A few weeks ago, Personalized Media Communications (PMC), which you've probably never heard of before, won a patent lawsuit and sued Apple for $ 300 million . You can read the court decision here .
Patent attorneys classify companies such as PMC as so-called "patent holdings" or patent traders. The company has acquired more than 100 different software patents, developed since the 1980s, and is using its ownership of these patents to sue large IT companies and thus earn money by winning in court and receiving large monetary compensation.
PMC doesn't make any product at all, they haven't even tried something like that. The CEO of the company said during his court speech that the company had never done any research or development of any product [1]. Its main principles are to own as many patents as possible and to make money on it. The company owns patents for inventions of the 1980s and earns money by suing companies that are currently using those inventions.
PMC is still active today; in November, she sued several other major companies such as Walmart and Disney. [2] PMC, which is currently serving as a plaintiff in more than twenty federal lawsuits, said Disney is required to pay approximately $ 43 million for its video streaming services. [3] The company is now also in the courts of Amazon and Netflix.
How do they do it?
In order to understand the business scheme of patent holdings, one must first consider how companies like Personalized Media Communications win cases in court.
The most obvious thing would be to study the court materials of the case PMC versus Apple , the decision of which became known quite recently, but unfortunately we do not have such an opportunity. The protocols are not yet available for public use, and the lawyers of both parties are still analyzing and editing the case materials [4]. These documents will become available only a few months after the end of the trial [5].
However, in the public domain there are already materials on another case, which is very similar to the case against Apple - are these minutes of the PMC case against Google ? which was heard in the same court in Marshall, Texas, with the same judge, James Rodney Gilstrap, in November 2020.
The PMC case against Google had a very different outcome from the case against Apple. PMC's lawyers demanded that Google pay $ 183 million in damages, claiming YouTube had infringed their patent rights. The case was settled in favor of the defendant, and it was a crushing victory: the jury found that Google did not infringe anyone's patent rights, and PMC was forced to leave the courtroom empty-handed. [6] PMC recently sent notice that they would appeal to a federal district court, which was pretty predictable.
Written minutes of the PMC v Google case will provide a better understanding of exactly how PMC, one of the earliest and most successful patent trading companies, operates. In the case against Apple, PMC changed its strategy by going to another law firm and providing different evidence. This time they upped the ante, faced off against another opponent, and ended up winning a big deal. When the protocols of the PMC v Apple case become available , it will be possible to compare these two incredible cases for greater clarity.
Family business
During his opening statements, PMC attorney Arun Subramanian told the jury the story of PMC founder and chief inventor John Harvey:
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According to Subramanian, televisions in the 1980s had "bunny-ear antennas," "handles" that "fell off occasionally," and "high graininess." "By harnessing the power of computers, digital signals and networks," Harvey and Caddihi sought to "improve and improve the quality of television ... that could exist in the future."
They filed their first patent in 1981 and founded PMC that same year. Now the lawyers of Personalized Media Communications describe the company as a "family business" with only 7 employees.
Subramanian explained that PMC's job was to "register the technology that Mr. Harvey and Mr. Caddihi discovered so that companies that wanted to use the technology could use it with a license." "The company had over 20 patents registered and made millions of dollars selling licenses to other companies to use their technology."
The goal of their patent claim in court is to get their business back on its feet. And this is not at all as difficult as it might seem at first glance. Does not the inventions of Harvey and Cuddihy notwas it special if so many large corporations paid them millions and millions of dollars? And they're talking about these big licensing agreements here, in front of a black-robed federal judge who has already made it clear to everyone that patents, and the judges, juries, and lawyers who handle them, are Very Important.
If Harvey and Caddihi had any real invention, it looks like it was a computerized graphic image that was superimposed on a TV screen. In the early 1990s, PMC demonstrated a prototype of its invention to some potential investors in New York. The experimental device consisted of a VCR and a computer, which were connected to a TV screen, and this device somehow superimposed the video streams on top of each other. The system did not use the Internet.
Whatever this strange gadget really was, when it was shown to investors, it was already quite outdated for its time, and the whole show must have made a miserable impression. In the early 1990s, university programmers were already working on developing the first web browsers; Internet companies Prodigy and CompuServe were already fighting hard to dominate the consumer market, they had millions of customers who used their services.
PMC has never sold anything. And, as their CEO admitted, she never invested in R&D. Instead, they chose the path of patent trolls, inventing florid descriptions of their patents so that real companies like Sony, Arris and other copyright holders were forced to buy licenses for them. According to Thomas Scott, Head of Legal at PMC, these companies “acquired licenses for their inventions because they used those inventions” [8].
In his opening statement, Subramanian managed to present all the facts as if John Harvey were an outstanding inventor, whose thinking was far ahead of the scientific progress of his time. He omitted the fact that John Harvey, after leaving the Navy, worked in the field of finance , and was not involved in engineering at all. PMC began as a joint venture between two at Yale University, one of whom later became an investment banker and the other as a patent attorney.
Submarine floats
Subramanian continued his testimony in court, explaining how various Youtube features violated four PMC patents ( 1 , 2 , 3 , 4 ). PMC has previously patented the "remote hotspot" technology that YouTube uses for its video caching system using endpoint technology. Subramanian demonstrated PMC patent number 8601528, in the 21st clause of which "determining the absence of fully generated TV image data" is described, followed by "proceeding to the following description." Then Subramanian addresses the jury with a speech about a completely fantastic story, according to which the very first programmers who worked on the creation of YouTube, in some incredible way, not only learned about the patent 8601528, but also "took advantage" of the technology described in it:
By exactly following the methods of patent number 8601528, YouTube is able to skip missing and missing frames and move on to subsequent frames. This is exactly what happens in the application source code.
Subramanian also claimed that YouTube's video preview technology infringes PMC's “multimedia presentation” patent and that PMC's US 7,769,344 precisely describes Youtube's digital content DRM protection system.
According to all four patents, these technologies were used in a program created in 1981. How did PMC succeed in winning a case when the patent right for an invention is usually valid for 17 or 20 years? Well, PMC took advantage of the right to file an "underwater patent"- under such a system, a patent application can be filed with the United States Patent and Trademark Office, after which the patent is not published for a very long time. Thus, the company has time to implement its invention. The term of the patent begins to count only after the moment the Office grants a patent for the finished invention.
This method of exploiting the patent system was banned in 1995 when the United States Patent and Trademark Office changed the patent expiration system. But PMC's Chief Legal Officer Thomas Scott, who testified at this trial, was one of the last lucky ones to take advantage of the old system. In June 1995, the day before the new patent law went into effect, Scott registered over 300 patents, all of which were associated with their main patent in 1981.
In 1999, Personalized Media talked about its strategy to the New York Times , adding that its goal was "to enter into patent deals with companies that used technologies described in patents owned by PMC."
Harvey and Scott were the first to dare to use net patent sales as a business model. This model has paid off very well. All four patents that PMC used against Google, as well as the DRM patent they used against Appleobviously belong to the hundreds of inventions that Scott registered at the very last moment in 1995.
"The company exists to exploit patents"
During the trial, Google did not try to prove that these patents were dummies. Instead, lawyers emphasized that there was no fact of violation of anyone's rights, since all these old patents have nothing to do with Youtube.
“These patents relate to devices invented in 1981 - they have nothing to do with the modern Internet technologies that we use today,” - Google lawyer Charles Verhoeven told the jury in his opening statement in court. [9] He continued:
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Two days later, when PMC's Chief Legal Officer Thomas Scott testified in court, Verhoeven again emphasized in his statement what PMC's earnings model was based on — they were essentially making money out of thin air. [10]
Q: (Verhoeven) Has there been at least one prototype in the history of PMC that has been used in the production of a real-life product made by PMC itself or by some other company?
Answer: (Scott) Yes, of course.
Question: Okay. What kind of product was it?
Answer: They were issued by our licensees.
Question: And you claim that they developed the ideas of your prototype?
Answer: No, they ... they developed their own products ... and acquired licenses for our inventions because they used those inventions.
Q: Has anyone other than PMC members ever invested in the development of a prototype - I mean outside the PMC staff?
Answer: No investment, no.
Question: And the prototype itself, and not the licenses for its use, were never sold to anyone, is that correct?
Answer: No (not sold).
Question: And the prototype doesn't work anymore, does it?
Answer: No, it no longer works, no longer.
Google met with the heads of PMC at least twice, in 2011 and 2015, to discuss a deal to buy the patent. During the first meeting, PMC representatives showed the clauses of their patent application that they believed Apple had violated - and how much money Google could make from this case by buying out PMC's patents and filing a lawsuit against Apple. Both attempts to negotiate were unsuccessful, Google did not agree to a deal to buy the patent [11].
Google was in talks with PMC back in 2009, when Gerald Holtzman, then PMC, sent Google Chief Legal Officer Kent Walker an email titled "Our New Patents."
In 2011, Holtzman (who died in 2018), along with PMC patent agent Boyd Lemna, gave a presentation to Google to convince the search engine giant to buy out PMC's patents in order to sue Apple. They showed a patent application and (according to unconfirmed reports) an estimate of how much Google could have made buying PMC patents and then suing Apple.
The next meeting between Google and PMC took place in 2015 in New York. Most of the sessions took place in a closed courtroom, and the minutes are not available for public use. But it was clear from the results that the discussions had led nowhere, and everything was calm until 2019, when PMC filed a new lawsuit.
Ultimately, is Apple a victim of PMC? If you look at the question solely from the side of logic - yes, in my opinion this is exactly the case. From my point of view, the business model of companies selling patents is simply unethical , no matter how much money lies in the accounts of its victims.
But Apple is a victim with little sympathy from those around it. Not only because it is the richest corporation on the planet, but also because Apple has a very long history of monopolistic use of intellectual property, and in particular the DRM system, which led to an unhealthy lack of competition and negative consequences for society. This is why blogger Corey Doctrow finds Apple's massive defeat in court "curious and pleasantly ironic," even if it is theoretically assumed that the company lost the case in court to those who invented DRM. The court ruling in favor of PMC inspired him to write a posthow Apple finds holes in the intellectual property system and exploits them to its advantage. I highly recommend reading this post. If you want to know more about exactly how intellectual property rights are infringed, Corey's work is definitely worth your attention.
1. Testimony of PMC CEO Mary Catherine Metzger dated 11/05/2020. Case 2: 19-cv-00090-JRG, Document 450, page 111.
2. Testimony from Metzger, Document 450, page 110.
3. Testimony from Boyd Lemne, 04/11/2020. Document 444, page 18.
4. The materials on these trials were edited before lawyers began to study them. According to the minutes of the PMC v Apple case, Judge Gilstrap agreed to keep the hearing closed during lengthy court hearings. You can read a recent collective letter signed by twenty-two law professors who are specialists in the field of intellectual property. The letter is titled “Waco Clarification Request,” and it addresses another major patent case.
5. There are exceptions and special cases, but usually after 3 months, court records are available for 10 cents per page. After this period, the free distribution and transfer of documents is also simplified, both by direct transfer between individuals and through special programs such as RECAP .
6. In court, Google did not provide evidence to prove that PMC's testimony was invalid, so the jury ruled without questioning the legality of PMC's patents.
7. Subramanian's Opening Statement, 02/11/2020, Document 438, pages 38-54.
8. Testimony of Thomas Scott dated 02.11.2020. Document 438, page 137.
9. Opening Statement by Verhoeven, 02.11.2020, Document 438, pages 54-74.
10. Testimony by Thomas Scott, 11/2/2020, Document 438, page 136.
11. Google had a separate line of defense that it was licensed when it entered into a patent deal with Rovi and acquired its patent for the Interactive Program Guides ". According to Google, Rovi had exclusive rights to use some of the PMC's patents, including 4 patents mentioned by Rovi in ​​this case. Since the jury ruled that Google did not infringe PMC's patent rights, this line of defense was not used in court.