UNITED STATES PATENT AND TRADEMARK OFFICE
`______________
`
`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`______________
`
`APPLE INC.
`
`Petitioner
`
`v.
`
`SIGHTSOUND TECHNOLOGIES, LLC
`Patent Owner
`______________
`
`Case CBM2013-00023
`Patent 5,966,440
`______________
`
`Before the Honorable MICHAEL P. TIERNEY, JUSTIN T. ARBES, and
`
`GEORGIANNA W. BRADEN,
`
`Administrative Patent Judges.
`
`
`
`DECLARATION OF LAWRENCE KENSWIL
`CONFIDENTIAL—FILED UNDER SEAL
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`
`
`
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`
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`Apple Exhibit 4414 _ REDACTED
`Apple v. SightSound Technologies
`CBM2013-00023
`Page 00001
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`______________
`
`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`______________
`
`APPLE INC.
`
`Petitioner
`
`v.
`
`SIGHTSOUND TECHNOLOGIES, LLC
`Patent Owner
`______________
`
`Case CBM2013-00023
`Patent 5,966,440
`______________
`
`Before the Honorable MICHAEL P. TIERNEY, JUSTIN T. ARBES, and
`
`GEORGIANNA W. BRADEN,
`
`Administrative Patent Judges.
`
`
`
`DECLARATION OF LAWRENCE KENSWIL
`CONFIDENTIAL—FILED UNDER SEAL
`
`
`
`
`
`
`
`
`
`Apple Exhibit 4414 _ REDACTED
`Apple v. SightSound Technologies
`CBM2013-00023
`Page 00001
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`Case CBM2013-00023
`Patent 5,966,440
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`I, Lawrence Kenswil, hereby declare under penalty of perjury:
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`1.
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`I have been retained by Apple Inc. (“Apple”) in this action to serve as an
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`expert witness.
`
`2.
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`I offer this declaration in support of Apple in connection with U.S.
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`Patent Nos. 5,966,440 (“the ’440 Patent”), which I understand SightSound
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`Technologies, LLC (“SightSound”)1 asserts that it owns.
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`3.
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`If asked to testify at a deposition or other proceeding, I will provide
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`testimony on these subjects. I reserve the right to supplement or amend the opinions
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`I have expressed or to respond to any opinions of other experts in this matter.
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`I.
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`INTRODUCTION
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`4.
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`I understand that the ’440 Patent generally relates to the electronic sale
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`of digital audio and/or video through telephone or telecommunication lines.
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`II. QUALIFICATIONS
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`5.
`
`I graduated in 1972 from Cornell University with a Bachelors of Arts in
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`Theatre Arts. In 1977, I received a Masters of Science degree in Communications
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`from Boston University. In 1980, I graduated with a J.D. degree from Georgetown
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`University’s Law Center.
`
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`1 Although SightSound has done business under various names, I will use the term
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`SightSound to refer to each of these entities in this declaration for the sake of
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`simplicity except where noted otherwise.
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`2
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`A. My Career in the Music Industry
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`6.
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`Following graduation from law school, I moved to Hollywood where I
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`joined Mitchell, Silberberg & Knupp as a litigation associate, focusing my practice on
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`entertainment law.
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`7.
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`In 1983, I left Mitchell, Silberberg to join the Universal Music Group
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`(“UMG”) (then known as MCA, which had been a client of Mitchell, Silberberg).
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`From 1983 to 1991, I was a business and legal affairs attorney, starting as an Associate
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`Director for MCA Records and rising to Senior Vice President for the MCA Music
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`Entertainment Group, which centrally managed MCA’s music related businesses such
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`as record labels, music publishing, and concert promotion. During this time, I
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`negotiated and drafted agreements, including artists deals, label deals, publishing
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`agreements, live venue agreements, and merchandising and sales agreements. I also
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`drafted and negotiated agreements related to corporate acquisitions and mergers.
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`8.
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`In 1991, I became Executive Vice President for Business and Legal
`
`Affairs and was the chief legal officer for UMG globally. In that position, I
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`supervised all deal-making activities and legal matters for the various group businesses.
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`9.
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`In 1998, I founded and ran UMG’s eLabs as eLabs’s President. eLabs
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`was UMG’s internal unit dedicated to exploring, developing, and evolving global
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`business and new technology strategies to expand the role of music in consumers’
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`lives. During my time at UMG, I was always following new technologies, became one
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`3
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`of the first executives at UMG to have a personal computer, and evangelized within
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`the company regarding the effect of technological changes on business strategies,
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`practices, and marketing.
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`10. As President of eLabs, I supervised a team of business, legal, and
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`technical professionals devoted to developing, implementing, and operating new
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`music products, programming and digital distribution initiatives across all emerging
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`technology and convergence platforms, including Internet, mobile, physical, kiosk,
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`home networking and set-top box systems. I was familiar with some of the
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`technological issues with implementing a system for the electronic sale of digital
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`audio/video, including bandwidth limitations and the need for robust compression
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`technologies and standards. By 2000, eLabs had approximately 50 employees in New
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`York, Los Angeles and London. Several engineers, with degrees in electrical
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`engineering and/or computer science, reported to me during my time at eLabs.
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`11. During my tenure at eLabs, the unit commenced and oversaw a multi-
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`million dollar project to digitize and catalog its music and associated artwork.
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`12.
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`From the mid-1990s through 2008, I was a Board Member of the
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`Recording Industry Association of America (“RIAA”) and a member of its
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`Technology Steering Committee—a committee consisting of representatives from the
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`major label recording companies—from the time it was founded through 2008. The
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`Committee was involved, among other things, in developing the industry lobbying
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`positions with Congress regarding legislation such as the Digital Millennium
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`Copyright Act. This committee helped develop identifiers within the metadata of a
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`song to assist with tracking intellectual property rights. I was the lead representative
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`for my company (by then renamed the Universal Music Group) in setting industry
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`standards, such as DVD-Audio, Super Audio CD (“SACD”), and the Strategic Digital
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`Music Initiative (“SDMI”).
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`13.
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`In 2007, I was again promoted at UMG and became the Executive Vice
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`President for Business Strategy. In this position, I formulated UMG’s policy for
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`emerging products, technology and distribution methods. I negotiated major deals
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`and supervised industry-wide negotiations, including compulsory license arbitrations
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`for webcasting, satellite radio, and mechanical licensing. In addition, I supervised the
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`global anti-piracy unit.
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`14. All told, I spent twenty-five years at UMG, focusing on emerging
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`technologies during my last ten years there.
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`15.
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`In addition to this experience at UMG and RIAA, I was a Board
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`Member for the International Federation of Phonographic Industry (“ifpi”) from
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`1998-2002. And, I was a Board Member of SoundExchange from 2005-2008.
`
`B.
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`After Leaving UMG
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`16. After I left UMG in 2008, I became Of Counsel for Loeb & Loeb. I
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`remained at Loeb & Loeb until 2011.
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`17.
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`I am now semi-retired, but I own a small private practice, focusing on
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`assisting companies in obtaining licenses from major record labels.
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`18. A copy of my curriculum vitae is attached as Exhibit A to this declaration.
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`I have spoken many times at industry events and conferences, including several
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`keynote speeches and have coordinated panels. I have also been extensively profiled
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`in industry publications, including Billboard Magazine, in which I was named the third
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`most powerful person in the digital music industry in 2005 (trailing Steve Jobs and a
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`corporate CEO on the list). I have not previously testified as an expert.
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`III. MATERIALS CONSIDERED
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`19.
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`In preparing my declaration, I considered certain documents, including
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`the Hair patents, materials describing prior art and the state of the art at the time of
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`the alleged invention, and other materials cited herein. I also have considered
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`materials in connection with the opinions expressed herein, including the Declaration
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`of John Snell In Support of Patent Owner SightSound Technologies, LLC’s Response
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`To Petition (“the Snell Declaration”), SightSound Technologies, LLC’s Response to
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`Petition (Paper 38, “SightSound’s Reply”) and the other materials cited herein. I have
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`also had a conversation with Dr. Kelly, who I understand is also submitting a
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`declaration on March 21, 2014.
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`20.
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`I reserve the right to consider any additional materials I deem
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`appropriate in conjunction with any additional declaration I may file or otherwise. I
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`also reserve the right to consider and/or to rely upon other declarations that may be
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`submitted in this matter, and any further testimony of fact or expert witnesses at a
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`deposition or other proceeding.
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`IV. COMPENSATION
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`21.
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`For my services as an expert in this proceeding I am being compensated
`
`at my normal rate of $525 per hour. My compensation is not contingent upon the
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`outcome of this proceeding.
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`V.
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`BACKGROUND
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`22.
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`I understand that on May 6, 2013, Petitioner Apple Inc. filed in this
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`proceeding a petition seeking covered business method (“CBM”) review of claims 1,
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`64, and 95 of the ’440 Patent (“Challenged Claims”).
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`23.
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`I understand that on October 8, 2013, the Patent Trial and Appeal Board
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`(“PTAB”) determined to institute a covered business method review of the ’440
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`Patent after finding that Apple made a threshold showing that the Challenged Claims
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`are anticipated under 35 U.S.C. § 102 and unpatentable under 35 U.S.C. § 103.
`
`24.
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`I understand that in arguing against the obviousness of its patent,
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`SightSound stated that “the evidence of secondary considerations provides substantial
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`insight into the merits of the ’440 Patent at the relevant time.”2 For the reasons
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`discussed below in paragraphs 32-98, I disagree.
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`2 SightSound’s Reply at 67.
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`25.
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`In the context of secondary considerations, I understand that
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`commercial success includes achieving profitability and sales that represent a
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`substantial quantity in the relevant market.
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`26.
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`I understand that in the context of commercial success, “nexus” means
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`that the commercial success of the product is due to the claimed, novel features of the
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`patented invention (i.e., the sales were a direct result of the unique characteristics of
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`the claimed invention). There is no nexus where the commercial success is due to an
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`unclaimed feature of the product or a feature that was known in the prior art.
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`27.
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`I understand that evidence of commercial success is not relevant in this
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`context if no nexus exists between the claimed invention and the proffered
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`commercial success.
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`28.
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`I understand that a method or product is “coextensive” in the context of
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`secondary considerations (or indicia) of non-obviousness when that product or
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`method is the invention disclosed and claimed in the patent. However, when the
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`patented invention is only a component of a commercially successful machine or
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`process, then that machine or process is not “coextensive” with the invention.
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`29. As I discuss below, there are many important aspects of the iTunes
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`Music Store (iTMS) that are unrelated to the ’440 Patent. Therefore, contrary to
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`SightSound’s assertion, even if iTMS were assumed to practice the ’440 Patent (and I
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`understand that is an issue disputed in a separate litigation), it would not be
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`coextensive with it. See, e.g., ¶¶66 -87. See also ¶¶88-97.
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`30.
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` SightSound contends that there is a nexus between the commercial
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`success of iTMS and the ’440 Patent’s claimed invention. As described in detail below
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`(¶¶ 66-98), I disagree that there is a nexus between any alleged merits of the claimed
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`invention and the commercial success of iTMS.
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`31.
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`I understand from Dr. Kelly that iTMS does not embody the ’440 Patent
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`claims. However, even if iTMS did embody the ’440 Patent claims, the commercial
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`success of iTMS is not attributable to the alleged invention of the ’440 Patent, but
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`rather to features not covered by the ’440 Patent.
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`VI. SIGHTSOUND’S OWN FAILURE IS EVIDENCE THAT DIGITAL
`DOWNLOADS IN GENERAL HAVE NOT BEEN
`COMMERCIALLY SUCCESSFUL
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`32.
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`SightSound asserts that digital download businesses in general have been
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`commercially successful.3 I disagree. Some have succeeded, but many have failed.
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`That the ’440 Patent was not the driver of a successful business for the distribution of
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`digital audio/video is evidenced by the failed attempts
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` to
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`launch a successful system for the distribution of digital audio/video through
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`telecommunication lines. For
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`, many
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`other companies who have attempted to sell digital audio over the internet have failed.
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`3 See, e.g., SightSound’s Reply at 68-76; Ex. 2353 ¶ 82.
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`For instance, Walmart attempted to sell digital music over the internet, and ultimately
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`closed its Walmart MP3 Downloads business.4 Virgin Digital, which included services
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`for both streaming and download of content, closed in 2007.5 Liquid Audio was
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`both a technology company and a full service solution for audio downloads. Founded
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`in 1996, it failed to gain commercial traction and was sold in 2003, with its new
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`owners focusing on middleman services. It closed in 2011. 6 A2B Music was a
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`technology venture launched by AT&T in 1997, focusing both on proprietary
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`technology and sales of digital downloads. 7 Like Liquid Audio, it failed to gain
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`traction, with its senior management leaving the company in 1999, after which it
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`ceased its retail operations. 8
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`33.
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`SightSound asserts that it owns the ’440 Patent and that it was the first
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`company to practice it with a commercial embodiments. Nevertheless, SightSound’s
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`arguments regarding commercial success ignore the fact
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`
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` however, Apple has been successful in its endeavors to commercialize its
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`.
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`4 Ex. 4352.
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`5 Ex. 4350.
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`6 Ex. 4379; Ex. 4417.
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`7 Ex. 4412.
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`8 See Ex. 4466.
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`9 Ex. 4361 at 2-3 (emphasis added).
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`‘° Ex. 4307 at 81:16-21. See (I/J0 Ex. 4359 at 12.
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`37.
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`38.
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`12
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`11 Ex. 4364 at 11 (emphasis added)
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`12 Ex. 4361 at 2-3 (emphasis added).
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`((1)
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`SightSound’s Strategy Shifts Again To Focus On The
`Motion Picture Industry
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`491.
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`I understand that Sightsound recoxmnenced operations in '1 998 with 21
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`14
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`-
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`15
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`42.
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`16
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`13 In’. at 3.
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`‘4
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`‘5
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`4307 at 76:17-24.
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`4361 at 4.
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`43.
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`17
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`albums that were ever available at any given time was approximately 100.19
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`45. By 2002, I understand that SightSound again had suspended efforts to
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`18 The largest number of
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`commercialize its own system.20
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`B.
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`46.
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`SightSound’s arguments regarding commercial success of the ’440 Patent
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`.
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`entirely ignore
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`16 Id. at 4-5
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`17 Id. at 5.
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`18 Ex. 4361 at 2, 9.
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`19 Ex. 4308 at 110:16-21.
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`20 Id. at 76:17-24.
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`47.
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`48.
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`22
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`21 Ex. 4361 at 2 (emphasis added).
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`22 Ex. 4364at 4 (emphasis added); see also Ex. 4358 at 7 (reporting same).
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`IIIIIIIIIIIIIII IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII"
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`IIIIIIIII"
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`49-
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`IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
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`—-24
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`50.
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`Over the years, Sightsound Technologies Holdings, LLC spent
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`approximately $46 million from its inVestOrs.25—
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`IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII-
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`VII. SOLUTIONS TO BANDWIDTH, COMPRESSION, MEMORY SIZE,
`AND CONSUMER ACCESS LIMITATIONS WERE REQUIRED TO
`PERMIT PROFITABLE ELECTRONIC DISTRIBUTION OF
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`DIGITAL AUDIO AND VIDEO OVER TELECOMMUNICATION
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`LINES
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`51.
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`Sightsound argues that Apple cannot point to “other general
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`technological advances, e.g., storage systems or faster download speeds” to show there
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`is no nexus between iTl\IS’ commercial success a11d the ’44O Patent.26 I disagree, as
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`discussed below in paragraphs 52-65.
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`52.
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`Despite the fact that many in the industry, including those having a
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`bachelor’s degree or equivalent in computer engineering or computer science and
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`‘B Ex. 4364 at 4 (emphasis added); we (I/1'0 Ex. 4358 at 7.
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`24
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`4361 at 4.
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`25 Ex. 4308 at 122:12—124;15.
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`2‘ SightSOund’s Reply at 74.
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`approximately two years of experience in developing software and hardware that
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`transmit and receive files over a network,27 often discussed and recognized the
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`advantages and desirability of selling and distributing digital audio and digital video
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`over telephone lines, there were a number of technical/logistical constraints prior to
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`June 13, 1988, that prevented the realization of a profitable business on this idea.28
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`53.
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`For example, there were several constraints associated with digitally
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`mastering recordings. In 1988, the vast majority of record label content was stored in
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`analog form. There was no electronic vault from which the label could transfer its
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`catalog to a retailer. It took many years and tens of millions of dollars of investment
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`by each major label to build the systems for servicing stores such as iTMS.
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`54. Bandwidth constraints, which led to slow transfer, were another issue.
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`Furthermore, storage of digital data and memory capacity at the time presented
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`additional constraints. Digital audio files required significant space to store.
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`27 It is my understanding that such individuals are considered persons of ordinary skill
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`in the art.
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`28 See also, e.g., Ex. 4306 at 420 (“I see the time down the road, probably 10 years,
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`when you’ll be able to dial a series of numbers on your telephone and get a digital
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`album over the phone line into your incoder [sic] in your home. In five minutes, you
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`can have a new album. It’s on your telephone bill or it’s on your credit card or
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`whatever”).
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`55. The Board of Patent Appeals and Interferences’ Decision on Appeal in
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`the reexaminations of the Hair patents recognizes that the “invention” claimed in the
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`Hair patents does nothing to address the “quality,” “size” and “bandwidth” challenges
`
`that needed to be overcome before electronically selling digital video and/or digital
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`audio could be commercially viable:
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`While the Examiner emphasizes that, circa 1988, devices capable of
`decoding and playing back digital video, storage for the same, and
`distribution channels of adequate bandwidth did not exist, we find more
`compelling Appellant’s arguments that the Examiner is importing
`aspects into the claims (Reply Br. 10-15). Appellant argues correctly that
`the claims do not specify quality, size or bandwidth required for the
`video signals, and assuming the same to show inadequacy of disclosure is
`improper.29
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` SightSound’s ’440 Patent offered no
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`56.
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`”30
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`solution for the challenges associated with protecting the copyrighted material
`
`through encryption.
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`29 Ex. 4306 at 1462 (’573 Reexamination File History, dated 09/04/09); See also Ex.
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`4303 at 1765 (’440 Reexamination File History, dated 08/14/09 containing a virtually
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`identical quote about the ’440 Patent).
`
`30 Ex. 4361 at 3.
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`31 Additionally, Arthur Hair admitted that SightSound’s 1995 embodiment
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`of its patented “invention” did not have the ability to electronically code songs to
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`prevent unauthorized reproduction because that functionality was not available at the
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`time.32
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`33
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`57.
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`Further, it would have been challenging to profitably run an “electronic
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`record store” at the time, given the then-current state of technology. For example, in
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`a home computer-based model for such a store, not all homes had a home computer,
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`and not all of the homes with a home computer had access to data transfer via
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`31 Ex. 4358 at 5
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`.
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`32 Ex. 4307 at 88:16-89:9.
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`33 Ex. 4361 at 2-3
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`6
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`telephone lines, much less high-speed data transfer that would have facilitated prompt
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`transfer of larger files, such as digital audio and video. While other options, such as
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`cable lines, may have provided faster transfer speeds given their greater bandwidth,
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`using those lines for an electronic record store would have required cooperation from
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`the cable companies. Additionally, the cost of storage for digital audio and digital
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`video, as well as the relatively small storage capacity available on home computers at
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`that time, meant even fewer potential sales, even within the subset of available
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`consumers. Further, I understand that SightSound contends that its claims require
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`non-removable media such as non-removable hard disks specifically, yet hard disks
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`were a prime example of the high cost of storage at the time. These factors all limited
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`the potential customer base, particularly as compared to traditional physical delivery
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`of digital audio and video signals at that time.
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`58. The ’440 Patent provides no solutions to these constraints. Until
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`solutions existed for these known problems, the sale of music was not a profitable
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`alternative to distribution of CDs.
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`59.
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`60.
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`34
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`34 See Ex. 4362 at 6; see also Ex. 4308 at 108:1-110:8.
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`61.
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`SightSound stated:
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`36
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`62.
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`35 Ex. 4364 at 16 (emphasis added); see also Ex. 4358 at 13
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`36 Ex. 4364 at 15.
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`37 See Ex. 4358 at 12.
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`39
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`38 See Ex. 4358 at 12-13.
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`39 See id. at 13.
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`63. By 2000, these bandwidth and memory size hurdles still required
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`solutions, the lack of which prevented record labels from considering the lage-scale
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`electronic sale of digital audio to be an attractive business opportunity at that time.
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`Video posed an even more formidable challenge. A March 2000 issue of Wired, for
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`example, noted that it “[would] take up to half an hour” to download the movie
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`Quantum Project, from SightSound’s website using a broadband connection and about
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`eight hours with a 56K modem.40 The file itself would consume “at least 150
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`megabytes of hard-disk space.”41 I understand from Dr. Kelly that most hard drives
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`at the time did not even have 150 megabytes of storage. Similarly, a SightSound
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`spokesperson said, with respect to downloading Quantum Project, that “People will
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`want to have high-speed access or patience.”42
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`40 Ex. 4418; See Ex. 4365 (“To watch the film, which can be viewed at full-screen size,
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`you’ll need at least a Pentium II-based Windows computer with Internet Explorer,
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`Windows Media Player and 100 MB of hard-disk space. With a 56Kbps modem, the
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`film takes about four hours to download, according to a SightSound.com
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`spokesperson. ‘People will want to have high-speed access or patience,’ she says.”).
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`See also Ex. 4359 at 12.
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`41 Id.
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`42 Ex. 4365. See also Ex. 4360 at 9.
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`64.
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`SightSound tried and failed to build a business around the idea, well-
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`known in the prior art, of distributing digital video/audio via telecommunications
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`lines.43 The result of SightSound’s failure to provide solutions to the real obstacles to
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`implementing a business selling audio/video signals electronically, as discussed above,
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`contributed to SightSound’s failure to obtain the rights to distribute sufficient content
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`to build such a business. SightSound’s failure reflects what others in the industry had
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`long understood—that electronically selling audio/video signals was a desirable
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`concept, but that implementing it profitably on any significant scale would not be
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`feasible until the above-referenced business and technological constraints were
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`overcome.
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`65.
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`In April 2003, when Apple launched iTMS, major technological
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`advances had taken place, including broader bandwidth, improved data compression,
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`and affordable and large memory size. Most homes also had robust connectivity.44
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`VIII. ITMS’ COMMERCIAL SUCCESS
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`66.
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`SightSound contends that “a nexus exists between the product that is
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`commercially successful—the iTMS—and the claims of the ’440 Patent because the
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`43 Ex. 4307 at 160:9-20 (SightSound shut its system down in the early 2000s).
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`44 Ex. 4407; Ex. 4395; Ex. 4401; Ex. 4404.
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`iTMS embodies and is coextensive with the ’440 Patent claims.”45 I disagree for a
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`variety of reasons, including those described below in paragraphs 67-98.
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`67.
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`In my opinion, as discussed in detail below in paragraphs 68-98, the
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`factors that made Apple successful include its experience, its credibility, its established
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`brand name, its ability to license the major record labels, its FairPlay DRM technology,
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`its user-friendly features, the existing iPod and iTunes music management software, as
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`well as intervening technical advances. None of these factors is attributable to
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`the ’440 Patent. Thus, even if iTMS practiced the ’440 Patent, its success would not
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`be relevant to any secondary indicia of non-obviousness.
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`A.
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`Apple’s Successful Negotiation With The Major Record Labels
`Gave iTMS The Full Catalog Of Music Needed To Be Successful
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`68.
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`SightSound asserts that Apple “cannot claim that consumers’ demand
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`for content has driven the success of the iTMS ….”46 I disagree for a variety of
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`reasons, including those described below in paragraphs 69-87.
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`69. A key to the success of iTMS was Apple’s ability to secure licenses with
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`the major record labels prior to the launch of iTMS. This was an attractive feature for
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`consumers because it gave them a store with a full catalog of offerings to browse and
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`from which to select.
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`45 SightSound’s Reply at 68-69.
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`46 SightSound’s Reply at 74.
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`70. Apple was able to address one of the key concerns of these record labels
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`– piracy – by agreeing to distribute music with Apple’s proprietary FairPlay Digital
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`Rights Management (“DRM”) technology.
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`71. Another key factor to obtaining the record labels’ permission to
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`distribute their content was a commitment to protect the copyright of that content.
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`This need for commitment to and implementation of robust encryption to protect the
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`copyright of the digital audio/video was another hurdle for SightSound and a key
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`component to convincing the record labels to permit their content to be distributed
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`electronically over telecommunication lines.
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`72.
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`Starting in late 1999 through the early 2000s, the record labels and
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`professional songwriters and music publishers were embroiled in legal battles with
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`companies like Napster and Grokster over copyright infringement.47 While these legal
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`battles resulted in favorable verdicts for the record companies, online piracy did not
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`go away.48 Instead, other peer-to-peer (P2P) networks and systems, like Gnutella,
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`KaZaA eDonkey, and Limewire arose, with real financial consequences for the major
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`47 In re Napster, Inc. Copyright Litig., No. C MDL-00-1369 MHP, No. C 04-1166 MHP,
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`No. C 04-1351 MHP, No. C 04-1671 MHP, No. C 04-2121 MHP (N.D. Cal.); Metro-
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`Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., No. CV-01-8541 SVW PJWX (C.D. Cal.);
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`Lieber v. KaZaA BV, No. CV-01-9923 SVW PJWX (C.D. Cal.).
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`48 See Ex. 4399; Ex. 4405.
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`labels through open source software that was largely uncontrollable.49 The industry
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`eventually started lawsuits against individual uploaders as a result, but although the
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`lawsuits succeeded legally, they failed to put much of a dent in illegal downloading and
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`had negative public relations consequences.50 Rampant piracy not only created
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`economic losses for the industry, but raised concern about other effects, such creating
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`unsatisfactory music experiences for consumers and foreclosing opportunities that
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`were becoming available via the Internet.51
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`73.
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`For the record labels, a commitment to encryption of content distributed
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`electronically was extremely important. The rampant piracy and P2P network sharing
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`of illegally uploaded music was have a tremendous financial effect on the major
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`record labels.52
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`74. Apple was also attractive to the major record labels because it had a
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`history of successful ventures and a great reputation among consumers. The Apple
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`brand was equated with excellence.
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`75.
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`49 Ex. 4398; Ex. 4396; Ex. 4399.
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`50 Ex. 4403; Ex. 4402.
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`51 Exs. 4406-4408.
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`52 Ex. 4407.
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`76.
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`77.
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`C
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`53 Ex. 4358 at 9-10.
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`54 Ex. 4361 at 2.
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`55
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`56
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`78.
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`79.
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` SightSound did not have established brand name recognition
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`or a proven track record of implementing successful strategies, or and marketing
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`wherewithal. SightSound’s profile, in fact, was entirely to the contrary.
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`80.
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`In contrast, Apple was able to convince the major record labels to
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`permit it to distribute their content. Apple was committed to encryption and DRM.
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`Apple further had the brand name recognition and track record of success that the
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`55 Ex. 4358 at 9-10 (emphasis added).
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`56 Ex. 4361 at 5 (emphasis added).
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`record labels required. Notably, Apple had launched the iPod, an MP3 player that
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`permitted consumers to listen to music, to wide success prior to its iTMS launch.
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`This was particularly attractive to the record labels because it demonstrated Apple’s
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`commitment to and success in the digital music space and provided a secure medium
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`through which the music could be played and transported.
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`81. An additional and key factor considered by the record labels in
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`determining whether to permit their content to be distributed over the Internet was
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`the reputation of the company proposing to perform that distribution function.
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`82.
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`f
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`83.
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`84.
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`85.
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`In contrast, Apple was known for its quality from its early days as a
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`maker of personal computers to its more recent history with iTunes and the iPod.
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`Apple received many industry accolades and was well respected in the industry.59
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`86. Accordingly, for the record labels, Apple provided the kind of profile
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`that warranted serious consideration, and ultimately the labels all determined
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`individually to license their content to Apple.
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