Worlds v. Activision: Why Is Prior Art Such A big Deal?

11 Apr

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.

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7 Responses to “Worlds v. Activision: Why Is Prior Art Such A big Deal?”

  1. Andy NAthan April 12, 2013 at 8:14 pm #

    any thoughts on PRKR lawsuit vs QCOM with regard to prior art?

    • edvapatent April 12, 2013 at 8:58 pm #

      Hey Andy, we are not following PRKR to any appreciable extent so unfortunately I don’t have any thoughts to share. One thing I do know is that it takes a lot of time just to cover one of these stocks thoroughly. Good luck with your investment and thanks for checking in.

      • Nathan Andrew April 12, 2013 at 9:01 pm #

        thanks, do you know of a reliable source who follows PRKR?

        Andrew Nathan NFC abnskate@gmail.com 847-509-3477 Fax 847-509-3488 Cell 847-610-0980

  2. tryzub hopack April 14, 2013 at 12:46 pm #

    Edva…….excellant analysis of World’s patent litigation against Activision,your thoughts are spot on and enjoy your commentary…..with that being said, when can we expect your follow-up to this blog article?…..we also invite you to stop by Investor Hub : [WDDD] …to join us in post conversation and discussing all the great things that are transpiring to World’s [WDDD]….you have a great following there and held in the highest regard to this company……….thank you.tryz

    • edvapatent April 15, 2013 at 2:45 pm #

      Tryz,

      First of all thanks for your message and certainly appreciate the invite. The follow up to what was essentially a Prior Art statement will be out on Thursday, hopefully sometime in the morning. I have observed some of the chatter on the various outlets and I think the IHUB WDDD board is the most active board and probably the most detailed in terms of gross participation. I commend you for that! I have been trying to post most often to this blog because I simply have more control here and that will be very important once the hearings and/or trials start (in this and in other cases we will follow). I have had problems with posts not getting posted at critical times in the past so I’m trying to establish an unimpeded space which I think will be helpful and less frustrating for investors. I spent about twenty hours locked down this weekend and there is still much to do but I can tell you unequivocally that we are in a very strong investment. I have revised my damages chart and believe I now have a refined gross number for all the past damages related to the two games in suit. An expose of what we believe will be sought will be broken down in a manner comparable to what you will see Thursday, and soon after. We exist today at a small fraction of WDDD’s potential worth. Thanks for writing in.

  3. ben April 19, 2013 at 2:20 pm #

    on yahoo finance there is a comment that your group has over 1 million shares.Did you mention in blog your share ownership?Is it true?is there a public domain list of shareholders? from a shareholder for over 10 years

    • edvapatent April 19, 2013 at 2:59 pm #

      Hi Ben, we state that we are long WDDD and further state that we only cover companies that we have an active investment in. We have also publicly stated that our position in WDDD is into the seven figures but we don’t give exact numbers. What is more important is how we feel about the investment as it moves forward. We look forward to the exchanges of claim construction between the parties next week and assessing some of the likely strategies given what we see. Thanks for your comment!

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