Filed on behalf of:
`Patent Owner SightSound Technologies, LLC
`By: David R. Marsh, Ph.D.
`Kristan L. Lansbery, Ph.D.
`ARNOLD & PORTER LLP
`555 12th Street, N.W.
`Washington, DC 20004
`Tel: (202) 942-5068
`Fax: (202) 942-5999
`
`UNITED STATES PATENT AND TRADEMARK OFFICE
`_______________
`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`_______________
`APPLE INC.,
`Petitioner,
`v.
`Patent of SIGHTSOUND TECHNOLOGIES, LLC,
`Patent Owner.
`_______________
`
`Case CBM2013-00020
`Patent 5,191,573
`_______________
`
`PATENT OWNER’S RESPONSE TO THE PETITION
`
`Mail Stop PATENT BOARD
`Patent Trial and Appeal Board
`U.S. Patent & Trademark Office
`P.O. Box 1450
`Alexandria, VA 22313-1450
`
`

`

`Case CBM2013-00020
`Patent 5,191,573
`TABLE OF DEFINITIONS AND ABBREVIATIONS
`
`Meaning
`Term
`U.S. Patent Application No. 07/586,391
`The ‘391 Application
`U.S. Patent No. 5,966,440
`The ‘440 Patent
`U.S. Patent Application No. 07/206,497
`The ‘497 Application
`U.S. Patent No. 5,191,573
`The ‘573 Patent
`The ‘573 Reexamination Ex Parte Reexamination Application No. 90/007,402
`The ‘734 Patent
`U.S. Patent No. 5,675,734
`Board
`Patent Trial and Appeal Board
`BPAI
`Board of Patent Appeals and Interferences
`CompuSound, Inc.; CompuSonics Corp.; and
`CompuSonics
`CompuSonics Video Corp.
`ITMS
`iTunes Music Store
`Patent Owner
`SightSound Technologies, LLC
`Petitioner
`Apple Inc.
`PTO
`United States Patent and Trademark Office
`
`i
`
`

`

`Case CBM2013-00020
`Patent 5,191,573
`
`TABLE OF CONTENTS
`
`Page
`INTRODUCTION ................................................................................................. 1
`
`FACTUAL BACKGROUND ................................................................................ 6
`
`I.
`
`II.
`
`The “CompuSonics System”........................................................................ 6
`
`The Prosecution of the ‘573 Patent .............................................................. 8
`
`A.
`
`B.
`
`C.
`
`D.
`
`E.
`
`F.
`
`The Claims at Issue in the Current Proceeding................................. 10
`
`The Asserted “CompuSonics System” was Previously Considered.. 13
`
`SightSound and the Advent of Digital Media Distribution............... 14
`
`Patent Owner Informed Petitioner of the ‘573 Patent in 1993 and
`Disclosed its System to Petitioner in 1999 ....................................... 16
`
`Petitioner Enters Music/Media Business in 2001 ............................. 18
`
`The ITMS Embodies the Claims of the ‘573 Patent ......................... 19
`
`ARGUMENT ...................................................................................................... 21
`
`III. Claims 1, 2, 4 and 5 of the ‘573 Patent Are Not Anticipated Under 35
`U.S.C. § 102 .............................................................................................. 21
`
`A.
`
`B.
`
`C.
`
`D.
`
`E.
`
`F.
`
`G.
`
`The Legal Framework for an Anticipation Analysis......................... 21
`
`Claims 1, 2, 4 and 5 Are Not Anticipated by CompuSonics’ Use of
`Removable Memories and Vague Allusions to Payment.................. 22
`
`Alleged Public Use .......................................................................... 34
`
`Exhibits 4112 and 4117 Are Not “Printed Publications”.................. 35
`
`The Experimental Uses of the CompuSonics System Do Not
`Anticipate the Asserted Claims ........................................................ 38
`
`Independent Claim 4 Is Not Anticipated .......................................... 39
`
`Dependent Claims 2 and 5 Are Not Anticipated............................... 40
`
`ii
`
`

`

`Case CBM2013-00020
`Patent 5,191,573
`H.
`Response to Petitioner’s Invalidity Contentions............................... 42
`
`IV.
`
`The ‘573 Patent Is Not Obvious Under 35 U.S.C. § 103 ............................ 56
`
`A.
`
`B.
`
`C.
`
`D.
`
`The Board Lacks Jurisdiction to Conduct a Review of the Patents
`Under § 103 Regarding the CompuSonics Publications ................... 56
`
`The “CompuSonics System” Does Not Render Obvious Claims 1,
`2, 4 and 5 ......................................................................................... 59
`
`Dependent Claims 2 and 5 Are Not Obvious ................................... 65
`
`Secondary Considerations of Nonobviousness Are Overwhelming.. 66
`
`1.
`
`The Patented Invention Has Been Commercially Successful . 68
`
`a.
`
`b.
`
`c.
`
`Digital Downloads Have Been Commercially
`Successful as Compared to Other Methods of
`Obtaining Digital Audio and Video Signals................. 69
`
`The ITMS Has Been Commercially Successful ........... 70
`
`There Is a Nexus Between the ‘573 Patent, the
`Commercial Success of Digital Downloads, and the
`ITMS ........................................................................... 71
`
`2.
`
`3.
`
`4.
`
`Petitioner and Others Have Copied the Patented Invention .... 77
`
`Patent Owner’s Invention Received Praise............................. 78
`
`There Was a Long-Felt Need for the Invention ...................... 79
`
`CONCLUSION ................................................................................................... 80
`
`iii
`
`

`

`Case CBM2013-00020
`Patent 5,191,573
`
`TABLE OF AUTHORITIES
`
`CASES
`Abbott Labs. v. Geneva Pharm., Inc.,
`182 F.3d 1315 (Fed. Cir. 1999)........................................................................41
`
`Page(s)
`
`Advanced Display Sys., Inc. v. Kent State Univ.,
`212 F.3d 1272 (Fed. Cir. 2000)........................................................................77
`
`Akzo N.V. v. ITC,
`808 F.2d 1471 (Fed. Cir. 1986)........................................................................68
`
`Alco Standard Corp. v. Tenn. Valley Auth.,
`808 F.2d 1490 (Fed. Cir. 1986)........................................................................67
`
`Allen Archery, Inc. v. Browning Mfg. Co.,
`819 F.2d 1087 (Fed. Cir. 1987)........................................................................79
`
`Apple Inc. v. ITC,
`725 F.3d 1356 (Fed. Cir. 2013)........................................................................71
`
`Atlas Powder Co. v. Ireco Inc.,
`190 F.3d 1342 (Fed. Cir. 1999)........................................................................41
`
`Atofina v. Great Lakes Chem. Corp.,
`441 F.3d 991 (Fed. Cir. 2006)....................................................................33, 34
`
`Cheese Sys., Inc., v. Tetra Pak Cheese & Powder Sys., Inc.,
`725 F.3d 1341 (Fed. Cir. 2013)........................................................................22
`
`Crocs, Inc. v. ITC,
`598 F.3d 1294 (Fed. Cir. 2010)............................................................71, 72, 77
`
`DeMaco Corp. v. F. Von Langsdorff Licensing Ltd.,
`851 F.2d 1387 (Fed. Cir. 1988)........................................................................71
`
`E.I. Du Pont De Nemours & Co. v. Phillips Petroleum Co.,
`656 F. Supp. 1343 (D. Del. 1987), rev’d in part on other grounds, 849
`F.2d 1430 (Fed. Cir. 1988).........................................................................68, 76
`
`iv
`
`

`

`Case CBM2013-00020
`Patent 5,191,573
`Ecolochem, Inc. v. S. Cal. Edison Co.,
`227 F.3d 1361 (Fed. Cir. 2000)........................................................................22
`
`Elan Pharm., Inc. v. Mayo Found. for Med. Educ. & Research,
`346 F.3d 1051 (Fed. Cir. 2003)........................................................................24
`
`Eli Lilly & Co. v. Zenith Goldline Pharm., Inc.,
`471 F.3d 1369 (Fed. Cir. 2006)........................................................................79
`
`Elizabeth v. Pavement Co.,
`97 U.S. 126 (1877)...........................................................................................38
`
`Epistar Corp. v. ITC,
`566 F.3d 1321 (Fed. Cir. 2009)........................................................................25
`
`EZ Dock, Inc. v. Schafer Sys., Inc.,
`276 F.3d 1347 (Fed. Cir. 2002)........................................................................38
`
`Honeywell Int’l, Inc. v ITT Indus., Inc.,
`452 F.3d 1312 (Fed. Cir. 2006)........................................................................27
`
`Hughes Aircraft Co. v. United States,
`8 U.S.P.Q. 2d 1580 (Cl. Ct. 1988)....................................................................41
`
`Hughes Tool Co. v. Dresser Indus., Inc.,
`816 F.2d 1549 (Fed. Cir. 1987)........................................................................71
`
`In re Abbott Diabetes Care, Inc.,
`696 F.3d 1142 (Fed. Cir. 2012)............................................................25, 26, 27
`
`In re Arkley,
`455 F.2d 586 (C.C.P.A. 1972)..........................................................................21
`
`In re Baird,
`16 F.3d 380 (Fed. Cir. 1994)............................................................................34
`
`In re Cyclobenzaprine Hydrochloride Extended-Release Capsule Patent Litig.,
`676 F.3d 1063 (Fed. Cir. 2012)..................................................................66, 67
`
`In re Edwards,
`578 F.2d 301 (C.C.P.A. 1978)..........................................................................23
`
`v
`
`

`

`Case CBM2013-00020
`Patent 5,191,573
`In re Gurley,
`27 F.3d 551 (Fed. Cir. 1994)............................................................................64
`
`In re Klopfenstein,
`380 F.3d 1345 (Fed. Cir. 2004)................................................................. 36, 37
`
`In re Leithem,
`661 F.3d 1316 (Fed. Cir. 2011)........................................................................58
`
`In re Maharkur Patent Litig.,
`831 F. Supp. 1354 (N.D. Ill. 1993).............................................................79, 80
`
`In re Mouttet,
`686 F.3d 1322 (Fed. Cir. 2012)........................................................................64
`
`In re Newell,
`891 F.2d 899 (Fed. Cir. 1989)..........................................................................66
`
`In re Rijckaert,
`9 F.3d 1531 (Fed. Cir. 1993)............................................................................41
`
`In re Robertson,
`169 F.3d 743 (Fed. Cir. 1999)..........................................................................41
`
`In re Spormann,
`363 F.2d 444 (C.C.P.A. 1966)..........................................................................66
`
`Juicy Whip, Inc. v. Orange Bang, Inc.,
`292 F.3d 728 (Fed. Cir. 2002)..........................................................................35
`
`KSR Int’l Co. v. Teleflex Inc.,
`550 U.S. 398 (2007)...................................................................................59, 60
`
`Kyocera Wireless Corp. v. ITC,
`545 F.3d 1340 (Fed. Cir. 2008)........................................................................36
`
`Net MoneyIN, Inc., v VeriSign, Inc.,
`545 F.3d 1359 (Fed. Cir. 2008)........................................................................21
`
`Ortho-McNeil Pharm., Inc. v. Mylan Labs., Inc.,
`520 F.3d 1358 (Fed. Cir. 2008)........................................................................67
`
`vi
`
`

`

`Case CBM2013-00020
`Patent 5,191,573
`OSRAM Sylvania, Inc. v. Am. Induction Techs., Inc.,
`701 F.3d 698 (Fed. Cir. 2012)..........................................................................33
`
`Petrolite Corp. v. Baker Hughes Inc.,
`96 F.3d 1423 (Fed. Cir. 1996)..........................................................................34
`
`Power-One, Inc. v. Artesyn Techs., Inc.,
`599 F.3d 1343 (Fed. Cir. 2010)........................................................................79
`
`Rambus Inc. v. Rea,
`731 F.3d 1248 (Fed. Cir. 2013)..................................................................58, 67
`
`Retractable Techs., Inc. v. Becton, Dickinson & Co.,
`653 F.3d 1296 (Fed. Cir. 2011)........................................................................25
`
`Richardson v. Suzuki Motor Co.,
`868 F.2d 1226 (Fed. Cir. 1989)........................................................................24
`
`SciMed Life Sys. v. Advanced Cardiovascular Sys.,
`242 F.3d 1337 (Fed. Cir. 2001)........................................................................26
`
`SightSound.com Inc. v. N2K, Inc.,
`391 F. Supp. 2d 321 (W.D. Pa. 2003) ..............................................................13
`
`SRI Int’l, Inc. v. Internet Sec. Sys. Inc.,
`511 F.3d 1186 (Fed. Cir. 2008)........................................................................36
`
`Star Scientific, Inc. v. R.J. Reynolds Tobacco Co.,
`655 F.3d 1364 (Fed. Cir. 2011)........................................................................34
`
`Teva Pharm. USA, Inc. v. Sandoz, Inc.,
`723 F.3d 1363 (Fed. Cir. 2013)........................................................................71
`
`Thorner v. Sony Computer Entm’t Am. LLC,
`669 F.3d 1362 (Fed. Cir. 2012)........................................................................25
`
`Unique Concepts, Inc. v. Brown,
`939 F.2d 1558 (Fed. Cir. 1991)........................................................................24
`
`Vectra Fitness, Inc. v. Icon Health & Fitness, Inc.,
`288 F.2d 1155 (W.D. Wash. 2003) ..................................................................77
`
`vii
`
`

`

`Case CBM2013-00020
`Patent 5,191,573
`Verdegaal Bros., Inc. v. Union Oil Co. of Cal.,
`814 F.2d 628 (Fed. Cir. 1987)....................................................................23, 39
`
`W.L. Gore & Assocs., Inc. v. Garlock, Inc.,
`721 F.2d 1540 (Fed. Cir. 1983)........................................................................79
`
`STATUTES AND REGULATIONS
`35 U.S.C.
`§ 102...................................................................................... 5, 6, 21, 35, 37, 57
`§ 102(a) ...........................................................................................................22
`§ 102(b) .....................................................................................................36, 38
`§ 103.............................................................................................. 56, 57, 58, 59
`§ 103(a) ...................................................................................................5, 6, 57
`§ 112................................................................................................................11
`
`37 C.F.R. § 42.208(c) (2013) ..........................................................................57, 58
`
`OTHER AUTHORITIES
`Manual of Patent Examining Procedure (“MPEP”) (2012)
`§ 2112..............................................................................................................41
`§ 2131..................................................................................................24, 39, 40
`§ 2131.01.........................................................................................................21
`
`viii
`
`

`

`Case CBM2013-00020
`Patent 5,191,573
`
`INTRODUCTION
`The invention provided and claimed in the ‘573 Patent was a new method
`
`for selling digital content whereby consumers could directly purchase music and
`
`video over telecommunications lines (such as the internet) for download on their
`
`personal computers, doing away with traditional stereo equipment and freeing
`
`music owners from cumbersome and fragile physical objects such as records, tapes
`
`and CDs. Petitioner’s expert agrees that the ‘573 Patent makes “quite clear” that
`
`its objective was to “entirely free the buyer and seller from dealing in physical
`
`articles.” Ex. 1051, ¶ 74. Arthur Hair, inventor of the ‘573 Patent, foresaw the
`
`invention’s tremendous efficiencies, namely eliminating the need to manufacture,
`
`warehouse and ship physical media, as well as the need to sell the media at retail
`
`locations subject to rent and inventory costs. Use of the invention has been widely
`
`embraced. The sale of digital content directly to home-based hard drives is
`
`ubiquitous, having now surpassed the sale of removable media.
`
`The invention was not known or used prior to 1988. Yet Petitioner claims
`
`that marketing gimmicks promoted by CompuSonics, a company that went out of
`
`business decades ago, constituted “public use” of the same system. CompuSonics
`
`existed to sell high-end audio machines, called digital signal processors, or DSPs.
`
`The only “use” shown in the record is internal testing and a carefully orchestrated
`
`demonstration staged by CompuSonics to show how digital audio data could be
`
`1
`
`

`

`Case CBM2013-00020
`Patent 5,191,573
`sent over telecommunications lines from one specially configured, professional-
`
`grade DSP-2002 to another specially configured DSP-2002, a process
`
`CompuSonics called “telerecording.” No commercially available DSP, including
`
`the DSP-2000 series and CompuSonics’ consumer-grade machine, the DSP-1000,
`
`had this capability. The experimental uses relied upon by Petitioner do not qualify
`
`as prior art, and even if they did, they failed to teach the claims of the ‘573 Patent
`
`as (1) there was no payment for the transmission of signals, let alone an electronic
`
`payment (indeed, no DSP was ever configured to transmit payment information);
`
`and (2) CompuSonics retained control of the DSP devices on both ends of the
`
`telecommunications link at all times (no distinct first and second party in control of
`
`their respective memories).
`
`Thus, CompuSonics never created or provided a “system.” CompuSonics
`
`components were never used to sell music or to eliminate stereo equipment and its
`
`attendant media. Rather, DSPs were intended to replace traditional stereo
`
`components, including tape recorders and CD players, using a “super floppy” disk
`
`or a write-once, read-many (“WORM”) optical disk in lieu of tapes or CDs. Uses
`
`of DSPs included: (1) archiving digital copies of records or tapes; (2) home music
`
`editing; (3) recording live music in digital format; and (4) professional uses such as
`
`playing sound effects and short audio clips. With a price tag of $7,000 for the
`
`DSP-1000 and $35,000 or more for the DSP-2000 series, CompuSonics equipment
`
`2
`
`

`

`Case CBM2013-00020
`Patent 5,191,573
`was for professionals and audiophiles. Fatally to Petitioner’s assertions, it is
`
`undisputed that no CompuSonics DSP machine was ever used to practice the
`
`claimed method or to sell music or video over telecommunications lines.
`
`In an attempt to overcome the facts that no prior use occurred and no
`
`CompuSonics DSP machine practiced the claimed invention or could have done so
`
`without additional hardware and software, Petitioner points to predictions and
`
`puffery. Petitioner relies on “futurama” statements by CompuSonics founder
`
`David Schwartz, who suggested that someday DSPs might be used as part of an
`
`“electronic record store.” These prophesies were never implemented by
`
`CompuSonics and, standing alone, neither anticipate the invention nor render it
`
`obvious.
`
`Vague allusions to an “electronic record store” do not enable the claimed
`
`invention. To the extent any detail is provided, it involved a two-step process
`
`where record companies would transmit master copies of music digitally to retail
`
`locations in possession of CompuSonics recording equipment, who then would
`
`print super floppy disks at the retail location to fill customer orders. These point-
`
`of-sale transactions, involving music on a floppy disk, are no different in substance
`
`than selling the removable physical media distinguished in the ‘573 Patent and do
`
`not foretell the claimed method. Indeed, other than as just described, the so-called
`
`“electronic record store” was not a particular sales model or business method as it
`
`3
`
`

`

`Case CBM2013-00020
`Patent 5,191,573
`included various methods of payment (including charges appearing on monthly
`
`cable or phone bills) and distribution. Not surprisingly, the PTO has previously
`
`distinguished the very CompuSonics invalidity arguments presented here.
`
`Numerous CompuSonics items (many of which the Petitioner submitted in this
`
`proceeding) were before the PTO in its rigorous five-and-a-half year reexamination
`
`of the ‘573 Patent, and were not found to be invalidating art. The new materials
`
`add nothing to that analysis.
`
`Petitioner therefore fails to show that a single Exhibit teaches each step of a
`
`given claim of the ‘573 Patent, as required for anticipation. Petitioner fails to
`
`identify a primary reference, but instead impermissibly asks that the Board mix and
`
`match various references to come up with a “system” that never previously existed.
`
`Indeed, even if the Board ignores the fact that the “CompuSonics system” is
`
`a contrived fiction cobbled together in hindsight, this “system” taught away from
`
`the claimed invention. The Exhibits and associated testimony read individually or
`
`collectively put forward a very different model—one where floppy or WORM
`
`disks simply replace CDs, and payment for music is made either at a retail location
`
`or mailed to a cable or phone company. This is not the claimed method and not
`
`even suggestive of it.
`
`The Board’s analysis should be limited to concluding that the “system” fails
`
`to anticipate claims 1, 2, 4, and 5 of the ‘573 Patent. In asking that review be
`
`4
`
`

`

`Case CBM2013-00020
`Patent 5,191,573
`initiated, Petitioner only asserted that CompuSonics anticipated the ‘573 Patent
`
`under 35 U.S.C. § 102. It did not assert or put forward evidence that the “system”
`
`rendered the claimed invention obvious under 35 U.S.C. § 103(a). Yet, in going
`
`beyond the grounds alleged, the Board claimed extra-statutory “discretion” to
`
`advance a ground of unpatentability that Petitioner did not argue. This error
`
`violates Patent Owner’s right to administrative due process.
`
`Further, there are compelling secondary considerations of nonobviousness,
`
`including commercial success and copying. Petitioner’s iTunes Music Store
`
`(“ITMS”) is the world’s largest seller of digital audio signals, having sold over 25
`
`billion songs in the last decade and currently commanding an 80% market share of
`
`the U.S. digital download music market. The ITMS is an embodiment of, and
`
`coextensive with, the claims of the ‘573 Patent, giving rise to a presumption of a
`
`nexus between the patented invention and the commercial success of the ITMS.
`
`Petitioner is unable to rebut the presumption, particularly given the evidence that it
`
`copied the invention. In 1999, when Petitioner was focused on streaming audio
`
`and video over the internet to consumers, Patent Owner disclosed to Petitioner a
`
`detailed schematic of the working SightSound.com ecosystem, showing how its
`
`servers stored content, transmitted the content to consumers, and could even
`
`facilitate playback on handheld audio/video players. Representatives from the
`
`companies met to discuss the system and a potential business arrangement.
`
`5
`
`

`

`Case CBM2013-00020
`Patent 5,191,573
`Petitioner claimed to be disinterested in supporting digital downloads, which it said
`
`would require a re-write of its operating system. But only two years later
`
`Petitioner launched the original iTunes software and the iPod, followed in 2003 by
`
`the ITMS. Petitioner copied the method for selling electronic music and video
`
`disclosed in the ‘573 Patent, instead of the streaming model it previously pursued
`
`or any other model of distribution.
`
`There is no support for a so-called “CompuSonics system,” nor for
`
`CompuSonics publications anticipating the ‘573 Patent claims under 35 U.S.C.
`
`§ 102 or rendering the claims obvious under 35 U.S.C. § 103(a). Patent Owner
`
`respectfully requests that the Board follow the previous analysis performed by the
`
`PTO. Each claim of the ‘573 Patent is independently patentable for the reasons
`
`provided.
`
`I.
`
`FACTUAL BACKGROUND
`The “CompuSonics System”
`CompuSonics was founded in 1983 to sell high-end professional and
`
`consumer devices called digital signal processors, or DSPs. Ex. 2121, ¶¶ 3-5.
`
`Petitioner refers to these products as the “CompuSonics system” in this
`
`proceeding, a nomenclature the Board adopted. See Decision, Paper 14, p. 19. Yet
`
`the company’s founder acknowledged that there was no unitary “CompuSonics
`
`system” as such, but rather a range of functions DSPs performed, or in theory,
`
`could perform. Ex. 2124, 28:8-12. Some DSPs, like many computers at the time,
`
`6
`
`

`

`Case CBM2013-00020
`Patent 5,191,573
`could transmit data via networks or telecommunications lines. Ex. 2121, ¶ 12.
`
`However, the testimony of John Stautner, CompuSonics’ second employee and
`
`lead engineer, makes clear that no DSP was ever used to sell digital audio or video
`
`signals, nor did CompuSonics ever implement a system for making electronic
`
`sales. Id. at ¶¶ 20-21. CompuSonics never achieved sustainable sales and went out
`
`of business in 1989 or 1990. Id. at ¶¶ 4, 6, 9.
`
`The first line of DSPs, the DSP-2000 series, allowed professionals to mix
`
`and master audio recordings; the basic model cost $35,000. Id. at ¶ 6. DSP-2000
`
`series devices contained internal hard drives. Id. at ¶ 7. At most, a few dozen of
`
`these devices were ever sold. Id. at ¶ 6; Ex. 2124, 24:18-19.
`
`The second line, the DSP-1000 series, was CompuSonics’ main focus. To
`
`the extent there is a “CompuSonics system,” it is the DSP-1000. See Ex. 4147, at
`
`5.1 This device was marketed to consumers to replace turntables, tape decks and
`
`CD players in home stereos, and sold to radio stations to replace cartridge-based
`
`playback machines. Ex. 2121, ¶¶ 8-9. First released in 1986, the consumer-level
`
`DSP-1000 carried a $6,995 price tag. Ex. 2125, pp. 65-67. The device plugged
`
`into home stereo systems using analog RCA jacks. Ex. 2121, ¶ 8. DSP-1000’s
`
`1 Pursuant to instructions from Board staff, Patent Owner has used Exhibit
`
`numbers provided in Petitioner’s most recent exhibit list, Paper No. 37.
`
`7
`
`

`

`Case CBM2013-00020
`Patent 5,191,573
`lacked internal hard-drives, but instead used floppy disks or optical WORM disks.
`
`Id. at ¶¶ 8-10. DSP-1000’s also lacked hardware and software to send data over
`
`telecommunications lines. Id. at ¶ 15. Petitioner submitted an undated photograph
`
`(see Ex. 4131), which the Board treated as a true representation of a DSP-1000.
`
`Decision, Paper 14, p. 20. Petitioner failed to disclose that this was an empty box:
`
`the photograph shows a prototype with “no specific scripts in it” that was never
`
`sold. Ex. 2124, 112:15-113:4, 115:12-14. In fact, “the button labeled ‘telerecord’
`
`did not work and was not actually connected to anything (it was merely a
`
`nonoperational button appearing on the box used in the image).” Ex. 2121, ¶ 26;
`
`Ex. 2122 (photograph displaying an actual DSP-1000). The Board should not be
`
`misled, based on decades-old marketing materials, that Exhibit 4131 shows a
`
`“CompuSonics system.”
`
`II.
`
`The Prosecution of the ‘573 Patent
`On June 13, 1988, Mr. Hair filed the application that later issued as the ‘573
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`Patent on March 2, 1993. The PTO subsequently issued two other patents in this
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`family relating to the digital distribution of audio and video signals: the ‘734
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`Patent, on October 7, 1997; and the ‘440 Patent, on October 12, 1999.
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`The ‘573 Patent describes a method where consumers can electronically
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`purchase digital video or digital audio signals from the comfort of their homes for
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`convenient and seamless electronic playback. This provides a method to avert the
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`Case CBM2013-00020
`Patent 5,191,573
`music industry’s inefficiencies by replacing removable, physical media with a non-
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`volatile hard disk, and brick-and-mortar stores with databases. Specifically, claims
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`1, 2, 4, and 5 of the ‘573 Patent depict a method for the “electronic sales and
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`distribution of digital audio or video signals,” where a “user may purchase and
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`receive digital audio or video signals from any location which the user has access
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`to a telecommunications line.” ‘573 Patent, 1:10-14. The high speed transfer of
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`digital audio or video signals is “stored onto one piece of hardware, a hard disk,
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`thus eliminating the need to unnecessarily handle records, tapes, or compact discs
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`on a regular basis.” Id. at 2:33-35.
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`Prior to the claimed invention, the music industry relied on records, tapes,
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`and CDs as storage media. Id. at 1:16-19. All of these fused songs with storage
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`devices: a consumer could not enjoy music without buying, storing, and loading a
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`physical object. The industry’s dependency on these media created a host of
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`inefficiencies: limited storage capacity, sub-optimal sound quality, rampant
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`copyright infringement, and damage and deterioration of the storage units. Id. at
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`1:16-2:9. Above that, sale and distribution was time-consuming, costly, and
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`wasteful. Id. at 1:38-48. The ‘573 Patent’s novel method of electronically selling
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`and distributing digital video and digital audio signals directly to a hard disk
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`rendered these problems moot and cut out the time and costs associated with
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`manufacturing, packaging, shipping, and finally shelving physical media at a brick-
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`and-mortar location. See id. at 2:27-35. Moreover, the signals were to be
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`encrypted to preclude unlawful copying. Id. at 2:20-23.
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`The Claims at Issue in the Current Proceeding
`A.
`Petitioner sought, and the Board initiated, review of claims 1, 2, 4, and 5 of
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`the ‘573 Patent as covered business methods (“CBM”).2 Decision, Paper 14, p. 32.
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`Claim 1 of the ‘573 Patent is directed to the electronic sale and distribution of
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`desired digital audio signals. This is accomplished by: (1) transferring money
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`electronically from a second party to a first party via a telecommunications line;
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`(2) forming a connection, through a telecommunications line, between the first
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`party’s first memory and the second party’s second memory; (3) transmitting the
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`desired digital audio signal from the first memory to the second memory via the
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`established connection, all while the second memory is in the possession and
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`control of the second party and at a location determined by the second party; and
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`(4) storing the transmitted digital audio signal in the second memory. ‘573 Patent,
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`6:4-25. Dependent claim 2 adds the steps of searching and selecting the desired
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`digital audio signal from the first memory after the transmitting step. Id. at 6:26-
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`30. Claims 4 and 5 replicate claims 1 and 2 respectively, but pertain to digital
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`video signals. See id. at 6:38-62.
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`2 For the reasons previously stated, none of the claims is a “covered business
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`method.” Preliminary Response, Paper 11, pp. 23-39.
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`Claims 1, 2, 4, and 5 emerged from reexamination affirmed and unamended.
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`See ‘573 C1 Patent, 1:5-6. Reexamination did provide additional clarification that
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`the term “second memory” includes non-volatile storage that is not a tape, CD, or
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`removable media. In a November 29, 2006 Response, Patent Owner amended
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`claims 1 and 4 to read: “and storing the digital signal in a non-volatile storage
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`portion of the second memory, wherein the non-volatile storage portion is not a
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`tape or a CD.” Ex. 4103, pp.715-17 (amendments in italics). The Examiner first
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`rejected these amendments under 35 U.S.C. § 112 as lacking “written description
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`support for the recited, negative limitation.” Id. at 811-13. Patent Owner argued
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`that the “originally filed specification of the [parent application] explicitly states
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`that the disclosed invention eliminates the need to handle tapes and CDs;” thus, the
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`negative limitation is “expressly disclosed in the specification of the parent
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`application.” Id. at 876-77. Patent Owner successfully appealed the Examiner’s
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`decision, amongst others, to the BPAI.3 See id. at 1274-76.
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`Shortly after the BPAI’s decision, the ‘573 Patent expired and thus all
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`proposed amendments expired, including those that the BPAI deemed proper. Id.
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`3 The BPAI found that the “‘573 patent describes storing the digital signal in a non-
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`volatile storage portion of the second memory, where the non-volatile storage
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`portion is not a tape or CD.” Ex. 4103, p. 1450.
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`at 1504. Nevertheless, Patent Owner argued that the term “second memory” must
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`not include tapes, CDs, and other removable media when read in light of the
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`specification: “These hardware units are further described in the specification as
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`containing drawbacks in light of their removable nature and their physical
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`distribution (when compared with a hard disk acting as an internal, non-volatile
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`storage device), and it is those drawbacks that the patented invention seeks to
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`overcome.”4 Id. at 1532 (emphasis added). In the Notice of Intent to Issue Ex
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`4 The specification already made clear that “second memory” includes hard disks
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`and excludes inefficient, removable prior art media. See ‘573 Patent, 1:17-20
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`(“The three basic mediums (hardware units) of music: records, tapes, and compact
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`discs, greatly restricts the transferability of music and results in a variety of
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`inefficiencies.”); id. at 2:31-35 (“The high speed transfer of Digital Audio Music
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`as prescribed by this invention is stored onto one piece of hardware, a hard disk,
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`thus eliminating the need to unnecessarily handle records, tapes, or compact discs
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`on a regular basis.”) (emphasis ad