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 CBM2013-00023
`Patent 5,966,440
`_______________
`
`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 CBM2013-00023
`Patent 5,966,440
`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
`The ‘440 Reexamination Ex Parte Reexamination Application No. 90/007,407
`The ‘497 Application
`U.S. Patent Application No. 07/206,497
`The ‘573 Patent
`U.S. Patent No. 5,191,573
`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 CBM2013-00023
`Patent 5,966,440
`
`TABLE OF CONTENTS
`
`Page
`INTRODUCTION ................................................................................................. 1
`
`FACTUAL BACKGROUND ................................................................................ 6
`
`I.
`
`II.
`
`The “CompuSonics System”........................................................................ 6
`
`The Prosecution of the ‘440 Patent .............................................................. 8
`
`A.
`
`B.
`
`C.
`
`D.
`
`E.
`
`F.
`
`The Claims at Issue in the Current Proceeding................................. 10
`
`The Asserted “CompuSonics System” was Previously Considered.. 12
`
`SightSound and the Advent of Digital Media Distribution............... 14
`
`Patent Owner Disclosed its System to Petitioner in 1999................. 16
`
`Petitioner Enters Music/Media Business in 2001 ............................. 18
`
`The ITMS Embodies the Claims of the ‘440 Patent ......................... 19
`
`ARGUMENT ...................................................................................................... 21
`
`III. Claims 1, 64 and 95 of the ‘440 Patent Are Not Anticipated Under 35
`U.S.C. § 102 .............................................................................................. 21
`
`A.
`
`B.
`
`C.
`
`D.
`
`E.
`
`F.
`
`The Legal Framework for an Anticipation Analysis......................... 21
`
`Claims 1, 64 and 95 Are Not Anticipated by CompuSonics’ Use of
`Removable Memories and Vague Allusions to Payment.................. 22
`
`Alleged Public Use .......................................................................... 36
`
`Exhibits 4315 and 4320 Are Not “Printed Publications”.................. 38
`
`The Experimental Uses of the CompuSonics System Do Not
`Anticipate the Asserted Claims ........................................................ 40
`
`Response to Petitioner’s Invalidity Contentions............................... 42
`
`ii
`
`

`

`Case CBM2013-00023
`Patent 5,966,440
`IV.
`The ‘440 Patent Is Not Obvious Under 35 U.S.C. § 103 ............................ 54
`
`A.
`
`B.
`
`C.
`
`The Board Lacks Jurisdiction to Conduct a Review of the Patents
`Under § 103 Regarding the CompuSonics Publications ................... 54
`
`The “CompuSonics System” Does Not Render Obvious Claims 1,
`64, and 95 ........................................................................................ 57
`
`Secondary Considerations of Nonobviousness Are Overwhelming.. 64
`
`1.
`
`The Patented Invention Has Been Commercially Successful . 65
`
`a.
`
`b.
`
`c.
`
`Digital Downloads Have Been Commercially
`Successful as Compared to Other Methods of
`Obtaining Digital Audio and Video Signals................. 66
`
`The ITMS Has Been Commercially Successful ........... 67
`
`There Is a Nexus Between the ‘440 Patent, the
`Commercial Success of Digital Downloads, and the
`ITMS ........................................................................... 68
`
`2.
`
`3.
`
`4.
`
`Petitioner and Others Have Copied the Patented Invention .... 75
`
`Patent Owner’s Invention Received Praise............................. 76
`
`There Was a Long-Felt Need for the Invention ...................... 77
`
`CONCLUSION ................................................................................................... 78
`
`- iii -
`
`

`

`Case CBM2013-00023
`Patent 5,966,440
`
`TABLE OF AUTHORITIES
`
`CASES
`Advanced Display Sys., Inc. v. Kent State Univ.,
`212 F.3d 1272 (Fed. Cir. 2000)........................................................................75
`
`Page(s)
`
`Akzo N.V. v. ITC,
`808 F.2d 1471 (Fed. Cir. 1986)........................................................................65
`
`Alco Standard Corp. v. Tenn. Valley Auth.,
`808 F.2d 1490 (Fed. Cir. 1986)........................................................................64
`
`Allen Archery, Inc. v. Browning Mfg. Co.,
`819 F.2d 1087 (Fed. Cir. 1987)........................................................................76
`
`Apple Inc. v. ITC,
`725 F.3d 1356 (Fed. Cir. 2013)........................................................................69
`
`Atofina v. Great Lakes Chem. Corp.,
`441 F.3d 991 (Fed. Cir. 2006)..........................................................................36
`
`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)............................................................68, 69, 75
`
`DeMaco Corp. v. F. Von Langsdorff Licensing Ltd.,
`851 F.2d 1387 (Fed. Cir. 1988)..................................................................68, 69
`
`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)...................................................................65, 66, 74
`
`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
`
`iv
`
`

`

`Case CBM2013-00023
`Patent 5,966,440
`Eli Lilly & Co. v. Zenith Goldline Pharm., Inc.,
`471 F.3d 1369 (Fed. Cir. 2006)........................................................................77
`
`Elizabeth v. Pavement Co.,
`97 U.S. 126 (1877)...........................................................................................41
`
`Epistar Corp. v. ITC,
`566 F.3d 1321 (Fed. Cir. 2009)........................................................................26
`
`EZ Dock, Inc. v. Schafer Sys., Inc.,
`276 F.3d 1347 (Fed. Cir. 2002)........................................................................41
`
`Honeywell Int’l, Inc. v ITT Indus., Inc.,
`452 F.3d 1312 (Fed. Cir. 2006)........................................................................28
`
`Hughes Tool Co. v. Dresser Indus., Inc.,
`816 F.2d 1549 (Fed. Cir. 1987)........................................................................69
`
`In re Abbott Diabetes Care, Inc.,
`696 F.3d 1142 (Fed. Cir. 2012)..................................................................26, 28
`
`In re Arkley,
`455 F.2d 586 (C.C.P.A. 1972)..........................................................................21
`
`In re Baird,
`16 F.3d 380 (Fed. Cir. 1994)............................................................................36
`
`In re Cyclobenzaprine Hydrochloride Extended-Release Capsule Patent Litig.,
`676 F.3d 1063 (Fed. Cir. 2012)........................................................................64
`
`In re Edwards,
`578 F.2d 301 (C.C.P.A. 1978)..........................................................................23
`
`In re Gurley,
`27 F.3d 551 (Fed. Cir. 1994)............................................................................62
`
`In re Klopfenstein,
`380 F.3d 1345 (Fed. Cir. 2004)................................................................. 39, 40
`
`In re Leithem,
`661 F.3d 1316 (Fed. Cir. 2011)........................................................................56
`
`- v -
`
`

`

`Case CBM2013-00023
`Patent 5,966,440
`In re Maharkur Patent Litig.,
`831 F. Supp. 1354 (N.D. Ill. 1993).............................................................77, 78
`
`In re Mouttet,
`686 F.3d 1322 (Fed. Cir. 2012)........................................................................62
`
`Juicy Whip, Inc. v. Orange Bang, Inc.,
`292 F.3d 728 (Fed. Cir. 2002)..........................................................................37
`
`KSR Int’l Co. v. Teleflex Inc.,
`550 U.S. 398 (2007).........................................................................................57
`
`Kyocera Wireless Corp. v. ITC,
`545 F.3d 1340 (Fed. Cir. 2008)........................................................................38
`
`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)........................................................................64
`
`OSRAM Sylvania, Inc. v. Am. Induction Techs., Inc.,
`701 F.3d 698 (Fed. Cir. 2012)..........................................................................36
`
`Petrolite Corp. v. Baker Hughes Inc.,
`96 F.3d 1423 (Fed. Cir. 1996)..........................................................................37
`
`Power-One, Inc. v. Artesyn Techs., Inc.,
`599 F.3d 1343 (Fed. Cir. 2010)........................................................................76
`
`Rambus Inc. v. Rea,
`731 F.3d 1248 (Fed. Cir. 2013)..................................................................56, 65
`
`Retractable Techs., Inc. v. Becton, Dickinson & Co.,
`653 F.3d 1296 (Fed. Cir. 2011)........................................................................26
`
`Richardson v. Suzuki Motor Co.,
`868 F.2d 1226 (Fed. Cir. 1989)........................................................................25
`
`SciMed Life Sys. v. Advanced Cardiovascular Sys.,
`242 F.3d 1337 (Fed. Cir. 2001)........................................................................28
`
`- vi -
`
`

`

`Case CBM2013-00023
`Patent 5,966,440
`SightSound.com Inc. v. N2K, Inc.,
`391 F. Supp. 2d 321 (W.D. Pa. 2003) ..............................................................14
`
`SRI Int’l, Inc. v. Internet Sec. Sys. Inc.,
`511 F.3d 1186 (Fed. Cir. 2008)........................................................................38
`
`Star Scientific, Inc. v. R.J. Reynolds Tobacco Co.,
`655 F.3d 1364 (Fed. Cir. 2011)........................................................................37
`
`Teva Pharm. USA, Inc. v. Sandoz, Inc.,
`723 F.3d 1363 (Fed. Cir. 2013)........................................................................68
`
`Thorner v. Sony Computer Entm’t Am. LLC,
`669 F.3d 1362 (Fed. Cir. 2012)........................................................................26
`
`Unique Concepts, Inc. v. Brown,
`939 F.2d 1558 (Fed. Cir. 1991)........................................................................25
`
`Vectra Fitness, Inc. v. Icon Health & Fitness, Inc.,
`288 F.2d 1155 (W.D. Wash. 2003) ..................................................................75
`
`Verdegaal Bros., Inc. v. Union Oil Co. of Cal.,
`814 F.2d 628 (Fed. Cir. 1987)..........................................................................23
`
`W.L. Gore & Assocs., Inc. v. Garlock, Inc.,
`721 F.2d 1540 (Fed. Cir. 1983)........................................................................76
`
`STATUTES AND REGULATIONS
`35 U.S.C.
`§ 102............................................................................................ 5, 6, 21, 41, 55
`§ 102(a) ...........................................................................................................22
`§ 102(b) .....................................................................................................39, 40
`§ 103........................................................................................ 13, 54, 55, 56, 57
`§ 103(a) ...................................................................................................5, 6, 55
`
`37 C.F.R. § 42.208(c) (2013) ..........................................................................55, 56
`
`OTHER AUTHORITIES
`Manual of Patent Examining Procedure (“MPEP”) (2012)
`§ 2131........................................................................................................24, 39
`§ 2131.01.........................................................................................................21
`
`- vii -
`
`

`

`Case CBM2013-00023
`Patent 5,966,440
`
`INTRODUCTION
`The invention provided and claimed in the ‘440 Patent, a continuation-in-
`
`part of 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 ‘440 Patent makes “quite clear” that its objective was to “entirely free the
`
`buyer and seller from dealing in physical articles.” Ex. 1244, ¶ 93. Arthur Hair,
`
`inventor of the ‘440 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
`
`1
`
`

`

`Case CBM2013-00023
`Patent 5,966,440
`demonstration staged by CompuSonics to show how digital audio data could be
`
`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 ‘440 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
`
`- 2 -
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`

`

`Case CBM2013-00023
`Patent 5,966,440
`DSP-1000 and $35,000 or more for the DSP-2000 series, CompuSonics equipment
`
`was for professionals and audiophiles. Fatally to Petitioner’s assertions, it is
`
`undisputed that no DSP 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 DSP
`
`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 ‘440 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 CBM2013-00023
`Patent 5,966,440
`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 ‘440 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 ‘440 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, 64, and 95 of the ‘440 Patent. In asking that review be
`
`- 4 -
`
`

`

`Case CBM2013-00023
`Patent 5,966,440
`initiated, Petitioner only asserted that CompuSonics anticipated the ‘440 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 ‘440 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 CBM2013-00023
`Patent 5,966,440
`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 ‘440 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 ‘440 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 ‘440 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. 2321, ¶¶ 3-5.
`
`Petitioner refers to these products as the “CompuSonics system” in this
`
`proceeding, a nomenclature the Board adopted. See Decision, Paper 12, 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. 2324, 28:8-12. Some DSPs, like many computers at the time,
`
`- 6 -
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`

`

`Case CBM2013-00023
`Patent 5,966,440
`could transmit data via networks or telecommunications lines. Ex. 2321, ¶ 12.
`
`However, the testimony of John Stautner, CompuSonics’ second employee and
`
`lead engineer, makes clear 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. 2324, 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. 4321.
`
`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. 2321, ¶¶ 8-9. First released in late 1986, the consumer-
`
`level DSP-1000 carried a $6,995 price tag. Ex. 2325, pp. 65-67; Ex. 2322. The
`
`device plugged into home stereo systems using analog RCA jacks. Ex. 2321, ¶ 8.
`
`DSP-1000’s 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 has submitted an
`
`- 7 -
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`

`Case CBM2013-00023
`Patent 5,966,440
`undated photograph (see Ex. 43331), which the Board treated as a true
`
`representation of a DSP-1000. Decision, Paper 12, p. 21. 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. 2324, 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. 2321, ¶ 26; Ex. 2322 (photograph displaying an actual DSP-
`
`1000). The Board should not be misled, based on decades-old marketing materials,
`
`that Exhibit 4333 shows a “CompuSonics system.”
`
`II.
`
`The Prosecution of the ‘440 Patent
`On June 13, 1988, Mr. Hair filed the application that, after three
`
`continuations, became the application that issued as the ‘440 Patent on October 12,
`
`1999. The PTO previously issued two other patents in this family relating to the
`
`digital distribution of audio and video signals: the ‘573 Patent, on March 2, 1993;
`
`and the ‘734 Patent, on October 7, 1997.
`
`The ‘440 Patent describes a method where consumers can electronically
`
`purchase digital video or digital audio signals from the comfort of their homes for
`
`1 Pursuant to instructions from Board staff, Patent Owner has used Exhibit
`
`numbers provided in Petitioner’s most recent Exhibit list, Paper No. 34.
`
`- 8 -
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`

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`Case CBM2013-00023
`Patent 5,966,440
`convenient and seamless electronic playback. This provides a method to avert the
`
`music industry’s inefficiencies by replacing removable, physical media with a non-
`
`volatile hard disk, and brick-and-mortar stores with databases. Specifically, claims
`
`1, 64, and 95 of the ‘440 Patent depict a method for the “electronic sales and
`
`distribution of digital audio or video signals,” where a “user may purchase and
`
`receive digital audio or video signals from any location which the user has access
`
`to a telecommunications line.” ‘440 Patent, 1:17-21. The high speed transfer of
`
`digital audio or video signals is “stored onto one piece of hardware, a hard disk,
`
`thus eliminating the need to unnecessarily handle records, tapes, or compact discs
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`on a regular basis.” Id. at 2:45-48.
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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 1:24-26. 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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`1:24-2:21. Above that, sale and distribution was time-consuming, costly, and
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`wasteful. Id. at 1:45-54. The ‘440 Patent’s novel method of electronically selling
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`and distributing digital video and digital audio signals directly to non-volatile
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`storage or a hard disk rendered these problems moot and cut out the time and costs
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`Case CBM2013-00023
`Patent 5,966,440
`associated with manufacturing, packaging, shipping, and finally shelving physical
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`media at a brick-and-mortar location. See id. at 2:40-48. Moreover, the signals
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`were to be encrypted to preclude unlawful copying. Id. at 2:34-37.
`
`The Claims at Issue in the Current Proceeding
`A.
`Petitioner sought, and the Board initiated, review of claims 1, 64, and 95 of
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`the ‘440 Patent as covered business methods (“CBM”).2 Decision, Paper 12, at 32.
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`Exemplary Claim 1 of the ‘440 Patent is directed to the electronic sale of digital
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`video or digital audio signals. This is accomplished by: (1) forming a connection,
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`through telecommunications lines, between a first party’s first memory and a
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`second party’s second memory; (2) selling the desired digital video or digital audio
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`signals to the second party by charging a fee through the established connection;
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`(3) transferring the desired digital video or digital audio signals from the first
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`memory to the second memory via the established connection, all while the second
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`memory is in the possession and control of the second party; (4) storing the
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`transferred digital video or digital audio signals in a non-volatile storage portion of
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`the second memory, wherein the non-volatile storage portion is not a tape or CD;
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`and (5) playing the stored digital video or digital audio signal. ‘440 C1 Patent,
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`1:33-64.
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`2 For the reasons previously stated, none of the claims under review is a “covered
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`business method.” Preliminary Response, Paper 10, pp. 28-45.
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`Case CBM2013-00023
`Patent 5,966,440
`Three amendments were made to claim 1 of the ‘440 Patent during
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`reexamination. See id. Two of those amendments focused on the attributes of the
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`second memory: (1) “storing the desired digital video or digital audio signals in a
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`non-volatile storage portion the second memory” (id. at 1:55-57 (emphasis
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`added)); and (2) “wherein the non-volatile storage portion is not a tape or CD” (id.
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`at 1:63-64 (emphasis added)). Patent Owner supported these amendments in two
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`ways: (1) by referencing the originally filed specification, which recited the use of
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`a hard disk; and (2) by referencing outside sources, which found that a hard disk is
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`a form of non-volatile storage. Ex. 4303, pp. 934-35. The third and final
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`amendment pertained to the location of the parties and the method for selling the
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`digital video and digital audio signals: “the second party is at a second party
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`location and the step of selling electronically includes the step of charging a fee via
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`telecommunications lines by the first party to the second party at a first party
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`location remote from the second party location, the second party has an account
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`and the step of charging a fee includes the step of charging the account of the
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`second party.” ‘440 C1 Patent, 1:42-49.
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`Petitioner also challenges claims 64 and 95, both of which were added
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`during reexamination. Ex. 4303, pp. 913-14 (adding claim 80, which issued as
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`claim 64), 924-25 (adding claim 111, which issued as claim 95). Claims 64 and 95
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`describe additional attributes of the second memory and the second party’s
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`Case CBM2013-00023
`Patent 5,966,440
`location. See ‘440 C1 Patent, 8:14-44, 13:15-51. Claim 64 adds the requirement
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`that the second memory include a “second party hard disk.” Id. at 8:19-20, 39, 41-
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`42. Claim 95 adds two additional requirements: (1) that the second memory
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`include a “second party hard disk” (id. at 13:23, 49, 50-51); and (2) that the second
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`party control unit, which houses the second memory, be placed at a “desired
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`second party location determined by the second party” (id. at 13:20-21).
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`The Asserted “CompuSonics System” was Previously Considered
`B.
`The ‘440 reexamination entailed an exhaustive validity review. Three
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`foreign patents, over eighty U.S. Patents, and over eight hundred other publications
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`were made of record. See ‘440 C1 Patent, [56]. Included amongst the cited prior
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`art are five U.S. patents naming David Schwartz as the inventor and CompuSonics
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`as the assignee, and over eighty references to CompuSonics and its technology and
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`business plans. Id. Specifically, Exhibits 4310, 4316, 4317, 4318, 4319, 4321,
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`4323, 4324, and 4342 in this proceeding were all made of record during
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`reexamination. Id.
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`CompuSonics’ technology and methods were specifically referenced during
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`the reexamination on four separate occasions. First, U.S. Patent No. 4,636,876
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`(“the ’876 Patent”), which is Exhibit 2352, was cited by Napster in its Request for
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`Ex Parte Reexamination of the ‘440 Patent. See Ex. 4303, pp. 1-139. Napster
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`claimed that the ‘876 Patent, in combination with other references, rendered the
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`Case CBM2013-00023
`Patent 5,966,440
`‘440 Patent obvious under 35 U.S.C. § 103. Id. at 4-5. The ‘876 Patent, listing
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`David Schwartz as the inventor and CompuSonics as the assignee, is entitled
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`“Audio Digital Recording and Playback System.” Ex. 2352, [75], [73], [54]. The
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`’248 Patent, which is Exhibit 4323 in the current proceeding, is entitled “Audio
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`and Video Digital Recording and Playback System.” Ex. 4323, [54]. The two
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`patents are largely the same except for the ‘248 Patent’s additional ability to record
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`and play back digital video.3 Id. at [57]. Despite this explicit reference, the
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`Examiner did not find the ‘876 Patent to be invalidating prior art.
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`Second, an article describing CompuSonics was specifically discussed in,
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`and attached to, Patent Owner’s July 21, 2005 Response. Ex. 4303, p. 232. The
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`article was referenced for two aspects of CompuSonics’ technology: (1) the
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`payment step is accomplished by providing a credit card nu