Petitioner Apple Inc.’s Presentation
`
`Covered Business Method Review Of
`Patent Owner’s U.S. Patent
`Nos. 5,191,573 And 5,966,440
`
`May 6, 2014
`
`CBM2013-00020 and CBM2013-00023
`
`Patent Trial and Appeal Board
`United States Patent and Trademark Office
`
`Apple Inc.
`Exhibt 4272
`CBM2013-00020 (Apple v. SightSound)
`
`

`

`’573 And ’440 Patents – Claim 1
`
`1. A method for transmitting a desired digital audio
`signal stored on a first memory of a first party to a
`second memory of a second party comprising the steps
`of:
`transferring money electronically via a
`telecommunication lien [sic] to the first party at a
`location remote from the second memory and
`controlling use of the first memory from the second
`party financially distinct from the first party, said
`second party controlling use and in possession of the
`second memory;
`connecting electronically via a telecommunications
`line the first memory with the second memory such that
`the desired digital audio signal can pass there-between;
`transmitting the desired digital audio signal from the
`first memory with a transmitter in control and
`possession of the first party to a receiver having the
`second memory at a location determined by the second
`party, said receiver in possession and control of the
`second party; and
`storing the digital signal in the second memory.
`
`Ex. 4101/4304 (’573 Patent), Claim 1.
`
`1. A method for transferring desired digital video or digital audio
`signals comprising the steps of:
`forming a connection through telecommunications lines
`between a first memory of a first party and a second memory of a
`second party control unit of a second party, said first memory
`having said desired digital video or digital audio signals;
`selling electronically by the first party to the second party
`through telecommunications lines, the desired digital video or
`digital audio signals in the first memory, the second party is at a
`second party location and the step of selling electronically includes
`the step of charging a fee via telecommunications lines by the first
`party to the second party at a first party location remote from the
`second party location, the second party has an account and the step
`of charging a fee includes the step of charging the account of the
`second party; and
`transferring the desired digital video or digital audio signals
`from the first memory of the first party to the second memory of the
`second party control unit of the second party through
`telecommunications lines while the second party control unit with
`the second memory is in possession and control of the second party;
`storing the desired digital video or digital audio signals in a non-
`volatile storage portion the second memory; and
`playing through speakers of the second party control unit the
`digital video or digital audio signals stored in the second memory,
`said speakers of the second party control unit connected with the
`second memory of the second party control unit;
`wherein the non-volatile storage portion is not a tape or CD.
`
`Ex. 4301 (’440 Patent), Claim 1.
`
`2
`
`

`

`’573 And ’440 Patents – Figure 1
`
`Ex. 4101/4304 (’573 Patent) Figure 1.
`
`“[T]he applicant’s method in no manner necessitates the need for a receiver which is
`controlled by the controller of the transmitter. Any suitable recording apparatus
`controlled and in possession of the second party can be used to record the incoming
`digital signals. Accordingly, the second party’s own stereo system can be coupled to
`the incoming signals for recording. In this manner, the second party is not limited to
`a predesigned receiver of the first party controlling the transmitter . . . .”
`Ex. 4102/4305 (’573 Patent File History) at 140-141.
`“Patent Owner does not dispute that the components needed to practice the claims
`were available prior to 1988 . . . .”
`
`Patent Owner Response, CBM2013-00020 (Paper No. 41, Jan. 3, 2014) at 31 (emphasis original);
`CBM2013-00023 (Paper No. 38, Jan. 3, 2014) at 34 (emphasis original).
`
`4
`
`

`

`’573 And ’440 Patents – Claim 1
`
`1. A method for transmitting a desired digital audio
`signal stored on a first memory of a first party to a
`second memory of a second party comprising the steps
`of:
`transferring money electronically via a
`telecommunication lien [sic] to the first party at a
`location remote from the second memory and
`controlling use of the first memory from the second
`party financially distinct from the first party, said
`second party controlling use and in possession of the
`second memory;
`connecting electronically via a telecommunications
`line the first memory with the second memory such that
`the desired digital audio signal can pass there-between;
`transmitting the desired digital audio signal from the
`first memory with a transmitter in control and
`possession of the first party to a receiver having the
`second memory at a location determined by the second
`party, said receiver in possession and control of the
`second party; and
`storing the digital signal in the second memory.
`
`Ex. 4101/4304 (’573 Patent), Claim 1.
`
`1. A method for transferring desired digital video or digital audio
`signals comprising the steps of:
`forming a connection through telecommunications lines
`between a first memory of a first party and a second memory of a
`second party control unit of a second party, said first memory
`having said desired digital video or digital audio signals;
`selling electronically by the first party to the second party
`through telecommunications lines, the desired digital video or
`digital audio signals in the first memory, the second party is at a
`second party location and the step of selling electronically includes
`the step of charging a fee via telecommunications lines by the first
`party to the second party at a first party location remote from the
`second party location, the second party has an account and the step
`of charging a fee includes the step of charging the account of the
`second party; and
`transferring the desired digital video or digital audio signals
`from the first memory of the first party to the second memory of the
`second party control unit of the second party through
`telecommunications lines while the second party control unit with
`the second memory is in possession and control of the second party;
`storing the desired digital video or digital audio signals in a non-
`volatile storage portion the second memory; and
`playing through speakers of the second party control unit the
`digital video or digital audio signals stored in the second memory,
`said speakers of the second party control unit connected with the
`second memory of the second party control unit;
`wherein the non-volatile storage portion is not a tape or CD.
`
`Ex. 4301 (’440 Patent), Claim 1.
`
`5
`
`

`

`Examples Of Prior Art Statements About
`Electronic Sale Of Downloaded Music/Video
`“At a recent press demonstration hosted by AT&T at its
`headquarters here, CompuSonics made use of AT&T’s land-based
`telephone data transmission system to digitally transmit and
`receive music between Chicago and New York.”
`
`Ex. 4106/4309 (“Joint Telerecording Push: CompuSonics, AT&T Link,” Billboard,
`Oct. 5, 1985) at 3.
`
`“David Schwartz, president of CompuSonics, is a strong
`proponent of the ‘electronic record store’ concept, an idea that has
`been bandied about for some time, but which Schwartz says is
`now poised to ‘become a reality.’”
`
`Ex. 4106/4309 (“Joint Telerecording Push: CompuSonics, AT&T Link,” Billboard,
`Oct. 5, 1985) at 3.
`“[S]uch a system, as seen by Schwartz and CompuSonics, would
`utilize the firm’s telerecording process and hard disk equipment to
`allow music software dealers to receive an album master via a
`digital transmission from the record company. The retailers would
`then be able, in turn, to digitally transmit the music to consumers
`who would use credit cards to charge their purchases over the
`phone lines.”
`
`Ex. 4106/4309 (“Joint Telerecording Push: CompuSonics, AT&T Link,” Billboard,
`Oct. 5, 1985) at 3.
`
`9
`
`

`

`Examples Of Prior Art Statements About
`Electronic Sale Of Downloaded Music/Video
`“[Y]ou could pick up the phone, call up the cable TV company, say I’ll buy it. Add it
`to my bill, download it to the disk and then get the bill 30 days later or whatever.
`We think it has real potential for impulse sales to teenagers, [Laughter.] especially
`when, well I’m thinking of younger kids who a lot of the MTV appeals to, when their
`parents are out to dinner, all they need is a credit card number, and a taste for music.
`So some of these machines may end up with locks on them someday. But we, I don’t
`know when this is going to happen.”
`
`Ex. 4147/4348 (Transcript of Audio, Excerpts of CompuSonics
`Lecture at Stanford by D. Schwartz and J. Stautner, 1987) at 9:2-8.
`
`“In the not too distant future consumers will be able to purchase digital recordings of
`their favorite artists directly from the production studio’s dial-up data base and record
`them on blank SuperFloppies in a DSP-1000.”
`
`Ex. 4113/4316 (7/16/84 CompuSonics Letter from David Schwartz to Shareholders) at 1.
`
`“One medium that is currently used for shipping digital data over long distances is
`telephone lines….
`
`* * *
`Making these assumptions, in the not-too distant future consumers will be able to
`buy music at home, over telephone lines or through cable television hookups, and
`play it back through an audio device resembling a microcomputer.”
`* * *
`“Very simply, music (and other home entertainment options) will become just
`another type of computer software.”
`Ex. 4108/4311 (Larry Israelite, “Home Computing: Scenarios for Success,”
`Billboard, Dec. 15, 1984) at 4.
`
`10
`
`

`

`“Commercial Success”: Expert Qualifications
`
`Patent Owner’s Expert:
`“Q. So the record is clear, sir, is it your
`opinion that the differences in user interface
`between the iTunes Music Store and
`SightSound.com are insignificant?
`MS. SKLENAR: Objection. Foundation. Relevance.
`THE WITNESS: I think they’re insignificant as
`regards the patents involved in this case.
`BY MR. BATCHELDER:
`Q. Are they insignificant in terms of
`explaining differences in the commercial
`success of SightSound.com as compared to the
`iTunes Music Store?
`MS. SKLENAR: Objection. Foundation. Relevance.
`THE WITNESS: I don't think it's a significant
`difference in terms of buying and
`functionality. I'm not a businessperson. I'm
`not a financial analyst. So I think these are
`questions you want to ask someone who is a
`financial analyst here. I'm not a salesman. My
`expertise is in the engineering and the
`computer side. I understand a lot about the
`music industry, but, again, I'm not a
`financial analyst. I'm not a sales expert.”
`
`Ex. 4165/4366 (3/6/14 Snell Dep. Tr.) at 213:14-214:14.
`
`Petitioner’s Expert:
`Positions at Universal Music Group :
`• Executive VP, Business Strategy (2007-2008)
`• President, eLabs (1998-2007)
`• Executive VP, Business and Legal Affairs
`(1991-1998)
`• Business and Legal Affairs Attorney (1983-1991)
`
`Professional Activities:
`• RIAA, Board Member (mid-1990s- 2008)
`•
`Int’l Federation of the Phonographic Industry, Board
`Member (1998-2002)
`• SoundExchange, Board Member (2005-2008)
`See Ex. 4256/4414 (Kenswil Decl.) ¶¶ 7-15.
`
`11
`
`

`

`Patent Owner:
`
`“[SightSound’s] success is dependent on its ability
`to motivate the major owners of video and audio
`recordings to allow the Company to be a retailer
`of their content, to purchase the Company’s DSP
`offerings, or, in the case of audio recordings, to
`quickly commence conducting Entertainment E-
`Commerce as Licensees.”
`
`Ex. 4157/4358 (Private Placement Memorandum, April 27, 1999,
`SightSound.com) at 9-10.
`
`Patent Owner v. Snell
`Patent Owner’s Expert:
`“Q: . . . You said that the content available on
`iTunes Music Store is more compelling than the
`content available on SightSound.com. And I’m
`asking as a matter of historical fact, how did
`that difference in the compelling nature of the
`content impact user purchasing patterns?
`MS. SKLENAR: Objection. Relevance. Foundation.
`THE WITNESS: Again, I think the -- it’s always
`more compelling to -- I shouldn’t say always, but
`it’s usually more compelling to -- a web site is
`going to be more compelling in the future than it
`is today and today’s web sites are more
`compelling than they were ten years ago.
`So as time goes on, they are going to be more
`compelling. That’s just the nature of
`technology, especially computer science and media
`technology.
`Q: And applying that to comparing the iTunes
`Music Store to SightSound.com, what role, if any,
`did that have in explaining the differences in
`the respective commercial success of those two
`websites?
`MS. SKLENAR: Objection. Foundation. Relevance.
`A: I don’t think I’ve formed an opinion about
`this. It’s not something I looked at for this
`proceeding.”
`
`“Many potential [SightSound] investors were
`concerned about the lack of available compelling
`content. The company designed a valuable
`solution. With consumer technology (i.e. high
`speed internet access, faster PCs, initial
`development of ‘smart TVs’) well on the way
`available content was the key missing ingredient.”
`
`Ex. 4160/4361 (April 12, 2000 Memorandum from LePore, Patent Owner’s
`CFO, to Files Re: Company Stock Valuation) at 5.
`
`Ex. 4165/4366 (3/6/14 Snell Dep. Tr.) at 161:18-162:22.
`
`12
`
`

`

`Petitioner’s Expert:
`“A key to the success of iTMS was Apple’s ability
`to secure licenses with the major record labels
`prior to the launch of iTMS. This was an attractive
`feature for consumers because it gave them a store
`with a full catalog of offerings to browse and from
`which to select.”
`
`Ex. 4256/4414 (Kenswil Decl.) ¶ 69.
`
`Kenswil v. Snell
`Patent Owner’s Expert:
`“Q: . . . You said that the content available on
`iTunes Music Store is more compelling than the
`content available on SightSound.com. And I’m
`asking as a matter of historical fact, how did
`that difference in the compelling nature of the
`content impact user purchasing patterns?
`MS. SKLENAR: Objection. Relevance. Foundation.
`THE WITNESS: Again, I think the -- it’s always
`more compelling to -- I shouldn’t say always, but
`it’s usually more compelling to -- a web site is
`going to be more compelling in the future than it
`is today and today’s web sites are more
`compelling than they were ten years ago.
`So as time goes on, they are going to be more
`compelling. That’s just the nature of
`technology, especially computer science and media
`technology.
`Q: And applying that to comparing the iTunes
`Music Store to SightSound.com, what role, if any,
`did that have in explaining the differences in
`the respective commercial success of those two
`websites?
`MS. SKLENAR: Objection. Foundation. Relevance.
`A: I don’t think I’ve formed an opinion about
`this. It’s not something I looked at for this
`proceeding.”
`
`Ex. 4165/4366 (3/6/14 Snell Dep. Tr.) at 161:18-162:22.
`
`13
`
`

`

`Other CompuSonics Disclosures
`Regarding Electronic Payment
`
`“The retailers would then be able, in turn, to
`digitally transmit the music to consumers who
`would use credit cards to charge their purchases
`over the phone lines.”
`Ex. 4106/4309 (“Joint Telerecording Push: CompuSonics,
`AT&T Link,” Billboard, Oct. 5, 1985) at 3.
`
`“AT&T’s commitment to telerecording may hasten
`the arrival of that day, in the not too distant future,
`when the technology will filter down to the
`consumer level, allowing all-electronic purchases,
`transfers and digital recording of high fidelity audio
`from any music dealer’s DSP-2000 to the DSP-
`1000 in your living room.”
`Ex. 4115/4318 (10/10/85 CompuSonics Letter
`from David Schwartz to Shareholders) at 1.
`
`15
`
`

`

`Named Inventor v. Snell
`“One skilled in the art would know that an
`electronic sale inherently assumes a
`transferring of money by providing an
`account number or a credit or debit card
`number which then allows for access to or a
`transferring of a service or product through
`telecommunications lines.”
`
`“One skilled in the art would know that an
`electronic sale inherently assumes a charging
`of a fee to an account which then allows for
`access to or a transferring of a product or
`service through telecommunications lines.”
`Ex 4136/4338 (’734 Patent File History)
`(3/6/14 Snell Dep. Ex. 6) at 109.
`
`Ex 4136/4338 (’734 Patent File History)
`(3/6/14 Snell Dep. Ex. 6) at 109.
`
`“Q. So focusing again on Exhibit 6, page 109, the
`third paragraph, I’m going to read it again. ‘One
`skilled in the art would know that an electronic
`sale inherently assumes a transferring of money by
`providing an account number or a credit or debit
`card number which then allows for access to or a
`transferring of a service or product through
`telecommunications lines.’ Have I read that
`correctly?
`A. Yes.
`Q. And focusing on the time period just before the
`priority date, are you now saying that is not
`an accurate statement?
`MR. SKLENAR: Objection. Foundation.
`A. Yes. Again, I did not review this document for
`this proceeding, but as I read it more clearly, I
`-- I disagree.
`Mr. BATCHELDER:
`Q. You disagree with the statement I just read?
`A. Yes.”
`
`Ex. 4165/4366 (3/6/14 Snell Dep. Tr.) at 83:9-84:8.
`
`“Q. Focusing on the fourth paragraph of page 109
`of Exhibit 6, I’m going to read the paragraph.
`‘One skilled in the art would know that an
`electronic sale inherently assumes a charging of
`a fee to an account which then allows for access
`to or a transferring of a product or service
`through telecommunications lines.’ Have I read
`that correctly?
`A. Yes.
`Q. And focusing on the time period just before
`the priority date, do you disagree with [the
`Inventor’s] statement?
`MR. SKLENAR: Objection. Foundation.
`THE WITNESS: I disagree with this statement.”
`
`Ex. 4165/4366 (3/6/14 Snell Dep. Tr.) at 84:9-85:1.
`
`16
`
`

`

`Patent Owner’s System Encouraged Use
`Of Removable Memory
`“Digital Sight/Sound: System Requirements”
`
`“Memory Hogasaurus!
`In the very near future, we will think of hard storage in terms of
`gigabytes, lots of gigabytes. In fact, the Maxoptix Corporation currently
`sells a very affordable 20 gigabyte optical juke box. If you really want
`massive memory go for their 180 gigabyte juke box. Measly storage
`devices measured in megabytes will soon be remembered with nostalgia
`as are 8-track tapes and other extinct technosaurs. What are you waiting
`for? Set up your home music archive today!”
`
`This optical jukebox was removable memory.
`Ex. 4165/4366 (3/6/14 Snell Dep. Tr.) at 109:18-110:18, 115:24-
`116:4; Ex. 4262/4420 (Second Kelly Decl.) ¶ 11.
`
`Ex. 4167/4368 (Ex. 9 of 3/6/14 Snell Dep. Tr.) at 10.
`“THE WITNESS: You said, ‘Do you understand that SightSound is here recommending
`to its customers that you should buy music from us via our Virtual Records site
`and you should store purchased music on a removable optical juke box.’
`Q: That’s my question.
`A: And my answer was no.
`Q: And my question is why?
`MS. SKLENAR: Same objections.
`A: Because they’re not recommending it.”
`
`Ex. 4165/4366 (3/6/14 Snell Dep. Tr.) at 145:13-24.
`
`17
`
`

`

`Nexus Between Commercial Success And
`Patented Invention
`
`“As to commercial success, to establish a proper nexus between a claimed invention
`and the commercial success of a product, a patent owner must offer ‘proof that the
`sales [of the product] were a direct result of the unique characteristics of the claimed
`invention—as opposed to other economic and commercial factors unrelated to the
`quality of the patented subject matter.’ In re Huang, 100 F.3d 135, 140 (Fed. Cir.
`1996). In addition, ‘if the commercial success is due to an unclaimed feature of the
`device,’ or ‘if the feature that creates the commercial success was known in the prior
`art, the success is not pertinent.’ Ormco Corp. v. Align Tech., Inc., 463 F.3d 1299,
`1312 (Fed. Cir. 2006); see also In re Kao, 639 F.3d 1057, 1070 (Fed. Cir. 2011)
`(requiring a determination of ‘whether the commercial success of the embodying
`product resulted from the merits of the claimed invention as opposed to the prior art
`or other extrinsic factors’).”
`
`Apple Inc. v. SightSound Techs. LLC,
`CBM2013-00020, slip op. at 9-10 (PTAB Dec. 11, 2013) (Paper No. 40);
`CBM2013-00023, slip. op. at 9-10 (PTAB Dec. 11, 2013) (Paper No. 36).
`
`19
`
`

`

`Requirements For Presumption Of Nexus
`
`“A presumption that such a nexus exists arises if the
`patentee can show that the marketed product ‘embodies
`the claimed features’ and ‘is coextensive with them.’ The
`reason for the first part of this inquiry is obvious: the
`patentee must show that the marketed product embodies
`(that is, infringes or is covered by) the patent claim. If the
`product does not read on the claim, there can be no
`relevance of the product’s commercial success to whether
`the claim is obvious or not.”
`
`Rambus Inc. v. Hynix Semiconductor, Inc.,
`254 F.R.D. 597, 601-03 (N.D. Cal. 2008) (internal citation omitted).
`
`20
`
`

`

`Not Embodying
`
`Patent Owner Bears Burden Of
`Proving Embodiment:
`“A presumption that such a nexus exists arises if the patentee
`can show that the marketed product ‘embodies the claimed
`features’ and ‘is coextensive with them.’ The reason for the
`first part of this inquiry is obvious: the patentee must show
`that the marketed product embodies (that is, infringes or is
`covered by) the patent claim. If the product does not read on
`the claim, there can be no relevance of the product’s
`commercial success to whether the claim is obvious or not.”
`Rambus Inc. v. Hynix Semiconductor, Inc.,
`254 F.R.D. 597, 601-03 (N.D. Cal. 2008).
`
`Petitioner’s Expert Explained Several
`Reasons Why iTMS Does Not Embody
`The Claimed Features, Such As:
`• Not transferring money with, e.g., gift cards, store credit,
`redemption codes, third party payments
`
`• No “electronic” medium when signals are sent over WiFi
`and cellular networks
`
`•
`
`•
`
`Secondary player devices not “second memory”
`
`Solid state memory is not hard disk
`
`Ex. 4262 (Second Kelly Decl.) ¶¶ 48-49, 50-52, 55-57, 61-63;
`Ex. 4420 (Second Kelly Decl.) ¶¶ 63-64.
`
`21
`
`

`

`Not Co-Extensive
`
`“A presumption that such a nexus exists arises if the patentee can
`show that the marketed product ‘embodies the claimed features’
`and ‘is coextensive with them.’ The reason for the first part of this
`inquiry is obvious: the patentee must show that the marketed
`product embodies (that is, infringes or is covered by) the patent
`claim. If the product does not read on the claim, there can be no
`relevance of the product’s commercial success to whether the
`claim is obvious or not. But for a presumption to attach, the
`patentee must also show that the claimed invention is
`‘coextensive’ with the product. The reason for this part of the
`inquiry is equally important, but less clear. This requirement
`accommodates the reality that many products embody dozens of
`patents or features and that their success or failure cannot solely be
`attributed to any particular one.”
`
`* * *
`“For example, if a product embodies several claimed inventions,
`why should any one invention be presumed to be the cause of its
`success? Put another way, how could one tell that the product’s
`success was due to the claimed invention at issue and not the
`collective utility of the other inventions? Thus, where the product
`is not coextensive with the claimed invention, the patentee must
`show more to establish the chain of inference that suggests that the
`claimed invention is non-obvious.”
`
`Rambus Inc. v. Hynix Semiconductor, Inc.,
`254 F.R.D. 597, 601-03 (N.D. Cal. 2008) (internal citation omitted).
`
`22
`
`

`

`Petitioner’s Expert, Mr. Kelly:
`“iTMS embodies a large number of features, many of which are
`subjects of Apple’s own patents.” For example, the following U.S.
`Patents:
`• 7,650,570 – visualizing and interacting with a music library
`using metadata;
`• 8,136,030 – library maintenance and organization with display
`of selectable albums and songs;
`• 8,255,815 – improvements in the area of preview icons for
`motion pictures;
`• 7,853,972 – improvements in previewing content through the
`use of menus;
`• 8,214,315 – automated addition and/or deletion of media items
`for a mobile media player based on user taste data;
`• 5,561,670 – using multicast system to transmit digital audio
`and video using control packets;
`• 7,653,685 – transferring multimedia data using streaming
`media protocols;
`• 7,962,505 – recommending users to other users based on music
`listening and recommending history;
`• 7,320,069 – media data encryption and protection;
`• 7,797,446* – updating of playlists when media is added or
`removed from the media system;
`• 7,827,259* – repeatedly selecting and presenting media on a
`media device by applying rules or user criteria;
`• 7,860,830* – improvements on presentation of media for sale
`to buyers;
`• 7,680,849* – synchronization with a media device.
`
`See Ex. 4262/4420 (Second Kelly Decl.) ¶¶ 66-81.
`* denotes a patent that issued over the ’573 Patent
`
`Not Co-Extensive
`Jeff Robbin, Petitioner’s VP of iTunes:
`“The iTunes client and iTunes Music Store include many technological
`features developed by Apple. One example is the “Genius” feature,
`which, among other functions, implements a sophisticated algorithm to
`provide recommendations based on past purchases.”
`
`At least nine Apple patents for which Jeffrey Robbin is one of the
`inventors of the following U.S. Patents related to the iTMS:
`• 7,853,893 – graphical user interface for searching, browsing,
`previewing, and/or purchasing media items;
`• 6,728,729 – accessing media across networks;
`• 7,765,326 – improved interaction between host computer and
`media player;
`• 7,797,446* – automatic playlist updating;
`• 7,827,259*– selecting/presenting media items at media device;
`• 7,844,498 – interacting with an online media store to obtain a
`media asset bundle;
`• 7,895,661 – secure access to content within media files;
`• 7,958,441* – management of playlists;
`• 8,046,369* – assigning ratings to media assets.
`
`See Ex. 4255/4413 (Robbin Decl.) ¶ 7.
`Petitioner’s Expert, Mr. Kenswil:
`“[F]eatures, such as the five-star rating system, lists of music
`videos by . . . , lists of movies and books about…, [and]
`concert tour information for the band being viewed, the
`‘genius’ recommendation feature, and the song-by-song
`‘Popularity’ rating, were all important to the success of iTMS.”
`
`Ex. 4256/4414 (Kenswil Decl.) ¶ 93; see id. ¶¶ 92-98.
`
`23
`
`

`

`Patent Owner Admitted Commercial Failure
`
`“From March 1996 through March 1998 the company raised equity from a
`number of individual investors through a Private Placement Offering. The
`investments ranged from $0.11 a share to $0.15 a share. It was clear over this
`period that the company’s value did not change dramatically. In fact, the
`company attempted to launch several different music distribution strategies
`from 1995 to 1998 only to realize less than $600 in gross revenue for the entire
`three-year period.”
`
`Ex. 4160/4361 (April 12, 2000 Memorandum from LePore, Patent Owner’s CFO, to Files Re: Company
`Stock Valuation) at 2.
`
`“[I]ncurred substantial net losses in each fiscal period since its inception.”
`
`Ex. 4163/4364 (Prospectus, Digital Sight/Sound (August 15, 1997)) at 4.
`
`“[T]he music industry opportunity never materialized.”
`
`Ex. 4160/4361 (April 12, 2000 Memorandum from LePore, Patent Owner’s CFO, to Files
`Re: Company Stock Valuation) at 4.
`
`24
`
`

`

`Other Features Of iTunes Music Store
`
` five-star rating system
` plot summaries
` multiple trailers for a given movie
` cast and crew lists (for movies)
` editor’s notes
` “Viewers Also Bought” lists
` “More From These Actors” lists,
` movie bundles (groups of movies
`at a volume discount)
` pre-ordering
` lists of music videos by the band
`being viewed
`
` lists of movies and books about
`the band being viewed
` concert tour information for the
`band being viewed
` “Genius” recommendation feature
` song-by-song “Popularity” rating
` “iTunes Match”
` “Mastered For iTunes”
` “Artist Info”
` movie reviews
`
`See Ex. 4165/4366 (3/6/14 Snell Dep. Tr.) at 163:11-186:3; 196:5-207:22; 208:19-212:17;
`Exs. 4169-71/4370-72 (Exs. 11-13 of 3/6/14 Snell Dep. Tr.); Ex. 4256/4414 (Kenswil Decl.) ¶¶ 92-97.
`
`25
`
`

`

`The Examiner Rejected Patent Owner’s
`Nexus Arguments
`
`“The existence and profitability of [allegedly embodying
`systems] are due to the advances in recent technology and not
`[Patent Owner’s] claimed invention.”
`Ex. 4103/4306 (’573 Patent Reexam File History) at 267.
`
`26
`
`

`

`Industry Rejection Of Patent Owner’s System
`“Q. Your system was not generating sufficient revenues
`to continue the running of the commercial systems?
`A. That is correct.”
`
`Ex. 4104/4307 (12/11/12 Hair Dep. Tr.) at 160:17-20.
`
`Memo from LePore,
`Patent Owner’s CFO:
`
`“Ultimately, SightSound was unable to convince major
`record labels that music and video distribution via a digital
`online format was the future of the music industry.”
`Patent Owner Response, CBM2013-00020 (Paper No. 41, Jan. 3, 2014)
`at 15 n.7.; CBM2013-00023 (Paper No. 38, , Jan. 3, 2014) at 15 n.6.
`
`“In fact, the company attempted to launch several different music distribution strategies from
`1995 to 1998 only to realize less than $600 in gross revenue for the entire three-year period.”
`
`“From its inception through 1998 the Company solely focused on the music business. It was clear
`from numerous meetings and proposals that the major industry players were not prepared to
`distribute their products in digital fashion. . . . Thus, without an agreement to distribute music for
`the major labels the company concluded that its ability to be successful was severely limited.”
`
`“The company initially attempted to sign artists to agreements whereby the company would
`distribute the artist’s music directly over the Internet. This did not prove successful since the only
`bands likely to enter such an agreement are bands that are not under contract with a record label.”
`
`“Some labels seriously considered the offer but ultimately rejected the notion to have their
`content digitally distributed for several reasons. First, the labels were afraid that the encryption
`would be hacked resulting in the free distribution of illegal copies. Secondly, the companies did
`not believe that SightSound.com’s patent was valid. Third, the record labels prefer to distribute
`music without using a third party service provider.”
`
`“Again, the company was not able to win the timely cooperation of the record labels or individual
`artists to successfully launch the strategy.”
`
`Ex. 4160/4361 (April 12, 2000 Memorandum from LePore, Patent Owner’s CFO, to Files Re: Company
`Stock Valuation) at 2-3.
`
`27
`
`

`

`CompuSonics Discloses Video
`“If the technology does take hold, future applications could be dazzling.
`CompuSonics is talking to AT&T about setting up a service that would enable record
`companies to sell direct to consumers over the telephone. Symphonies, ordered by
`credit card, could travel digitally over phone lines into homes to be recorded by
`Compusonics’ machine. Movies, which can also be recorded digitally, might be sent
`the same way.”
`Ex. 4119/4324 (“The Search for the Digital Recorder,” Fortune Magazine, Nov. 12, 1984) at 2 (emphasis original).
`
`“Music television has become a key component of the entertainment industry.
`Presently, music television serves primarily as a means of promoting sales of records,
`cassettes, and compact discs. A small but increasingly significant number of
`consumers are also purchasing music videos in videotape format. . . . Digital music
`video distribution offers customers two significant benefits: high fidelity digital audio
`and video, and convenient purchasing via electronic distribution directly to the home.”
`
`Ex. 4116/4319 (CompuSonics Video Application Notes – CSX Digital Signal Processing (1986)) at 2.
`
`“The proposed music video distribution chain has three principle components that
`depend on CSX technology: a video database computer, a broadcast digital encoder,
`and a home disk-based digital video decoder/recorder. A consumer enjoying music
`television who chooses to purchase his own digital copy calls the distributor with his
`request. The distributor enables the video database computer to access the consumer’s
`selection and transfer the video/audio data to the broadcast digital encoder. This
`encoder modulates the data onto a cable television subcarrier or other transmission
`format. The home decoder/recorder receives the digital video/audio data over the
`cable link and copies it to disk.”
`Ex. 4116/4319 (CompuSonics Video Application Notes – CSX Digital Signal Processing (1986)) at 2-3.
`28
`
`

`

`“The company behind the product, CompuSonic, says it
`also has developed a software interface for its new
`Compu