throbber
1
`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF TEXAS
`TYLER DIVISION
`
`SMARTFLASH LLC and )
`SMARTFLASH TECHNOLOGIES DOCKET NO. 6:13cv447
`LIMITED
`
`-vs- )
` Tyler, Texas
` ) 1:16 p.m.
`APPLE INC. February 16, 2015
`
` TRANSCRIPT OF TRIAL
`AFTERNOON SESSION
`BEFORE THE HONORABLE RODNEY GILSTRAP,
`UNITED STATES DISTRICT JUDGE
`
`A P P E A R A N C E S
`
`FOR THE PLAINTIFFS:
`
`MR. BRADLEY W. CALDWELL
`MR. JASON D. CASSADY
`MR. JOHN AUSTIN CURRY
`CALDWELL CASSADY & CURRY
`2101 Cedar Springs Rd., Ste. 1000
`Dallas, Texas 75201
`
`MR. T. JOHN WARD, JR.
`WARD & SMITH LAW FIRM
`P.O. Box 1231
`Longview, Texas 75606
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`Page 00001
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`Apple Exhibit 1046
`
`

`

`2
`
`FOR THE DEFENDANTS:
`
`MR. JAMES R. BATCHELDER
`ROPES & GRAY LLP
`1900 University Ave., 6th Floor
`East Palo Alto, California 94303-2284
`
`MS. CHING-LEE FUKUDA
`MR. KEVIN J. POST
`ROPES & GRAY LLP
`1211 Avenue of the Americas
`New York, New York 10036-8704
`
`MR. ERIC ALBRITTON
`ALBRITTON LAW FIRM
`P. O. Box 2649
`Longview, Texas 75606
`
`COURT REPORTERS: MS. SHELLY HOLMES, CSR, TCRR
` OFFICIAL COURT REPORTER
` shelly_holmes@txed.uscourts.gov
` MS. SHEA SLOAN, CSR, RPR
` OFFICIAL COURT REPORTER
` shea_sloan@txed.uscourts.gov
`
`Proceedings taken by Machine Stenotype; transcript was
`produced by a Computer.
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`58
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`your first witness.
`MR. CALDWELL: Thank you, Your Honor.
`The Plaintiff calls Mr. Patrick Racz. And while
`Mr. Racz is walking to the witness stand, may I --
`THE COURT: Before he walks to the witness stand,
`he needs to be sworn in.
`MR. CALDWELL: Perfect.
`THE COURT: Or what do you have, Counsel?
`MR. CALDWELL: I was just going to ask permission
`to pass a notebook to opposing counsel and take some
`materials to the witness stand.
`THE COURT: You have leave to circulate that while
`the witness is sworn.
`MR. CALDWELL: Thank you, Your Honor.
`(Witness sworn.)
`THE COURT: Now if you'll have a seat on the
`witness stand, please.
`All right. Counsel, you may proceed.
`MR. CALDWELL: Thank you, Your Honor.
`Would the Court like or the Court Reporter or
`anyone like a copy of the witness's witness binder?
`THE COURT: If you want to pass it up, that's
`perfectly fine. If you don't, it's your call.
`MR. CALDWELL: I'm certainly willing to, just in
`case it helps with spellings or anything like that.
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`59
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`May I approach, Your Honor?
`THE COURT: You may.
`MR. CALDWELL: May it please the Court.
`THE COURT: Proceed.
`PATRICK RACZ, PLAINTIFFS' WITNESS, SWORN
`DIRECT EXAMINATION
`
`BY MR. CALDWELL:
`Q.
`Would you please introduce yourself to the jury?
`A.
`Yes. My name is Patrick Racz.
`Q.
`Why are you here, Mr. Racz?
`A.
`I'm one of the inventors of the patents-in-suit.
`Q.
`What did you invent that is at issue in this case?
`A.
`I invented particular devices and methods for combining
`payment functionality, secure downloading, storage, and rules
`for the use of content on one portable device that you would
`carry with you.
`Q.
`Could that be a phone or an MP3 player?
`A.
`It would include those, sir, yes.
`Q.
`Who benefits from your invention, Mr. Racz?
`A.
`Content developers, publishers, artists, songwriters,
`device manufacturers, and users.
`Q.
`We will go through your invention in detail momentarily,
`but I'd like to introduce you to the jury.
`How old a man are you?
`I'm 54 years old.
`
`A.
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`60
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`Married?
`Q.
`I am, sir, yes. Married to Carol. I have two children:
`A.
`Jake, who is 19, and Luke, who is 14.
`Q.
`Where did you grow up, Mr. Racz?
`A.
`I grew up on the island of Jersey, which is a small
`island in the English channel. I'm not from there
`originally. My parents moved there when I was about three
`years old to buy a farm, settle down and bring up their
`children.
`Q.
`Tell me about your educational background. Do you have
`a high school or college education?
`A.
`No, I don't, sir, no.
`Q.
`Why not?
`A.
`I actually left home and school at a very early age. It
`would be the equivalent of 8th grade here in the United
`States.
`Q.
`What did you do when you left home?
`A.
`I went to live on a neighboring island of Guernsey. I
`worked in a commercial greenhouse learning about propagation
`and growing plants, a greenhouse nursery.
`Q.
`Did you eventually get some college education?
`A.
`I did sir, yes. When I returned to Jersey, I attended
`Highlands College for horticulture, advanced education. I
`learned about commercial horticulture.
`Q.
`How were you able to pay for your education, sir?
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`61
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`I was working part time in my family business. I've
`A.
`always been interested in making things and building things.
`I was working making leather belts, bags, picture frames, and
`even growing strawberries.
`Q.
`Did you complete your studies at Highlands College?
`A.
`I did, sir, yes. I graduated with several certificates
`in commercial horticulture. They were HNDs, but here they
`would be the equivalent of, I guess, trade certifications.
`Q.
`What did you do after finishing at Highlands?
`A.
`I went back to work in the family business for a while.
`Q.
`Did you eventually move over to the big city?
`A.
`I did, yes, sir. In 1994, I moved to London. I got a
`job in a thriving business that was involved with early
`personal computers.
`Q.
`How long were you at that job?
`A.
`Approximately two years.
`Q.
`Have you ever set up your own business, Mr. Racz?
`A.
`I have, yes, several, the first of which was in 1986.
`It was a company called General Ecology UK Limited.
`Q.
`What kind of company was General Ecology UK Limited?
`A.
`We were involved in the importation of high-end water
`filtration systems for General Ecology, Inc., here in the
`United States.
`Q.
`What got you thinking about starting a water filtration
`company?
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`62
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`Well, I'd seen some articles in the press that had
`A.
`dispelled the common myth that London tap water was the
`purest in the world. They were explaining that actually --
`in actual fact, London tap water was quite heavily polluted
`and had been recycled several times, and it was very poor
`quality.
`And I saw that there was going to be a growing market
`for water filters. I decided to get into the industry.
`Q.
`What was the distribution territory of your company?
`A.
`Initially, in the UK, we did very well. We quickly
`expanded and went into Europe and then the Middle East and
`Africa.
`Q.
`Did you turn your business, your experiences at General
`Ecology, to a different kind of filter business?
`A.
`Yes, I did.
`Q.
`Explain that to us, sir.
`A.
`I spent quite a bit of time analyzing, you know,
`whether -- whether -- what the best prospects were for
`selling filters, and it seemed to be kitchens, the kitchen
`being the most likely place that someone would install a new
`water filter.
`I spent about six months talking to kitchen designers,
`installers about what they didn't -- did like and didn't like
`about existing filtration systems. Most of them were quite
`critical of the existing TouchFlo carafe faucets that were
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`63
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`available at the time, the separate spigot faucets, and I
`came up with an inventive way of solving that.
`Q.
`Will you teach us what that was?
`A.
`Yes. I did it, taking a conventional faucet design, and
`then instead of having just hot and cold water, I came up
`with a method, a concept of introducing a third waterway and
`control mechanism, so you could have hot, cold, and filtered
`water through a single fitting, but in such a way that the
`filtered water couldn't be cross-contaminated from the hot
`and cold supplies.
`Q.
`Was your invention successful in terms of being a
`business?
`A.
`Yes, sir, it was hugely successful. And we are working
`with a lot of major kitchen distributors, appliance
`distributors, and even the world's largest sink manufacturer,
`Franke, who's sold it into 45 countries.
`Q.
`Did you apply for a patent on that invention, sir?
`A.
`Yes, I did, sir. We applied for patents in the UK,
`Europe, and the United States of America.
`Q.
`How did you find patent lawyers to help you with that?
`A.
`Well, back then, I didn't know much about patents at
`all. It was 1989. A good business partner of mine, he knew
`a little bit more about it. He hunted around, and he found
`Marks & Clerk, who he believed were the right people to go
`with, and we went with them.
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`64
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`After the Patent Offices looked at your patent
`Q.
`application, were you awarded any patents for the Tri-Flow?
`A.
`We were, sir, yes. And we received patents from the UK,
`Europe, and the United States of America.
`Q.
`Did you build a good relationship with those patent
`lawyers in the process?
`A.
`I built a very good relationship with them, yes, sir.
`Q.
`Did having the patents influence the success of your
`business?
`A.
`I would say it was essential.
`Q.
`Why?
`A.
`Well, speaking with companies like Franke, who we were
`working with, they said, if we didn't have patents, then the
`other companies within the industry would have taken that
`same idea and used it themselves. It would have been
`difficult for them to have invested and worked with a startup
`company of our size.
`Q.
`Thank you, sir.
`Did you eventually end up leaving the Tri-Flow Company
`even despite the success?
`A.
`I did. I was there for about 10 years. We built it up
`into a very successful business. The problem was I was
`traveling all the time and probably around 45 countries in
`total. I was home for two to three weeks out of four. I was
`missing my -- my family a lot.
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`65
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`My younger son, Jake, was a toddler, and Carol, I think,
`was struggling with me -- without me there, and I decided it
`was time to move on and go into something different.
`Q.
`What did you decide to pursue when you left Tri-Flow?
`A.
`I decided to get into the Internet space.
`Q.
`Did you see the Internet as another big opportunity?
`A.
`I did, sir, yes. I saw it as a new frontier. I thought
`it was going to be enormous in the same way as I looked to
`getting in on the ground floor with the filtration business.
`Q.
`Was there something in particular about the Internet
`that stuck out to you?
`A.
`Yes, there was, sir. Content, music in particular, and
`MP3.
`What is an MP3?
`Q.
`An MP3 is a music file where you can take a rip from a
`A.
`CD, a very small size, and you could then play it on a
`portable device, a PC, and you could also send it over the
`Internet to other people.
`Q.
`How did you first learn about MP3s?
`A.
`I saw one of the world's first MP3 players. Shortly
`after that, I purchased one of these devices, a Rio PMP300,
`which was a popular device at the time.
`Q.
`Did you see any problems with that device?
`A.
`I did, sir, yes.
`Q.
`What were those?
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`66
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`Well, I saw that it was far easier to steal content than
`A.
`it was to pay for it.
`Q.
`Now, how did you get from first selling filters, then
`designing faucets, to working in the music industry or having
`connections in the music industry?
`A.
`Yeah. So a bit of a funny story, actually, sir, all to
`do with squatters.
`Q.
`What are squatters?
`A.
`Well, squatters, at that time in England -- it was a
`curious law, but if you left your window open or your door
`ajar and the house was unlocked and unoccupied, there was no
`one living there, then squatters could just move in and take
`up habitation, which sometimes would take two or three years
`to evict them. It was a real problem at the time.
`Q.
`So how did squatters have anything to do with you
`getting an insight into the music business?
`A.
`Well, my wife -- that came out of my -- my wife and I
`bought an apartment in central London. I came out of it one
`day, and I saw that there was a notice on the empty apartment
`door next to us that the people hadn't moved in yet. I knew
`it was someone claiming squatters rights.
`So I knocked on the door, and there was no reply. I
`went out to the front of the building, looked through the
`window, and no one there. So I walked out -- I had gone out
`to get new locks, and I waited for them to come back, and I
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`67
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`wouldn't let them into the building. My wife called the
`police, and they helped send them on their way.
`Q.
`Did you ever meet the true owners of that apartment?
`A.
`I did, sir, yes.
`Q.
`And who were they?
`A.
`They were Mike and Joanne McCormack, who were two senior
`executives in the music industry, very high up and very well
`connected. Mike was the head of A&R, BMG, which was later
`bought by Sony. Jo was high up in Virgin Music and signed a
`lot of very large bands.
`We became very close friends. My wife and I are
`actually godparents to one of their children. And they
`introduced me to a lot of senior people in the music
`industry.
`Q.
`So what were the fundamental problems you mentioned
`earlier with the MP3 player and files?
`A.
`Well, it was the fact that it was easier to steal music
`than it was to pay for it.
`Q.
`Why is that?
`A.
`Well, I put it down to accountability, security, and
`payment.
`Q.
`What do you mean by accountability and security?
`A.
`Well, accountability and security in the -- it was very
`easy to take music files, to rip them off CDs, and to
`distribute them over the Internet, share them with friends
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`68
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`where no one was accountable.
`And security, because there was no effective method for
`securing those files onto CDs, which made it very, very
`simple for that to take place.
`Q.
`Mr. Racz, what was the problem with payment that you
`saw?
`Well, the problem with payment was there was no easy way
`A.
`for paying for content at that time. No good way for paying
`for content over the Internet at that time in a secure way,
`and the record companies weren't getting paid.
`So if the record companies weren't getting paid, the
`artists, the publishers, and the songwriters weren't getting
`paid. And that was going to affect the people that I knew
`and good friends in the industry, and that's when I started
`coming up with the idea.
`Q.
`For time context, when was it that you had this
`realization of a problem?
`A.
`It was the spring of 1999.
`Q.
`Did you ever tell anyone around that time about the
`problems that you were foreseeing?
`A.
`No. I -- well, I told -- I told the music industry
`executives I knew, about the problem they were facing, yes,
`sir.
`Q.
`A.
`
`Now, Mr. Racz, what was their reaction?
`I would say it was -- it was mixed. There was three
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`69
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`different types of reactions.
`The first one was that some of them didn't even know
`what an MP3 was at the time, surprisingly enough.
`Others thought it was just a fad. It wouldn't catch on. And
`if it did, they would end up controlling it.
`And a third group were adamant that they would have
`nothing to do with the Internet. The senior A&R people
`executives couldn't even talk to Internet companies. They
`wanted to band the use of music on the Internet.
`Q.
`Despite the reactions from those executives, did you
`continue thinking about this problem?
`A.
`I did, sir, yes.
`Q.
`Did the music industry ever make its own attempts at
`dealing with the problem?
`A.
`Yes, they did. There was a couple of noted attempts
`with Press Play and Music.net, but they were abject failures.
`They didn't work.
`Q.
`Is there a particular moment you can remember when you
`saw a solution?
`A.
`Yes. I would describe that and have described that as
`my eureka moment.
`Q.
`Please tell us about your eureka moment.
`A.
`Well, I was sitting down at the table I was working
`from. I had my StarTAC cell phone in front of me, and that
`was one of the very early flip phones. And I realized that
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`70
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`that had identification data on it that linked you to the
`service provider.
`I also had one of the first credit cards in Europe that
`had a chip on it, and I realized that that had authentication
`data for payment functionality.
`I had my Rio PMP300 player at the time also, and I
`recognized that that had more memory than the phone, but it
`was really dumb memory. It didn't do anything. There was no
`security, and it was the root of the problem.
`And I just figured out that, well, if I took that device
`or a device like it, I increased the memory and made it
`smart, and I added the functionality that I had identified on
`the cell phone of authenticating you to a network and also
`combined that with payment functionality, then I would have
`the solution for the music industry.
`Q.
`If you combined all that, what would it give you?
`A.
`That would give you your -- effectively, the
`downloading, the ability to download content, store content,
`rules, use data -- use data status, payment functionality,
`everything in one place on one portable device you can carry
`with you.
`Q.
`Did you feel like you were on to something with that
`idea, Mr. Racz?
`A.
`I very much did, sir, yes.
`Q.
`We've talked a lot about music, but would it work for
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`71
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`other types of content?
`A.
`Absolutely. Digital content could be in the form of
`music, movies, games, apps, that sort of -- would also apply
`in exactly the same way.
`Q.
`Can you show us what one of these devices might look
`like?
`A.
`Yes, sir, I can.
`Q.
`What do we -- I'm sorry, sir.
`What are we --
`No.
`A.
`What are we seeing here that's on Slide 3?
`Q.
`Well, this is -- Figure 1A is from -- based on a drawing
`A.
`from my 1999 GP application of a reader player device.
`Q.
`And is this Figure 1 of the patent, the '720 patent
`that's at issue in this lawsuit?
`A.
`That's correct.
`Q.
`And what were you just explaining about the 1999
`application?
`A.
`I was explaining that that drawing was based from the
`original drawing from my 1999 application.
`Q.
`Was that drawn before or after Apple had the very first
`iPod?
`A.
`It was long before, sir. It was about two years before.
`Q.
`Was it before or after Apple had the iTunes Store where
`you could buy content?
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`72
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`That came out in 2003, sir. It was four years before
`A.
`that.
`Q.
`Was it before or after when the iPhone came out?
`A.
`The iPhone was 2007, sir. It was eight years before
`that.
`Q.
`Mr. Racz, in this particular drawing, where is the
`memory that might store content?
`A.
`Well, in this particular embodiment, the memory is
`actually stored on a smart card where the card is the data
`carrier. And you can see that depicted here on this diagram
`on Figure 2.
`Q.
`Will you explain to us what we're looking at here as
`Figure 2?
`A.
`Yes. Figure 2 is a smart card, which has increased
`memory, has payment functionality, use rules, and status
`data. And that would be inserted into a device such as the
`one you saw in Figure 1A.
`MR. CALDWELL: And for the record, this '720 patent
`is Plaintiffs' Exhibit 1.
`Q.
`(By Mr. Caldwell) Now, Mr. Racz, how would you download
`content onto the card in this particular embodiment?
`A.
`Well, in this particular embodiment, you would take the
`card, and if you look at the bottom of Figure 3, under Figure
`3 where you have A, so Figure 3A, you'll see there that
`there's actually a card reader that's connected to the
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`73
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`terminal via USB interface.
`What you would do is you would take that card; you would
`slide it into the reader; you would use the terminal to
`access the content data that you wanted to download; that
`would be downloaded onto the card; and the card could then be
`taken out and used in other devices.
`Q.
`Can you play content from the data terminal?
`A.
`In some cases, but not always. You could have used a
`reader player device as the card reader and the access to the
`terminal, but in other cases, it would just be a
`Smartflash-enabled reader device.
`Q.
`Would it be all integrated into one?
`A.
`Yes, it could be.
`Q.
`So does your invention have to use removable cards, Mr.
`Racz?
`A.
`Absolutely not, sir.
`Q.
`Now, because that came up, what does your patent say
`about integrating memory into the device?
`A.
`Well, my '720 patent states -- oh, you want to -- sorry.
`I can run through this one.
`Q.
`And that's my fault. Let me -- I think I skipped over
`something, so let's just ask about this. Will you explain to
`us how the card embodiment would work?
`A.
`Yes. In this particular embodiment, what you would do
`is you would slide the card into the device, and you would go
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`74
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`into the menu, select your content that you wanted to play.
`Q.
`And it was my fault for not doing that.
`A.
`That's okay.
`THE COURT: Let's don't talk about -- let's don't
`talk about fault. Let's just ask questions.
`MR. CALDWELL: Yes, Your Honor. Thank you.
`(By Mr. Caldwell) Mr. Racz, will you show us what your
`Q.
`patent tells us about whether memory can be integrated all
`into one device?
`A.
`If you go into the '720 patent, and you'll see there in
`the '720 patent, Column 4, Lines 42 to 43, the data carrier
`may also be integrated into other apparatus, such as a mobile
`communications device.
`And, again, in the '720 patent, Column 16, Lines 9 to
`10, in some embodiments, the data carrier may be integral
`with the terminal.
`Q.
`Now, how would an integrated device look any different
`than a device that used a removable card?
`A.
`It could look exactly the same as that device from the
`outside, except you wouldn't have the slot for the smart
`card.
`Q.
`So where would the memory be in that instance?
`A.
`The memory would be integrated, hard wired into the
`device itself.
`Q.
`Mr. Racz, from a user perspective, what does it look
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`75
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`like as an example of buying content using a device?
`A.
`Well, we can show you that in the next slide. You would
`take your -- your handheld device. You would select a
`content item. Let's go to games here. If you select games,
`it would then give you a subselection menu. We would buy
`Zoombots.
`If you select buy on there, once you press buy, the
`device would send payment data to the data supplier payment
`validation system. On validation of that data --
`Q.
`Well, let me interrupt you, if I can. I'm sorry for
`that. But I want to focus on that question. So sorry for
`interrupting you.
`A.
`Sure.
`Q.
`Now, does payment data have to be a credit card number?
`A.
`Absolutely not, sir, no.
`Q.
`What does your patent say about what payment data might
`be if it's not a credit card number?
`A.
`Payment data can be user authentication data or
`identification data, linking a user to a device onto a card
`or a cardholder.
`MR. BATCHELDER: I'm sorry to interrupt, but I need
`to object. This is a construed term by the -- the Court,
`payment data.
`THE COURT: Do you have a response to that
`objection?
`
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`76
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`MR. CALDWELL: That sentence was critical to the
`outcome. It was the basis for the construction.
`THE COURT: Well, to the extent we have previously
`construed terms, we're going to use those definitions, and
`we're not going to go behind them and talk about how those
`constructions came about. We're simply going to use the
`constructions as the Court has adopted.
`MR. CALDWELL: Yes, Your Honor.
`THE COURT: Okay.
`MR. CALDWELL: And, Your Honor, if we might -- and
`I really hate to interrupt, but may we approach on this
`issue?
`
`THE COURT: Approach the bench.
`(Bench conference.)
`THE COURT: So you're saying he's trying to discuss
`what led up to the construction?
`MR. BATCHELDER: Yeah. The payment data is a
`construed term. For him to talk about what it means -- if we
`put up the Court's construction, if we're going to talk about
`what it means.
`THE COURT: Let me hear a response.
`MR. CALDWELL: I absolutely love the construction.
`The problem is they tried to win this credit card or
`something that could be authorized. They tried to win that
`in Markman and lost.
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`77
`
`We even put data in our construction precisely
`because of that, and now --
`THE REPORTER: Judge?
`THE COURT: You need to speak up.
`MR. CALDWELL: Okay. And now, even with precisely
`our construction -- and theirs required extra stuff, like
`authentication and all sorts of other things, was actually
`rejected, and now their expert pretends that that's -- this
`is inconsistent with the patent, and he's arguing the thing
`he lost at construction.
`THE COURT: Well, we're not going to argue claim
`construction. The constructions adopted are the
`constructions we're going to use, and we're not going to go
`behind them.
`If he was trying to mischaracterize an earlier
`argument, you know, we're not going to open the door and go
`back behind the constructions. They are what they are.
`How we got there, what -- who argued what to get there, who
`now is adopting somebody else's argument and trying to make
`it their own, none of that is coming in. We're just going to
`use the constructions that are adopted, okay?
`MR. CALDWELL: Okay.
`MR. BATCHELDER: Thank you, Your Honor.
`THE COURT: Thank you.
`(Bench conference concluded.)
`
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`78
`
`THE COURT: All right. Let's proceed.
`MR. CALDWELL: Thank you, Your Honor.
`(By Mr. Caldwell) Now, what happens after payment data
`Q.
`is validated, Mr. Racz?
`A.
`Well, on receipt -- once the payment data has been
`validated, then the data supplier will then send the content
`use rules to the device.
`Q.
`Are there other steps that would go on behind the scenes
`that are not visible on the face to the user?
`A.
`Absolutely, sir, yes. There are various steps, but it's
`transparent. The user doesn't see them.
`Q.
`Now, if the game is downloaded, what happens if the user
`picks that game to play?
`A.
`Well, when you select play, the device will evaluate the
`use rules and the status data to check whether your access is
`permitted; and if it is, it will then give you access to that
`content.
`Q.
`Mr. Racz, can rules be used to prevent things like
`piracy; in other words, prevent someone else from copying and
`using?
`A.
`Yes. Yes, sir. Yes, they can.
`Q.
`How would that work?
`A.
`Well, it could work, for instance, on a rental of a
`movie.
`Q.
`Well, before we go there, I want to ask you about copy
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`

`

`79
`
`protection.
`A.
`Sure.
`Q.
`How can rules be used to implement copy protection if
`someone were to copy the content to a different device?
`A.
`Well, the rules would prevent another device from using
`that and would stop copying or piracy from taking place.
`Q.
`So if the -- if the game were copied to a different
`device, what would happen?
`A.
`Well, then the other device would evaluate the use rules
`and status data, would see that it wasn't authorized, and
`then access would be denied.
`Q.
`Are there other features besides copy protection that
`can be implemented using rules?
`A.
`Yes, sir.
`Q.
`Give us an example, please, sir.
`A.
`The one I was giving you earlier would be another
`example of, say, renting a movie, and you could rent it for a
`specific amount of time or for a specific period of time once
`the rental had started.
`Q.
`How would a rental work, Mr. Racz?
`A.
`It would work in very much the same way that you would
`send your payment data to the data supplier. And here we're
`selecting the understudy, a movie, and we could select rent
`on that.
`Q.
`Okay. And what happens if we choose to rent a movie,
`
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`

`80
`
`Mr. Racz?
`A.
`Well, then you would have access to that content for a
`predetermined time, according to the rules set by the
`provider.
`Q.
`All right. And if the user attempts to access that
`content -- for example, the movie -- within the allowed time
`period, what happens?
`A.
`Well, then, again, the device would evaluate using the
`use rules and status data, if access was permitted; and if it
`was, play would commence.
`Q.
`And in this example it shows 24 hours. So what happens
`if 25 hours had elapsed?
`A.
`Well, in that case, then, when the device evaluates the
`use rules and status data, would show that you had gone over
`the 24-hour limit and rental would have expired, access would
`be denied.
`Q.
`Thank you, Mr. Racz.
`Is this purchase and use process simple for users?
`Yes, it's very simple.
`Is that important?
`Yes, it is, sir.
`Why is it important?
`Well, it's important --
`-- to be easy?
`It's important because it -- it gives honest people a
`
`A.
`Q.
`A.
`Q.
`A.
`Q.
`A.
`
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`81
`
`simple and easy way to access content and remain honest.
`Q.
`Are you able to apply -- to take Apple's information,
`their code, and apply it to your patent claims?
`A.
`I'm not allowed to look at Apple's secret code and
`their -- and confidential information. I can only look at
`their devices and available information.
`Q.
`Will Dr. Jones be going through that in his
`presentation?
`A.
`I -- I believe he will, sir, yes.
`Q.
`Mr. Racz, did your invention in your mind solve the
`problem you had recognized about digital content being easier
`to steal than it was to acquire honestly?
`A.
`Yes, sir.
`Q.
`Did you feel like it would help the digital content
`industry grow?
`A.
`I -- I felt it would -- it allowed the industry to grow
`at a very rapid pace, sir, yes.
`Q.
`Why?
`A.
`Well, because record companies would have a system that
`would able -- allow them to release content in a protected
`way with assurance that they were going to get paid.
`The artists, developers, song writers would also embrace
`it because they would know that they were going to get paid
`because their content was secure and more people would have
`access to it.
`
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`82
`
`Device manufacturers would embrace it because if there
`was more content and more people buying it, you would sell
`more devices, and end users/consumers would benefit because
`they would have access to far more content than was
`previously available but without stealing it.
`Q.
`Referring back to the conversation you had with music
`executives, did those fears of piracy come true?
`A.
`Yes, sir, they did.
`Q.
`Can you give us an example of how?
`A.
`Well, shortly after I came up with the idea, a lot of
`people started selling -- started distributing music through
`a peer-to-peer network which appeared in June of '99 called
`Napster.
`Q.
`Did you take your idea to those patent lawyers that you
`knew?
`A.
`I did, sir, yes.
`Q.
`Mr. Racz, what are we looking at here as Plaintiffs'
`Exhibit 198?
`A.
`You're looking here at the GB, the original GB
`application that I filed in the UK.
`Q.
`Did the Great Britain and -- cooperate with the United
`States Patent Office?
`A.
`Yeah. That's a global treaty. It's called a PCT or
`patent cooperation treaty which operates through the world of
`intellectual property office and you have priority from a GB
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`83
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`date in other countries and -- just as you would from the USA
`to Europe.
`Q.
`Mr. Racz, did you form a company to start developing or
`building the idea?
`A.
`I did, sir -- actually two companies.
`Q.
`What were thos

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