World’s Inc. vs. Activision Inc. Markman Hearing – Pre-game Overview:
Worlds and Activision will have their Markman claim construction (interpretation) hearing on June 27th of this year. According to the “Joint Claim Construction Statement” filed jointly by the parties on May 17th, the hearing will take about 4 and 1/2 hours and each side will be allotted one half of this time. Each side will present a tutorial (which will count against its 2 hours and 15 minutes). Next, the parties will present their arguments term by term in the order set forth in Exhibit A to the joint statement. There are 11 disputed terms…that’s it. The terms in exhibit A have been listed by the parties in order of importance. A Markman claim construction hearing is a one-day affair in contrast to an actual trial, which could last for weeks. The Markman hearing is perhaps the most important aspect of a patent case because the claim terminology to be used in the event of a trial is often predictive, if not determinative, of the outcome. (These hearings are called Markman hearings after the watershed Supreme Court decision in Markman vs. Westview Instruments, which held that the construction of patent terms is a matter of law to be determined by judges.) While the decision in the Markman case is perceived to have helped make the patent litigation process less arbitrary, there is still some level of angst on the part of litigants related to the manner in which judges make their decisions on the appropriate meaning of claims.
to view this document in its entirety visit: MARKMAN-FINAL
Good afternoon. The document we have created, detailing what specifically is at stake in the upcoming Markman hearing, will be out tomorrow before the market opens. I want to caution that it is not brief. Each disputed term is covered (there are now 55 total claims subject to the lawsuit, modified from 59), and the court will determine the final construction or whether a construction is needed at all. This document is what we will use to guide our investment through the hearing, which several of us will attend. There is no moment more important than the one coming up at the end of June for these parties. The damage estimate range that we are currently working on for Worlds means very little if they cannot legitimately claim victory on June 27th.
If you spend the time to review this document, and the pleadings of the respective parties, I suspect that you will see what we see, which is that Worlds is incredibly well positioned for this hearing. We seek only to cover what we consider to be the potentially pivotal aspects of the hearing. We avoid much of the peripheral chatter (or material), which may be interesting but is unlikely to be heard or viewed as important in June. The operative word here is “focus.” We have been given the study guide by the litigants and it is now essentially game time.
I mentioned in a response to a poster earlier this week that we would have both a claim construction interpretation & damages estimates out this week but regrettably that is not going to happen. There are some documents that we have encountered in our research that we are currently vetting and which may be highly probative in the event that Worlds prevails in their Markman hearing, which as we will explain in depth next week we feel they will.
In a case that has gone on longer than Rip Van Winkle might have predicted, Judge Jackson has stirred and may have cast the final die. He has rejected Google’s motion to depose Dr. Becker, but by default and delay has asceded to their request for another two weeks (they will have had that and more ten days hence) to respond to VRNG’s original motion for RR. I would imagine (given a five day window for VRNG to respond) that we will at the very least see the Judge’s royalty order in May. But before all you holders of May options scramble to get out, another big issue to consider is how Microsoft will respond to today’s news. I said previously that I did not think it was wise for them to wait for Judge Jackson’s running royalty decision (as I think it will be 5% or better) and if they don’t look for a conclusion in that case by mid-month. Regardless of what each investor decides to do these next few weeks will be very consequential for Vringo. As of this writing Vringo is up nearly 8% on the day.
News has a way of sneaking by us on a Friday night as we wind down another week. We are often getting home from trips away, gathering with family or friends to start the weekend or just relaxing with a good movie or maybe some music and a bottle of wine (or any of a million other things people do). This is why this timeframe has long been a good one for corporations, politicians and others to release “bad news.” This strategy is so often effective because by the time Monday rolls around the “bad” news is also “old” news and news outlets are just not interested in keeping it alive.
But this past Friday a quiet little pacer order was released that is monumental to the fortunes of Blue Calypso and its shareholders so we thought we’d briefly discuss it. Groupon, Foursquare, Yelp, IZEA and My Likes have been ordered to appear on November 7th for a joint Markman Hearing in Texas over the infringement of U.S. Patents 7664516 and 8155679. It is important to note that this provides a big advantage to Blue Calypso in that the discovery phase is streamlined through the Markman so the potential distraction of having five separate channels of communication going at once is eliminated. Obviously this is also far more manageable for the court and indeed all litigants. Should any of these companies decide that they want to seek a trial post-Markman, they will, importantly, have separate trials. They are not co-defendants in the same case. Keep in mind the potentially disquieting little fact that Living Social has a Markman Hearing with Blue Calypso set for August 27th involving these same patents. We will have much more to say about this in the future and will focus in no small part on the litigation strategy which (especially given this latest order) we applaud.
The article from IP Watchdog linked below gives some great background on this case for current or potential investors.
We believe there is an excellent opportunity in this stock and are now long. This company is likely to have not “1″ but “4″ Markman Hearings this year involving companies valued at more than $1b who appear to be infringing its patents related to social media mobile display advertising. Interestingly the CEO of BCYP was a former customer of theirs at Motorola Mobility where he was the Chief Marketing officer and it would appear that he has a very good grasp on the infringing elements. Some of the biggest names in the space are being sued, among them Living Social (Markman already scheduled in August) Groupon and Yelp and we expect others will be announced.
This stock was over a dollar not long ago and what they have in front of them should make that a relatively easy near-term climb (they are at .28 as of this writing) in our opinion. Something to note: BCYP is a practicing entity so the threat of an injunction on products found to be infringing is real. Our recommendation is that this is a “strong buy.”
Of further import to Blue Calypso shareholders is the prospect of an imminent announcement of a Markman Hearing in the case filed against Groupon August 1, 2012 (we assume two more in the fourth quarter of this year). This case was filed several weeks in advance of the case against Living Social in which a Markman hearing has already been scheduled for August 27, 2013. Bill Ogle, Chairman and Chief Executive Officer of Blue Calypso is on record in an update on the company’s litigation as saying “We believe that there may be a significant and growing number of companies infringing our patents.” We interpret this to mean that we may see other lawsuits filed in the future by Blue Calypso to protect the 516′ and 679′ patents.
One of the most important aspects of these kind of cases is the selection of litigation counsel. Not only has BCYP selected one of the best firms in the business in Fish & Richardson (I invite all readers to review this firm) but the lead counsel representing BCYP is none other than Thomas Melsheimer, a noted Super Lawyer who is considered one of the most difficult attorneys to oppose in such litigation.
*updated* 11:30 pm 4/18/2013
April 18, 2013
PRELIMINARY INVALIDITY ANALYSIS: WORLDS INC. V ACTIVISION BLIZZARD INC.
Disclaimer & Statement of Purpose: This work product was done (first and foremost) to continue guiding our own group in our investment of Worlds Inc. (WDDD). We do not intend that it be viewed as a legal document or an offer of advice. While there are attorneys that help our group (as members or consultants), we do not make decisions based solely on legal analysis – we approach these investments and make determinations based on a wide range of market factors as well as some subjective criteria, which makes us comfortable with our investment strategy. Though we steep ourselves in this subject matter daily we do not consider ourselves “experts” in the formal sense of the word. That term we reserve for those who have often spent a decade or more studying and testing complex theories and/or have immersed themselves in a practice or subject matter they have come to master. We cover cases we are invested in, or are planning to invest in; from the filing of the first complaint through the Markman hearing and ruling (and trial, post-trial and appeal, if necessary), we will endeavor to be informed ourselves and we may blog or write about what we are researching or thinking. As most of you know, we do not charge for our work (nor will we) as we consider the work itself beneficial to the investment. We have only taken long positions and our blogs and research, while taking the effect of short positions into account, is written from this point of view. We are not always right yet when we are wrong we will say so. We ask that you not rely on us for any of your investment decisions. We feel this is imprudent and would further not advise that you rely on any one person or group when taking such decisions. Lastly, from a personal standpoint, our desire is that all of you reading this do well in your investments. If something we do adds in a small way to you achieving your goals, that tremendously gratifies us. If you have a personal story of success you want to share, let us know. It is these stories that have kept us going through some long and tedious days and nights. –Thank you, Edva
Discussion of Prior Art:
If you are reading this and haven’t a clue what “prior art” means, I invite you to visit the April 11 POST located on this same site . A word first about how we approached this body of work and why we think it is important to let people know about it now. In this as in most disciplines, knowledge is power. By beginning to consider how prior art can affect a patent case one becomes armed with a set of tools, tools that at critical times during an investment will allow one to maintain composure and not make impulsive decisions often driven by fear or panic in the market, which in turn are most often driven by lack of knowledge or knowledge to which some but not others have access. Each case involves reams of data. (This case involves 5 patents and 59 claims, which the parties agree, must be construed by the court. They have jointly agreed that the claim construction pleadings may be increased from 25 to 40 pages!) For this reason we approach our diligence work with a sense of what and who really matters in the determination of a patent case. As regards the question of “who,” we think it is not the people getting paid $1,000 an hour to argue the merits of the case from their client’s perspective, it isn’t the “experts” called to testify by the plaintiff or the defense, and it is often not even the Judge, who granted is certainly a key figure. All the aforementioned players will shine in the limelight of the case (some more than others) at some point, but this analysis is written from, and focused on the perspective of the man and woman on the street who through no fault or want of their own, may be summoned to the jury box to render a verdict on subject matter that in all likelihood they never once considered, or if so only in a passing. So if you are a brilliant lawyer but can’t explain your subject succinctly and persuasively, you have a high probability of losing. And if your “experts” turn out to be little more than shills for your company, without the requisite background that you have espoused, you are in serious trouble with any competent jury. Yes, we are aware that some cases are settled or decided based on dispositive motions, but we will continue to have our compass pointed toward the jury box. Keep this in mind as you read on.
For those new to this case, you should be aware that Worlds sued a company called NCsoft based on an earlier patent (the 690 Patent). It would appear that NCsoft was able to settle the case for a modest sum (or no sum) and not much is known about it due to confidentiality surrounding the settlement. An early ARTICLE on the case sheds some light on what Worlds may have been thinking in taking on NCsoft before anyone else. Perhaps Worlds was not focused on a big score in this early outing but was more (or equally) interested in testing its case, and by extension its prior art, so it could clear the path to victory in the future. Here is what we know: The same attorneys who represented NCsoft then are representing ATVI now. The patent in suit in the NCsoft case referred to 15 prior patents and 8 additional references taking up a page or so! By contrast, World’s ’998 patent has prior art references which begin on page 2 and end on page 16. In light of the above, this should come as no surprise. Worlds spent several years (and considerable sums of money) making sure that it cited every conceivable prior art to the patent office. The patent office has had a chance to review the cited prior art and it has issued Worlds additional patents on the same invention and with additional claims. Keep in mind that Worlds was recently issued another patent (not yet in suit) and you can be sure that its litigation counsel knows the prior art cited not only in that patent but also in all of the patents to date.
Since the defense cites invalidity on the basis of anticipation and/or obviousness lets take a minute to explain what that means:
Anticipation: Under 35 U.S.C. section 102 “claims in a patent application are deemed “anticipated” if the subject matter of the claims was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public anywhere in the world before the effective filing date of the claimed invention. A claim is anticipated only if each and every element as set forth in the claim is found, either expressly or inherently described, in a single prior art reference.” Anticipation is a tall order. It is a walk-off grand slam in Game Seven of the World Series. It is lights out and it happens – very infrequently.
Obviousness: Under 35 U.S.C. section 103 “A patent may not be obtained though the invention is not identically disclosed or described as set forth in section 102 of this title, if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains.” Thus, obviousness can be proven by taking multiple instances of prior art and putting them all together and saying “somebody reasonably skilled (back then) could have thought of all of the elements of the claim in question – it was obvious to people back then. “ This defense, for which the defendant also must carry the burden of proof, is at best a single but if the defendant can round the bases enough time it can prevail. The problem with this defense is that it involves putting together a stew of references that supposedly add up to the patented invention and proving that skilled folks in 1995 could have made the same stew, and proving to the jury that this was so, after they have heard from the plaintiff’s expert that this was NOT so.
We have limited our sharpest focus to the defendant’s references to prior art NOT cited by WDDD in its patent applications. In our view, the Achilles heel for WDDD, if it has one, has got to reside in the prior art cited by the defendant but not cited by Worlds. Our review of those unilaterally cited references begins below. In case you are wondering, no, we are not going to simply assume that Worlds will not have to fight over the references which it, too, has cited, it will, but we are fairly certain that Susman Godfrey reviewed every single one of those references before it took this case on contingency and we are going to take our time closing out our review of those references when we have seen the outline of the claim construction arguments which should be forthcoming Monday.
TO READ THIS DOCUMENT IN ITS ENTIRTY, CLICK HERE OR ON THE LINK BELOW FOR DOWNLOADABLE PDF FILE.
I have had no fewer than 20 emails asking when the report will be out on Thursday so I thought I should let everyone know where we are. At the time I first mentioned it, I wasn’t quite sure when it would be out. This is fairly tedious subject matter and it is easy to miss things when speeding. Having said that we truly hope to have this out before noon on the 18th.
On a separate note I want to thank all of the people who have visited this site over the almost six months it has been up. In addition to those checking us out from the U.S. we have had visitors from 68 countries beyond our shores. We are gratified by this and if you find what we write interesting and/or helpful in your patent investment journey, we hope you will let others know about us.
Lets talk “prior art!” Sounds like “lets talk gasoline composition” doesn’t it? While not necessarily the most entertaining subject matters, a similarity exists in that declaring and/or clearing prior art references can be every bit as important to a patent case as gasoline is to getting you from point A to B (hopefully someday that will change significantly). In this case Worlds Inc. (WDDD) is suing Activision (ATVI) for violation of its patents. If you are new to the game of patent litigation, you may want to know (at a high level) what Worlds needs to do to win its case: (1) WDDD needs to plead ownership of the patents. (2) It needs to prove that Activision infringed those patents; and (3) it needs to show that the infringement of its patents has resulted in measurable damages and it needs to prove those damages. So this is the basic setup for the Worlds case against Activision. (1) above is a layup; WDDD says in its complaint that it owns the patents involved in the case and that ownership is recorded with the United States Patent and Trade Office (“USPTO”). (2) At this point WDDD has figured out (we sure hope) what Activision is doing, has compared it to the patents in suit and must have a good sense that Activision is indeed infringing; and (3) likewise WDDD will have a damages expert build a damages model that will show how much the infringement has cost them.
If all this sounds too simple to you, your instincts are good! Proving infringement is not easy because you are arguing that the defendant is practicing the patents without a license. So it is actually (1) above that is often the problem in a patent case. Once the Plaintiff alleges that it owns the patents the defendant asserts various defenses based on the alleged invalidity of those patents. ATVI will say that the patents in suit are all invalid. Why? They will argue that the inventions claimed do not qualify under the applicable statute pursuant to which the USPTO grants patents and are thus invalid because, among other things, the inventions are not “novel,” they are not “new” and/or they were obvious to industry participants – and if any of these turn out to be true, the patents are indeed invalid. (In case you were going to ask whether or not the fact that the USPTO has granted the patents actually matters, in many ways the answer is “no.”) The primary way that a defendant (who has the burden of proof on invalidity) shows that the invention was not novel, new or obvious is to point to evidence that other people knew about the invention or all of its elements prior to the date the plaintiff filed it. To do this they can point to anything under the sun as evidencing the “state of the art” prior to the time the application was filed by the Plaintiff. This is what is called “prior art.”
For investors it is critical to get a sense of the prior art cited by the plaintiff as well as by the defendant who is arguing against infringement. The first thing to note are inconsistencies and absences. If a defendant cites “prior art” not cited by the plaintiff in a patent is that a bad thing? Not necessarily. Often times defense counsel will throw a veritable “prior art bonanza” at the plaintiff in response to a complaint. The plaintiff may well not include a reference if they do not deem it to be prior art. Additionally, numerous references to the same subject in prior art cited by the defense may be captured in fewer citations by the plaintiff on the same subject. Although the Markman Hearing is not until June 27th (now just about 75 days off), the playbook for the defendant’s invalidity claim has already been published. Ropes & Gray, counsel for Activision, in their pleadings on invalidity of Decmber 20, 2012 have cited a considerable amount of alleged prior art, much of which was considered by Worlds in their earlier patents and even more in their 998 patent (the most recent patent cited in the suit-which is one of the reasons inventors get continuing patents). As I will lay out next week, some of what is included by ATVI does not seem like prior art at all. Make no mistake however, this will be a battle of some very competent attorneys much like the Google v. Vringo battle.
Worlds has asserted many claims in its infringement suit and we remain convinced after our review that it will be an uphill battle for Activision to clear all 59 of them. Still, a sense of the value of the WDDD case really starts (and could end) with the invalidity analysis. I will let you judge what we have uncovered for yourselves next week.
Disclaimer: While those in my group have spent dozens of hours on our review it should be noted that Susman Godfrey, counsel for Worlds, has likely spent 50 times as much and will undoubtedly spend more. What we do is for the success of our group and since we believe it provides enhanced direction for us we are happy to share it with others. I want to point out that no one should consider this anything like a final word on this subject nor do we endorse people making investment decisions without spending some time doing their own analysis and/or consulting with a financial advisor. We are long WDDD.