify its claims of infringement, MAD provided only vague general references to alleged use of computer hard-drive systems in connection with music storage, broadcast, and acquisition at their radio stations.)

Importantly, the broadcasters’ response directly contradicts things MAD states in its “clarifying the dialogue” document and things that MAD’s reps have said to us as they try to get our clients to sign MAD’s licensing agreements. It’s therefore enough to remind us all that we need to continue to learn more about these issues.

Where does this put us? The Delaware litigation remains on hold. MAD will have an opportunity to reply to the broadcasters’ latest pleading, and eventually the court will decide whether to let the case proceed or to keep it in abeyance. Either way there’s a lot of litigation left in that court, not to mention some potentially significant rulings yet to come from the USPTO. 

While the court and USPTO proceedings continue to swirl, individual broadcasters need to do as much as they can to clarify their individual situations. What is your tolerance for risk, given that there are likely to be several ups and downs before a final result? Can you smooth this bumpy ride by clarifying just what it is that MAD owns and, if so, do you need to consult with a patent attorney to do so? What sort of cover do you have in terms of indemnification from your software provider or insurance company? 

These and other questions are not of a one-size-fits-all persuasion. But they can’t be ignored just because they’re difficult, unnerving or even somewhat expensive to answer.

MAD’s motion is unremarkable, simply stating that the court has no reason to leave the stay in place since the USPTO has now effectively ruled on the patents. It asks the court to allow the lawsuit to go forward now, and to replace MAD with DigiMedia in MAD’s place, since MAD sold its interests in the patents to DigiMedia a couple of months ago. A court order is needed for all this because, according to MAD, the broadcaster defendants declined to consent to a lifting of the stay or a substitution of DigiMedia for MAD.

The broadcast defendants (according to MAD’s motion) understand that further steps are going to be taken shortly at the USPTO in an effort to invalidate MAD’s patents again. That’s why the broadcasters don’t think the stay should be lifted. MAD counters by arguing that the likelihood of such invalidation is effectively zero, so there’s no point to further delay. 

MAD’s motion does not go into any detail about its theory of the case. In particular, it does not explain why the defendants (or any other broadcaster, for that matter) should pay patent royalties even if MAD’s patents turn out to be valid.

What insights might we glean from the motion? First, it’s obvious that neither side is going to give any ground. Not that you’d expect either one to roll over at this point. But MAD will have to fight tooth and nail for every dime it might ever win.

More importantly, MAD’s motion reminds us not to get ahead of ourselves, and to try to keep ourselves as updated as possible from reliable sources. Knowing what the actual status of things is continues to be important.

We say this because we recently happened to speak with a MAD rep who was urging us to have one of our clients sign up with MAD. The rep told us that the court in Delaware had already lifted the stay. When we told him that the court’s docket didn’t reflect any such action – in fact, at the time of our conversation MAD hadn’t yet even asked for the stay to be lifted – the MAD rep backtracked pretty quickly and couldn’t get off the phone fast enough.

So to reiterate what we said yesterday, take everything MAD says with a grain of salt. Now is a good time to remember that old journalism adage: “If your mother says she loves you, check it out”.

Undaunted, MAD went back to the USPTO for further reexamination of the patents. With all that going on, any attempt to litigate a patent infringement case would have been problematic, to say the least: if you don’t know for sure that there’s a patent, how can you tell whether there’s been any infringement? Further, why waste everybody’s time in court if the government agency best equipped to answer that question says they aren’t valid anyway?

But there has recently been a new development at the USPTO. As a result, MAD is at it again, dumping yet another aggressive sales pitch on radio broadcasters’ doorsteps.  If you’re reading this because you did an Internet search for “Mission Abstract Data” (yes, we know that’s how some of you find us here at CommLawBlog), know this: you are not alone. 

The materials with which MAD is now bombarding stations consist (in the instances we’ve seen so far) of about 50 pages’ worth of items, including:

A covering letter (it says “Mission Abstract Data” across the top, but it will actually come from IPMG AG, the Swiss company that bought up the licensing rights for these two patents; the actual ownership rights in the patents are held by Digimedia, the new name under which Mission Abstract Data is operating);

A copy of a “Patent Sub-License Agreement”;

Some materials from the USPTO regarding the validity of the underlying patents. 

It’s those USPTO materials that are the catalyst for the latest round of MAD outreach. 

According to MAD’s cover letter, the USPTO has now re-thought its action from last October (in which the USPTO tossed many of MAD’s claims of patentability). As a result (still according to MAD), several of the tossed claims have now been un-tossed, which supposedly reinforces the validity of MAD’s patents. Because of that, MAD claims that it will be immediately seeking to have the litigation stay removed in the Delaware lawsuit.

In other words, the threat of litigation – and consequent potential liability – has now been elevated to DEFCON One [Blogmeister Note: Quasi-obscure reference to WarGames, to which CommLawBlog gives multiple thumbs up] . . . or at least that’s what MAD would have us all believe.

How should one respond to MAD’s missives?

First and foremost, don’t panic. As with any such situation, it’s best to maintain a clear head.

Second, get good advice and rely on it. In this case, the ultimate question to be answered is whether MAD really does have a patent that is being infringed by you, the radio station operator. That is a highly technical question with a couple of obvious subparts, those being: (1) Are MAD’s patents valid in the first place, and if so, (2) do those patents cover the particular computerized automated music system you’re using.

The answer to Question No. 1 requires informed input from patent counsel. We here at Fletcher Heald are not patent lawyers, and we are not in a position to evaluate MAD’s patents or the niceties of the recent USPTO actions. Those actions are written in a language that can be fully understood only by experts in the field, people who are familiar with the arcane terminology and concepts of patent law. Before you decide whether to sign up with MAD, you would be well-advised to have your own patent lawyer review the materials and advise you about them. (Heads up: The earnestly expressed beliefs of MAD’s various reps who are calling around do not necessarily constitute “good patent advice”. Our guess is that those folks aren’t expert patent lawyers – in fact, we’d guess they’re not even lawyers – and they have an obvious interest in characterizing the status of the patents favorably to MAD. Take whatever they say with a grain of salt.)

And as to Question No. 2, you would need someone familiar not only with the patents, but also with the particular automation system you happen to be using and any indemnification or insurance to which you might be entitled from third parties (such as the vendor who provided the system or the system’s manufacturer). Again, this calls for input from an expert, as well as some legwork by you.

Once your expert(s) has/have reviewed your particular situation, he/she/they should be able to give you some idea of what, if any, liability you may be subject to. This will likely involve some speculation, but informed speculation from an objective expert is more reliable than the threatening claims of a MAD rep looking to get your signature on a deal.

Once you’re armed with objective input from a knowledgeable expert, you will be in a better position to deal with MAD.

It’s important to bear in mind that the most recent flurry of high pressure contacts from MAD appears to be nothing more than an effort by MAD to capitalize on the one good bit of news they have received in this entire process, i.e., the recent USPTO actions that, according to MAD, put their patents back on track. But from what we can see in the USPTO files, those actions – whatever their actual impact on MAD’s patents – are not final yet. And we have heard some third-hand reports that some folks (possibly including some or all of the broadcasters in the Delaware litigation) are planning to go back to the USPTO to seek further re-examination of the patents. 

In other words, the recent USPTO actions may not be the final word in any of this.

And let’s not forget the Delaware litigation. If MAD asks the court to lift the current stay (and we expect such a request to be filed any time now), the resulting back-and-forth arguments could shed considerable light on the strengths and weaknesses of MAD’s claims.

With so much uncertainty already in the air and with more to come in short order, it’s not clear whether MAD’s latest round of contacts is mere opportunism or whether it offers you the last best opportunity to get out before things get really expensive.

But the mere lack of immediate clarity does not mean that you can or should just blow MAD off. Even if you have simply ignored MAD’s communications in the past, that’s not an acceptable response anymore. 

MAD’s latest round of salesmanship should be taken seriously. The MAD materials should be read, and efforts should be made to confirm the extent of any available insurance coverage and possible indemnification. There are multiple issues with regard to each, from whether you’re covered at all to whether there is a limit on the amount of coverage to when it kicks in. All such information is necessary to making informed decisions.

Furthermore, only you can gauge your financial situation and your risk aversion/tolerance levels.  If you’re concerned about how best to deal with MAD, you should contact your attorney and discuss your situation, with special reference to the documents MAD has sent around. You should also consider seeking specialized patent counsel for expert input about the validity of the patent claims and their applicability to you.

And check back with us here at CommLawBlog.com for updates on further developments.

In assessing the parties' arguments for and against a stay, the court focused on three factors:

• Whether a stay would simplify the issues and trial of the case;
• Whether discovery is complete and a trial date has been set; and
• Whether a stay would unduly prejudice or present a clear tactical disadvantage to the non-moving party (MAD, in this case).

Obviously, the court could address all of these without tipping its hand about the ultimate merits of the case . . . and that’s just what the court did.

The closest the court came to addressing the merits of the case occurred in its analysis of the first factor. The court noted that five of the six patent claims that form the core of MAD’s lawsuit have been have been rejected by the PTO. If these rejections stand, the lawsuit will certainly be simplified, since MAD will then be left with only one claim. (That would be Claim No. 5 under the 867 patent, covering situations “wherein said disk array storage comprises a dual-port RAID disk array”.) The court even suggested that the litigation might be “mooted” if all MAD’s claims were tossed by the PTO.  So that factor seems to weigh in favor of a stay.

There was also the possibility that MAD’s claims might be modified as a result of the PTO proceeding. That, too, seems to favor of a stay – why push ahead with litigation of claims that might get revamped?

The second factor was a no-brainer. The discovery process has just begun, and no court date has been set – so it’s not like the parties have already invested much in the development of facts and issues. Meanwhile, the PTO has moved quickly in the reexamination process, giving rise to at least a hope that the remainder of the PTO’s deliberations will be similarly quick.

Finally, the court concluded that a stay would not unduly prejudice MAD or give the broadcasters a clear tactical advantage. MAD still gets to litigate its case – it just might take a little longer. And while MAD will first have to successfully navigate the PTA process, that’s not the defendants’ fault: the PTO reexamination process was initiated by Broadcast Electronics, a manufacturer, and not any of the broadcast licensees who are parties to the Delaware litigation.

The court’s analysis of this last factor included an interesting observation.  The court suggested that, if MAD were in fact competing in the marketplace with the broadcast defendants, then the court might be less inclined to delay MAD’s litigation. But MAD is not a real competitor. Rather, in the words of the court, it’s a “non-practicing entity, which does not manufacture or sell the products covered by the patents in suit and seeks to collect licensing fees”. (While the court didn’t use the term “patent troll”, that’s probably what it meant by “non-practicing entity”.)

So what are the larger implications?

Obviously, the ongoing PTO reexamination remains crucially important (arguably even more so now that the broadcast defendants have agreed to abide by the result of the PTO’s final decision).  If the initial PTO rejection of the majority of MAD’s claims stands, MAD will have only one claim from the 867 patent on which to base its entire lawsuit, leaving the defendants in a good position. Not rock solid (because MAD could theoretically still prevail on that one remaining claim), but certainly favorable. On the other hand, if MAD can convince the PTO to reverse the initial rejection (which happens often enough to be a realistic possibility here), the broadcast defendants will have painted themselves into a corner. 

Any such reversal by the PTO is still conservatively months away, though, and would be subject to further appeals that could tie it up for years. In the meantime, the initial PTO rejection of MAD’s patent claims looms like a big dark cloud over any claim that MAD could advance – in the Delaware litigation or in efforts to cajole broadcasters into signing license agreements now (in order, theoretically, to avoid getting sued by MAD). MAD itself argued in opposing the stay request that its patents “have essentially been stripped of their licensing value” by the PTO action.

The fact that time is working against MAD brings us to the second point: licensing. We reiterate our earlier observation that any outreach from MAD should be viewed seriously but with considerable skepticism and caution.  As noted above, MAD itself has implied that there’s no reason for a broadcaster to sign a licensing agreement at this point.

As our friends at Radio World have reported, in two separate “Office Actions” (check them out here and here) the PTO has tossed 15 of the 29 claims supporting the first patent (number 5,629,867) and five of the ten claims supporting issuance of the second patent (number 5,809,246). At first blush that might look like a split decision that could leave MAD’s lawsuit (and related efforts to negotiate deals with as-yet-unsued radio licensees) alive and kicking. BUT a closer look suggests that that lawsuit (and related efforts) are now on life support: the claims rejected by the PTO relate to the elements of the patent dealing directly with automated radio programming; the claims the PTO left standing deal with other aspects of the technology.

It’s too early to gauge the real-world impact of the PTO’s action: the PTO proceedings aren’t over by a long shot, and there are still MAD’s pending federal court case and its attempts to rope radio stations into licensing agreements. As things continue to develop, here are a few factors to keep your eye on:

MAD has been given two months to respond to each Office Action. MAD could offer up more evidence of patentability. Once any response is filed, the PTO will mull things over and issue a final Office Action. We should know more after the first of the year. But until then, MAD has to deal with the fact that at least one PTO official doesn’t think too much of MAD’s claims.

And don’t forget that there’s still a lawsuit being litigated in federal court. There’s a hearing scheduled for October 27 on a Motion to Stay filed by the radio licensee defendants. It’s possible that the PTO’s Office Actions were rushed through for release before that hearing. For sure the fact that the PTO has identified major concerns (preliminarily, at least) about MAD’s core claims is likely to influence whether that lawsuit is stayed. After all, letting the case go forward would impose a serious drain on the parties and the court. Why go through all that when the primary legal issue – the validity of the patents underlying the entire matter – is clearly in question. Why put the parties and the court through a fact-based discovery process if the case will be kicked out on legal grounds? Why indeed, when staying the case for this reason would not impose an obvious hardship on MAD?

We’re sticking with what we have said before: smaller broadcasters who have not been sued would be well-advised to take any communication from MAD seriously, but obviously now it should also be taken with a grain of salt.  Anyone contacted by MAD should do their due diligence: have an attorney thoroughly review any licensing agreement they receive; dig out any potential indemnification clause that might be invoked to require their software provider to cover legal costs and/or damages; and check to see whether their own insurance policies will cover damages if they have no indemnification.

We'll continue to follow this saga. For our money, the biggest surprise would be any ruling favoring MAD . . . but you never know.

Acting on a couple of requests for “reexamination” of the two MAD patents (those would be Patent Nos. 5,809,246 and 5,629,867), the PTO is taking another look at those patents. In my last post I noted that one of the principal litigation defenses against MAD’s claims is that the patents on which MAD is relying are invalid. With the PTO reopening the issuance of those patents, we are now moving toward an authoritative resolution of that question.

The reexamination requests lay out what many have claimed all along: MAD should not have been issued patents because there already was similar technology in place by the time applications MAD sought patent protection. After all, a patent is supposed to be issued only to the guy who “invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof” – so if the same (or closely similar) technology were already available before MAD made its patent claims, then MAD might not be entitled to the patents it received. No patent = no patent infringement = no lawsuit.

I’m not a patent attorney, so I’m not in a position to opine on the likely result at the PTO. But I can for sure speculate about the likely impact of PTO action on the existing lawsuit and the licensing agreements MAD has continued to put before broadcasters. 

The simple answer is that the outlook is likely bad for MAD.  

Of course, the PTO could ultimately declare MAD’s patents to be valid. That would be big but would not, in and of itself, mean MAD will win its patent infringement lawsuit. 

But the fact that PTO is taking another look at the patents strongly suggests that the PTO has serious questions about the validity of these patents. If those questions go the wrong way for MAD, the patents could get invalidated. And that would almost certainly put an end to the lawsuit and any other MAD efforts to put the squeeze on the second and third groups of broadcasters already in their sights (not to mention any others that could get dragged in later). At the very least, it seems likely that the U.S. District Court in Delaware, where MAD’s lawsuit is pending, will put a hold on the case until the PTO completes its reexamination of the patents. (The big broadcaster defendants have requested that the case be stayed for that reason.) A hearing on that stay request had already been scheduled for October 27. A stay, if granted, could last for months or even years – easily enough to seriously hinder MAD’s momentum. 

I’m guessing that many of the second and third groups of broadcasters will be way less enthusiastic about signing the licensing agreements currently sitting on their desks, while the defendants in the lawsuit will view settlement with similar skepticism.

Of course, anybody receiving a communication from MAD should not ignore it. Rather, if MAD contacts you, it’s probably best to reach out to your own attorney (or lawyer yourself up if you haven’t already). Also, make sure you collect all relevant information, including invoices and licensing agreements already in place with your current software provider (the idea there being to invoke indemnification by that software provider if that becomes an issue). 

But make sure your attorney knows about the PTO’s reexamination of the MAD patents and the impact that reexamination is likely to have on MAD’s bargaining position.

A digital radio broadcast station which includes a single on-line digital database having stored therein a plurality of at least several hundred (preferably at least 1800) different selections of music to be played and broadcast by the radio station. A processor system is provided for programming the operation of the digital radio broadcast station with a sequence of music selections, which are subsequently retrieved in order from the common digital database and played over the digital radio broadcast station. The single on-line digital database comprises a disk array storage, preferably a dual port RAID disk array. The digital radio broadcast station also includes a plurality of work station consoles for use by personnel responsible for operating the radio station such as disc jockeys and engineers. A bridge network such as a modem is also provided for connecting the radio station to a further digital database for music selections not stored in the common digital database. The processor system is provided with a connection to a telephone network, such that radio station callers can communicate with the radio station by a touch tone telephone, and is also provided with a connection to an interactive cable television network, such that cable television viewers can communicate with the radio station over the interactive cable television network.

The only real difference between the two is that one of the patents covers a “common on-line digital database” while the other covers a “single on-line digital database”. 

On March 1, 2011 (more than a decade after the patents were first applied for), MAD filed a patent infringement lawsuit against several large radio companies, including  CBS Radio, Cox Radio,  Cumulus, Entercom and Greater Media (basically most of the superlarge, national radio company other than Clear Channel) for their use of automated programming software across approximately 900 stations.  

MAD’s claim is really pretty simple: it asserts ownership of the two patents and claims a connection between those patents and most of the radio programming automation software in use today. The basis for the claimed connection consists of several trade publication stories describing the radio industry’s reliance on hard drive storage and database access. MAD seeks a permanent injunction, damages, costs and attorneys fees, as well as a post-judgment accounting of damages. Notably, MAD did not sue any software providers (which would seem a more direct, but also less lucrative, route to protecting whatever patent rights it might hold).

The radio companies’ answers thus far have been equally straightforward, adopting that age-old legal approach, “deny everything”. The radio companies have also counterclaimed by seeking a determination that no patent infringement has occurred and that MAD’s patents are invalid. 

In short, the whole thing boils down to two questions:

Does MAD have a valid patent at all (which entails a number of subsidiary questions, such as whether equivalent technologies existed at the time the patent was initially sought – if such alternatives did exists, MAD’s technology might not be “unique”, which could invalidate the patent); and 

Does the use of automated systems like Audiovault actually constitute a patent infringement?

This is, of course, an über-simplification of the legal issues in hand. (More detailed descriptions can be found in the archives of such publications as Radio World and Radio Business Report.)

While its initial lawsuit against the Really Big Radio Companies moves forward, MAD is ramping up Phase 2 of its plan for world radio domination. Several medium-sized radio broadcasters (including some Fletcher Heald clients) have been contacted by MAD with an offer to allow the broadcasters to “license” MAD’s supposedly patented system. (Wordsmith tip: The term “settle” is apparently not being used, presumably because no lawsuit has yet been filed or directly threatened).   MAD’s offer has in some (but not all) cases included a proposed one-time fee based on a combination of (a) the number of stations owned by the broadcaster, (b) the number of years the broadcaster has been operating those stations using allegedly infringing automated programming software, and (c) the company’s revenues.

What should you do if you receive such a letter? We’re not in the business of giving legal advice through CommLawBlog.com (and to the extent you might even think about relying on anything you read on our blog as legal advice, DON’T!).But, if you have been contacted by MAD or one of its representatives – and even if you haven’t been contacted but your radio programming operations are automated – you may want to think about contacting your legal counsel to determine your options. If you have been contacted by MAD, it would probably be a good idea to respond to the MAD person who contacted you, if only to open lines of communication that might delay the filing of a lawsuit. 

One other potentially useful chore: collecting any paperwork relating to your programming software and showing it to your attorney. It’s possible that your software provider might be required to indemnify you in the event that you are sued (or even if you merely incur additional costs by signing onto some licensing/settlement agreement with MAD).