De Anda, Christina
`
`From:
`Sent:
`To:
`Cc:
`
`Subject:
`
`Attachments:
`
`Callagy, Sean M. <Sean.Callagy@aporter.com>
`Friday, April 26, 2013 4:30 PM
`Cohen, David R. (DRCohen@ReedSmith.com)
`Batchelder, James R.; Fukuda, Ching-Lee; Schoenhard, Paul M.; DiBoise, James A.; Lane,
`Tracy T.
`SightSound v. Apple: Supplemental Briefing On Apple's January 3 Motion for Spoliation
`Sanction
`SightSound Submission 4.26.13.pdf
`
`Dear Special Master Cohen: 
`  
`
`In light of the preliminary guidance provided at the April 22, 2013 telephone conference, SightSound
`provides this further submission in opposition to Apple’s Motion for a Spoliation Instruction, dated January 3,
`2013. (For your convenience, a pdf of this submission is attached.) 
`  
`
`First, as set forth in greater detail in SightSound’s prior submissions, in the Third Circuit a finding of
`“bad faith” is pivotal to a spoliation determination. Here, there is no evidence that SightSound acted in bad
`faith—that is, there is no evidence of any intent to defraud or suppress the truth. Rather, SightSound
`decommissioned its commercial systems in the ordinary course of business. In that process, and facing
`economic constraints, certain electronic source code and financial information that would have been
`extraordinarily difficult and expensive to preserve was not maintained.  
`  
`
`Second, Apple never explains why the specific evidence that it claims has not been preserved, detailed
`source code and sales information, is relevant to any claim or defense in this case. Apple offers various theories
`of how generally SightSound’s systems may be relevant. But Apple ignores the fact that SightSound is not
`asserting as a secondary consideration of nonobviousness that the SightSound systems were commercially
`successful. In fact, as Apple acknowledges, “SightSound does not contend that SightSound practices or has
`practiced any of the Asserted Claims, including for the purposes of any damages analysis.” See SightSound
`1/18/13 Submission, Ex. F, Apple Non-Infringement Contentions, July 11, 2012 at 3 (attached chart excluded)
`(emphasis added). Apple’s theories of relevance erroneously assume that SightSound is asserting a claim of
`commercial success or relying on such success for purposes of its damages claims.  
`
` 
`Third, while SightSound does not believe there has been any spoliation, SightSound respects the Special
`Master’s suggestion that a stipulation tailored to prevent any potential prejudice to Apple may be
`appropriate. Accordingly, SightSound would be willing to enter into a stipulation reiterating that SightSound
`will not assert the commercial success of its systems as a secondary condition of nonobviousness in this
`case. However, broader relief, including the adverse inference instruction that Apple seeks or a broader
`stipulation, would be inappropriate, as such relief is not tailored to any potential prejudice.  
`
` 
`Fourth, and finally, Apple’s submission of April 26 does not change the foregoing analysis. 
`
`
` 
`I. SightSound Did Not Suppress or Withhold Evidence with the State of Mind Required to Find
`Spoliation.  
`
`  
`
`As set forth in greater detail in SightSound’s January 18, 2013 responsive submission, Apple has not
`met the requirements for establishing a claim of spoliation because it cannot show that SightSound acted in bad
`faith. The law is clear that an inference of spoliation arises “only when the spoliation or destruction [of
`
`1
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`Apple Exhibit 4355
`Apple v. SightSound Technologies
`CBM2013-00023
`Page 00001
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`

`

`evidence] was intentional, and indicates fraud and a desire to suppress the truth, and it does not arise when the
`destruction was a matter of routine with no fraudulent intent.” Bull v. United Parcel Serv., Inc., 665 F.3d 68, 79
`(3d Cir. 2012) (quotations and citations omitted). Put simply, “a finding of bad faith is pivotal to a spoliation
`determination.” Id. (emphasis added).  
`  
`Apple first ignored the bad faith requirement in its submission. Then, after SightSound pointed out the
`controlling Third Circuit authority on the necessity of a finding of bad faith, Apple ignored the plain language
`of the rule set forth in Bull and then erroneously attempted to distinguish the facts of the case on the grounds
`that “[w]hen taken in context, Bull’s bad faith discussion focuses on withholding, not destruction.” (1/22/13
`Apple Submission). Apple misreads Bull. Bull is not limited to withholding, as opposed to destruction. Rather,
`Bull makes clear that “accidentally destroyed” documents—not just those that were withheld—are also subject
`to the bad faith standard. Id. at 79 (“For the [spoliation] rule to apply . . . it must appear that there has been an
`actual suppression or withholding of the evidence. No unfavorable inference arises when the circumstances
`indicate that the document or article in question has been lost or accidentally destroyed, or where the failure to
`produce it is otherwise properly accounted for.”) (quotations, citations, and emphasis omitted).  
`  
`
`Here, there is no evidence of bad faith on the part of SightSound. There is no real dispute that the
`information that Apple now seeks was lost as a result of SightSound’s business decision to cease its commercial
`activities and decommission certain electronic systems, at a time when SightSound no longer had sufficient
`working capital to support its continued operations. As outlined in the Declaration of Arthur Hair, this is not
`information that “could have been saved to disk in seconds for pennies” (Apple 1/22/13 Submission), but would
`have involved an expensive and costly undertaking, requiring time and resources that were not available to
`SightSound at the time. Apple’s reliance on its expert’s 20-20 hindsight opinion on what could or could not
`have been saved from the various parts of the SightSound system is misplaced. The question that confronted
`SightSound in 2002 was not whether the SightSound system could be copied with substantial time and
`resources, but rather whether SightSound had those resources at the time and a reason to preserve the
`system. SightSound did not have those resources and, further, could not have reasonably foreseen back in 2002,
`especially given the evolution in electronic discovery issues, that this obscure electronic information related to
`its commercial systems might be requested in future litigation alleging infringement of its patents. In particular,
`it was not foreseeable that the operations of SightSound’s decommissioned systems would be relevant to any
`future litigation where SightSound was not alleging commercial success or lost profit damages.  
`
` 
`Apple suggests that the bad faith requirement is somehow satisfied because SightSound was
`decommissioning its systems at the same time it was changing its focus to enforcement of patent rights. But the
`fact that SightSound may have been pursuing a strategy of litigating its patents in no way suggests that
`SightSound destroyed information with the intent of keeping it from future defendants. Fairview Ritz Corp. v.
`Borough of Fairview, No. 09-0875, 2013 WL 163286 (D. N.J. Jan. 15, 2013), cited by Apple on reply (1/22/13
`Apple Submission), is not only not controlling, but is also distinguishable in that there the district court found
`that even if a nefarious motive was not required by Bull to establish bad faith, the plaintiff and its counsel in that
`case “acted intentionally or knowingly in keeping the document from [d]efendants.” Id. at *5. Unlike the
`present case, in Fairview the “duty to preserve the document was clear,” as the file was “already under
`subpoena” when plaintiff’s counsel removed it from an accountant’s files (purportedly on a claim of privilege)
`and subsequently misplaced it. Id. at *1-6. The court noted that several factors supported the conclusion
`plaintiff and its counsel had acted intentionally and knowingly in keeping the document from defendants,
`including “multiple and conflicting representations to the [c]ourt over the nature of the document and whether it
`was privileged,” “failure to maintain a copy of the document while invoking privilege,” “failure to produce a
`complete privilege log,” and “mailing of the document . . . without preserving a copy of it.” Id. at *5. This is a
`far cry from SightSound’s actions in this case: over 10 years ago, while it was unwinding its commercial
`operations, and under significant economic constraints, SightSound did not anticipate the need to undertake
`expensive and time-consuming preservation measures to retain detailed source code and electronic financial
`
`2
`
`Apple Exhibit 4355
`Apple v. SightSound Technologies
`CBM2013-00023
`Page 00001
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`

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`information that it did not reasonably anticipate would be requested in future litigation. In short, there is no
`evidence of bad faith.  
`
` 
`II. The Requested Information Is Not Relevant to any Claim or Defense. 
`  
`
`Apple cannot show that the specific information that it claims it was deprived access to is relevant to any
`claim or defense in this case. SightSound has already produced substantial information related to its own
`systems and sales. The only question therefore is whether the detailed source code and sales information that
`Apple now seeks is specifically relevant to any claim or defense. It is not.  
`  
`
`As set forth in SightSound’s January 18, 2013 submission, SightSound does not allege that Apple copied
`its source code. See 1/18/13 SightSound Submission, Ex. D, 5/15/12 Deposition of Alex LePore (LePore
`5/15/12 Tr.) 196:22-197:1. Moreover, in its infringement contentions, SightSound made clear that it does not
`allege that its decommissioned systems practice the claimed invention. Id., Ex. E, SightSound Infringement
`Contentions, May 15, 2012 (Initial), August 10, 2012 (First Amended), October 5, 2012 (Supplement to First
`Amended); see also L.P.R. 3-2 (requiring party claiming that its apparatus practices the claimed invention to
`“identify, separately for each asserted claim, each such apparatus, product, device, process, method, act, or
`other instrumentality that incorporates or reflects that particular claim”). Nor does SightSound assert
`commercial success of a SightSound product that embodies the patent. In fact, even Apple has noted that
`“SightSound has not ‘preserve[d] the right to rely, for any purpose, on the assertion that its own apparatus,
`product, device, process, method, act, or other instrumentality practices the claimed invention’ (L.P.R.
`3.2). Accordingly, Apple understands that SightSound does not contend that SightSound practices or has
`practiced any of the Asserted Claims, including for the purposes of any damages analysis.” See id. Ex. F,
`Apple Non-infringement Contentions, July 11, 2012 at 3 (emphasis added).  
`  
`
`Moreover, there is no question that Apple already has extensive evidence related to SightSound’s
`systems, including a 120-page manual of SightSound’s system architecture complete with over 70 diagrams of
`the system design and infrastructure, numerous screen shots, detailed descriptions of its programming scripts
`and processes, and a list of operational expenses. See 1/18/13 SightSound Submission, Exhibit H, SightSound
`Technologies System Architecture. Thus, Apple’s assertion that it “has no alternative way to examine the
`technical architecture of SightSound’s systems without the destroyed code” (Apple 1/22/13 Reply Submission)
`is wrong. Similarly, SightSound has produced substantial sales information, including monthly statistics on
`SightSound’s total number of sales and rentals (by both number of units, and total sale costs) for the period
`from April 1999 to December 2000, as well as sales by title for the year 2000, and sales by country for the years
`1999 and 2000. See, e.g., id. Ex. B, Sander 1/19/12 Tr., 90:1-93:14; Ex. I, Deposition Exhibit No. 185
`(Sightsound.com sales). SightSound also produced numerous income statements from 1999-2001, tax returns
`from 1997 through 2010, and internal valuations from 2000 and 2010.  
`  
`
`Nevertheless, Apple contends that the specific information it seeks—detailed source code, along with
`granular sales information about, for example, how many copies of a particular title SightSound sold in a
`particular year—is “unquestionably relevant.” (Apple 1/22/13 Submission) Apple, however, never advances a
`theory of relevance that is tied to the specific information that it requests. Instead, Apple asserts several
`evolving theories of how generally information about SightSound’s systems may be relevant, all of which fail.  
`  
` (1) The Requested Information Is Not Relevant to Infringement.  
`
` 
`Contrary to Apple’s assertion, the source code is not relevant to Apple’s defense of allegations of willful
`infringement. SightSound does not allege that Apple “mimicked” or “copied” SightSound’s source code, or for
`that matter even accessed the source code. To the extent there is any ambiguity on this point, SightSound
`would be willing to enter into a stipulation clarifying this point.  
`  
`
`3
`
`Apple Exhibit 4355
`Apple v. SightSound Technologies
`CBM2013-00023
`Page 00001
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`

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`Nor do SightSound’s allegations of willful infringement of the patented invention have anything to do
`with the detailed information about SightSound’s systems that Apple now requests. A comparison of Apple’s
`infringing iTunes product to SightSound’s decommissioned system is not relevant to the infringement
`analysis. Rather, in general, “it is error for a court to compare in its infringement analysis the accused product
`or process with the patentee’s commercial embodiment or other version of the product or process; the only
`proper comparison is with the claims of the patent.” Zenith Labs., Inc. v. Bristol-Myers Squibb Co., 19 F.3d
`1418, 1423 (Fed. Cir. 1994). See also Amgen Inc. v. Hoechst Marion Roussel, Inc., 314 F.3d 1313, 1347 (Fed.
`Cir. 2003) (“And apart from the limitations of the asserted claims, the differences in the two processes are
`wholly irrelevant to the infringement analysis. . . . [T]he trial court once again compared the accused process
`by reference to an example rather than the claimed process . . . . Again, this was legal error insofar as the
`infringement analysis is not tied to the asserted claims.”); Atlantic Thermoplastics Co., Inc. v. Faytex
`Corp., 970 F.2d 834, 846 (Fed. Cir. 1992) (“This court has repeatedly emphasized that infringement analysis
`compares the accused product with the patent claims, not an embodiment of the claims.”). Moreover, as
`outlined above, SightSound’s infringement contentions are unambiguous that SightSound does not contend it
`practices or has practiced any of the asserted claims. Accordingly, in this case, there is certainly no basis for
`comparing Apple’s iTunes system to SightSound’s decommissioned system—rather, the proper comparison is
`to the claims in the patent.  
`  
` (2) The Requested Information Is Not Relevant to Validity.  
`
`  
`
`Apple alleges that the requested information is somehow relevant to its § 112 specification defenses and
`obviousness defenses. On reply, however, Apple appears to abandon the suggestion this information is relevant
`to any specification defense, and never addresses SightSound’s arguments that commercial embodiments are
`irrelevant to the issue of whether the specification (i.e., the written document prior to the claims that constitutes
`the bulk of each of the patent-in-suit) provides support for the claims of a patent. 
`
` 
`Apple’s argument regarding the relevance of the source code and financial information to obviousness
`similarly fails. As SightSound has repeatedly made clear, and would be willing to further stipulate, SightSound
`is not asserting commercial success of a SightSound product that embodies the patent as a secondary
`consideration of nonobviousness. But all of Apple’s reasons for claiming it needs source code and detailed
`financials assume that SightSound is asserting such a claim of commercial success. See Apple 1/22/13
`Submission (“The absence of the source code and destroyed financial data severely prejudices Apple’s
`necessary investigation into what drove SightSound’s success or lack thereof. Were the successes/failures of
`SightSound’s system the result of its alleged ‘invention,’ non-patented features of its system, content quality,
`content price, increases in bandwidth, increases in consumer online access, decreases in storage cost, or other
`factors? . . . .”) (emphasis added). Because SightSound is not asserting commercial success, Apple cannot
`possibly suffer any prejudice by not having access to this information.  
`
` 
`Apple misconstrues SightSound’s argument when it contends on reply that “SightSound’s primary
`relevance argument is that the destroyed systems did not embody the patents-in-suit, but that is demonstrable
`false.” (1/22/13 Apple Submission) That is not SightSound’s position. SightSound does not dispute that its
`commercial systems may have embodied the patents and/or been covered by one or more of the claims, and
`truthfully responded to discovery requests and deposition questions on this point. But that does not mean that
`SightSound is asserting the commercial success of its products, i.e., that they were financially profitable or
`yielded significant sales and revenues, for purposes of rebutting an obviousness defense. Nor, as outlined
`above, does SightSound contend in its infringement contentions that for purposes of this action it contends that
`it practices or has practiced the patent. SightSound, however, reserves the right to offer information about
`SightSound’s efforts to build its business and its corporate history. This may include, for example, the fact that
`SightSound had a system, the fact that SightSound sold songs and movies and was the first company to do so,
`that SightSound received praise for these firsts and its invention, and other information unrelated to
`commercial/financial success. SightSound’s detailed source code and financial information is not relevant to
`4
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`Apple v. SightSound Technologies
`CBM2013-00023
`Page 00001
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`these issues; the source code could never prove or disprove whether there was praise for the
`invention. Accordingly, there is no basis to find that the source code is relevant to any potential invalidity
`defense.  
`  
`
`(3) The Requested Information Is Not Relevant to Damages.  
`
`
` 
`Apple contends that SightSound’s commercial systems may be relevant to damages. Again, Apple
`ignores the fact that SightSound’s damages theory in this case is in no way tied to SightSound’s
`decommissioned commercial systems. SightSound is not arguing, for example, that it lost profits on its own
`systems because of Apple’s infringement. A comparison of Apple’s iTunes system to SightSound’s
`decommissioned system is not relevant to the reasonable royalty rate damages analysis in this case, and Apple
`has never explained otherwise. Rather, Apple can fully explore the damages issues, including potential non-
`patented contributions to Apple’s systems, without comparing its system to SightSound’s system. The relevant
`comparison is to the patent and not to SightSound’s decommissioned commercial systems. Nor is granular
`sales information—e.g., “costs broken down by line item, to reconstruct a chronology of [SightSound’s] failed
`business ventures and accompanying changes in strategy” (Apple 1/3/13 Submission)—in any way relevant to
`the damages analysis in this case.  
`  
`
`* * * 
`
`  
`
`In short, Apple fails to adequately explain why the specific information requested here—detailed source
`code and sales information from systems decommissioned over 10 years ago—is relevant to any issue in this
`case, or how Apple is prejudiced in asserting any claim or defense without access to this information. Rather,
`Apple’s argument boils down to a general assertion that it is entitled to all evidence regarding SightSound’s
`commercial systems in order to evaluate their success (or lack thereof), despite the fact that SightSound has
`explicitly stated it is not claiming commercial success and is not using its own sales information as a basis for
`any damages claim. Accordingly, Apple cannot possibly be prejudiced by not having access to this
`information.  
`  
`III. SightSound is Amenable to Entering into a Stipulation to Address any Potential Prejudice to
`Apple. 
`
`While SightSound does not believe there has been any spoliation in this case, SightSound respects the
`Special Master’s suggestion during the teleconference that a stipulation clarifying what SightSound is asserting
`in this litigation may be appropriate to resolve this issue. Accordingly, SightSound is willing to stipulate that it
`will not assert as a secondary consideration of nonobviousness that its systems were commercially successful,
`i.e., that they were financially profitable or yielded significant sales and revenues. SightSound, however,
`reserves the right to offer information about SightSound’s efforts to build its business and its corporate history,
`which it believes are undisputed and which may peripherally relate to the SightSound system. This may
`include, for example, the fact that SightSound had a system, the fact that SightSound sold songs and movies and
`was the first company to do so, that SightSound received praise for these firsts and its invention, and other
`information unrelated to commercial/financial success. Moreover, to the extent that the Special Master believes
`it is appropriate, SightSound would also be willing to enter into a stipulation further confirming that it is not
`alleging that its source code was ever copied, mimicked, or accessed by Apple. Any broader remedy—
`including Apple’s proposed adverse inference instruction or a broader stipulation—is inappropriate because it
`would not be narrowly tailored to any potential prejudice that Apple may face in this case. 
`  
`IV. Apple’s Submission Of April 26 Does Not Address The Relevant Legal Standard And Does Not
`Articulate A Need For An Adverse Instruction Sanction. 
`  
`
`5
`
`Apple Exhibit 4355
`Apple v. SightSound Technologies
`CBM2013-00023
`Page 00001
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`

`

`Apple advances several variations of these theories of relevance in its most recent submission of April
`26, 2013. But none of Apple’s latest arguments change the above analysis. Apple never addresses that the
`threshold requirement for a spoliation instruction, a finding of bad faith, has not been
`satisfied. Moreover, Apple again never specifically explains how source code and financials are relevant to the
`issues outlined—it simply ignores the fact that it already has extensive information on SightSound’s
`decommissioned commercial systems from which it can make the arguments it outlines, to the extent
`SightSound’s decommissioned system is even relevant to these arguments. But, in large part, Apple is mixing
`apples and oranges. For many of Apple’s new arguments, SightSound’s system is not dispositive one way or
`the other on these issues. For example, the question of whether there is “long felt but unresolved need” for the
`patented invention has little directly to do with SightSound’s system, much less the source code for that
`system. Similarly, the failure of others is a question that is answered independent of the source code for
`SightSound’s system. With respect to whether Apple made material non-patented contributions to its system is
`a question answered by reference to Apple’s iTunes, not SightSound’s decommissioned system. Under the
`hood, Apple’s arguments about the potential relevance of the specific evidence at issue are conclusory at best. 
`  
` Respectfully submitted,  
`  
` Sean M. Callagy 
`  
`
`
`_____________________________ 
`Sean M. Callagy 
` 
` 
`Arnold & Porter LLP 
`Three Embarcadero Center, Tenth Floor 
`San Francisco, CA 94111‐4024 
`
`Telephone: +1 415.471.3107 
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`sean.callagy@aporter.com 
`www.arnoldporter.com 
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`6
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`Apple Exhibit 4355
`Apple v. SightSound Technologies
`CBM2013-00023
`Page 00001
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