SightSound Versus Apple, and the Death Squad for Patents
We’re the guys who invented the download music store, showed it all to Steve, and got rolled by Apple
In June 2015 Taylor Swift penned the open letter, “to Apple, Love Taylor,” in which she called out Apple for its plans to offer a free trial for its new streaming service…by not paying the artists who created the music during the trial period.
The Internet went ballistic.
Swift observed, “We don’t ask you for free iPhones. Please don’t ask us to provide our music for no compensation. Three months is a long time to go unpaid, and it’s unfair to ask anyone to work for nothing.”
Taylor, three months is a long time to go unpaid.
Inventor Arthur Hair and I have been waiting nearly thirty years.
Intellectual property, as Ms. Swift well knows, can be hard to protect and defend. I know this firsthand — I’ve been engaged in a three decade battle over my own. In my case the intellectual property is a portfolio of patents granted to my Pittsburgh-based company SightSound Technologies.
Our patents, filed for the year before Taylor Swift was born, way back in 1988, and issued by the Patent Office beginning in 1993, are a hot topic today in the study and practice of the shifting sands of modern patent law. The patents cover a method and system for selling music and movies, download over the internet. Think, the iTunes music store, but far before such a store was ever imagined.
Our current case in defense of our patents is officially called SightSound Technologies LLC v. Apple Inc. It was recently before the U.S. Court of Appeals for the Federal Circuit, which has sole jurisdiction for the United States on all patent appeal cases. The court is headquartered in Washington but once a year takes top cases to courtrooms on the road.
On October 8, 2015, the day before the movie “Steve Jobs” opened in theaters in L.A. and New York, oral arguments for SightSound v. Apple were being heard by hundreds of future lawyers at Harvard Law School. Most of those law students weren’t even born when the epic patent fight playing out before them began. The majority of the students appeared to be in their 20s, the same age my best friend and inventor Art Hair was when he had a “eureka moment” back in the mid 1980’s that would lead to our battle with Apple.
Unlike the students, however, when Art and I were their age we carried no iPhones, wore no earbuds, and harbored no dreams of becoming lawyers.
My name is Scott Sander, I’m not a lawyer, but my buddy Art and I have had to pay a hell of a lot of them over the years. Our patent saga is in its final phase after decades of wins, losses, rulings, and appeals. Barring a review of our case by the Supreme Court of the United States, the winner of SightSound v. Apple will be Goliath, not David, and the “winner take all” ethos of Silicon Valley will be affirmed. Someday I’d like Aaron Sorkin to write a movie about how my “Steve Story” finally ended. But for now, let me tell you how it started. To do that, we have to go back to a time when Microsoft ruled the world, the Internet was in its infancy and Apple Computer was struggling to stay alive without its mercurial cofounder Steve.
Play by the rules.
Art Hair was a nerd before it was fashionable. He studied industrial management and aeronautics/astronautics engineering at Purdue and graduated in 1982. He became an inventor at a time sandwiched between the nihilism of the 60’s and the “rules don’t apply” swashbuckling of today’s unicorn hunting internet entrepreneurs. It was the era of Alex P. Keaton on President Ronald Reagan’s favorite show, “Family Ties,” which reflected a move away from the cultural liberalism of the 1960s to the conservatism of the 1980s. To a young engineer like Art Hair, rules, and patent laws, were meant to be followed not flaunted.
The dreams that drove us back in 1988 when Art filed for our first patent were high tech, digital and entrepreneurial. They were even a bit altruistic. We were going to save artists and creators from getting ripped off by piracy on the coming internet. We were going to save people money by eliminating brick and mortar stores for music and movies. We were going to eliminate late fees from video rental stores and eliminate the cost of shipping CDs and DVDs.
Art had been secretly working on his invention for five years. Only his father, his patent attorney, and I, knew what Art was developing. Only when the United States Patent and Trademark Office issued U.S. Patent 5,191,573 to him on March 3, 1993, did Art feel he could safely share his vision of the future with the rest of the world. Art’s patent was issued at a time when just five percent of Americans had cell phones and the launch of Google was still over five years away.
The patent, titled “Method for transmitting a desired digital video or audio signal” didn’t just detail Art’s invention and its potential uses at length. With amazing prescience, it described the digital future in which we now live. U.S. Patent 5,191,573 protected Art’s invention of a method and system for selling digital movies and music as downloads over the infant Internet, shattering the rules for how we buy movies and music, speeding up distribution, reducing costs, preempting piracy, and providing a new level of convenience to the consumer.
Art and I had no idea that we had received a patent that would become one of the most controversial and bitterly contested ever. It was a patent that would propel us to historic firsts on the Internet. A patent that would provoke antitrust investigations into the actions of the major record labels and biggest movie studios. And, ultimately, a patent that would exact a heavy financial and emotional toll on each of us and our families for decades.
In 1993 we didn’t foresee the contentious, litigious horrors ahead. We thought Art’s patent-protected invention, combined with the money to build out the system to implement it, would guarantee success. Art would be the technical guru. I would be the money raising deal guy. Art was Mr. Inside, I was Mr. Outside. Art was left brain, I was right. Art was a computer whiz and I was an entrepreneur. Together, we believed we were so far ahead of the rest of the world we could literally create the future. The only thing more abundant than Art’s paranoia was my enthusiasm — unless you combined the two of us, and then the dominant characteristic was, without question, naiveté.
Dear Mr. Sculley.
When we got our first patent back in 1993 we calculated that we needed about $22 million to build our download system. To get that kind of cash we had to find a company that understood the enormous scope of our vision and had a CEO with the balls to back it.
On April 5th 1993, we sent letters to everyone we could imagine would be interested in this revolutionary way to sell music and movies. We contacted Apple and Microsoft — and just about everyone else we could think of. We contacted Bob Allen, Chairman of AT&T and Ray Smith of Bell Atlantic and John Clendenin at Bell South and all of the Bells. We pitched ABC, CBS, NBC. We contacted Ralph Roberts at Comcast and Bert Roberts at MCI. We tried Compaq Computer’s Eckhard Pfeiffer and IBM’s Lou Gerstner. We even wrote to James Hough of Corning, envisioning a need for broadband fiber optic Internet connections. We contacted John Young at Hewlett Packard, and Andy Grove at Intel. We wrote to George Fischer at Motorola, Jim Clark at SGI, and Jerry Junkins of Texas Instruments. We reached out to media moguls David Geffen, George Lucas, Ted Turner, Gerry Levin, and Michael Eisner. We did this for two reasons, unbridled enthusiasm, and a sense of duty to disclose Art’s patented invention to the world.
To each of these and others was sent a letter that now, over a quarter of a century later, reads powerfully prophetic and almost tragically quaint. It was a simple appeal from a young inventor with a better mousetrap just waiting to be built.
On April 5th, 1993 Art sent the letter to Apple CEO John Sculley, declaring: “This patent will revolutionize the video rental industry and the pre recorded music industry, among others, and will serve as the catalyst to propel the multimedia industry into the 21st century. In short, my patent speaks to a method to sell prerecorded movies, music, and other forms of information over telecommunications lines for subsequent playback by the purchaser on their television set, home stereo, car radio, computer, etc.” The letter went on to say, “I am discussing business alliances with major corporations with a vested interest in the motion picture, prerecorded music, computer systems & peripherals, and/or telecommunications industries.” and concluded: “Obviously, the final application of this technology will have a very positive and far reaching impact on each one of the industries listed above, and should be of interest to Apple.”
That letter was sent to Mr. Sculley via registered mail, return receipt requested, and received by Apple on April 9th 1993.
Scully was unresponsive. Apple would not engage with us until almost six years later, in 1999, after the return of Steve Jobs.
The summer of 1993 was full of similar experiences: send the letter, follow up, get shuffled off, get rejected.
We contacted Jim Clark, CEO of Silicon Graphics, who just a year later would leave to start Netscape and officially kick off Internet mania. The response from Silicon Graphics was far more precise than most:
“Silicon Graphics does not presently make, use, sell or contemplate developing a system which will operate in a manner remotely similar to the methods described and claimed in your above-referenced patent. In particular, it remains extremely unlikely that any system developed by Silicon Graphics in the future will employ the transferring step of your claims. Nor is it likely that such systems will utilize telecommunications lines, as described in the specification, and as claimed, as an information transfer medium.”
Two years later, Art and I would use a Silicon Graphics workstation to offer for sale the world’s first music download.
The sheer volume of the doors slammed in our faces that summer was astounding; the perfect symmetry of the rejections surprised us:
“We’ve reviewed your request.”
“It’s not right for us at this time.”
“It’s not what we do.”
“Good Luck, Good bye.”
“Oh, and if you do contact us again, please direct it to our lawyers.”
PolyGram gets it.
One would think that this much defeat would have dampened our enthusiasm, but we were too young and self-assured to quit. We were looking for someone, anyone, willing to take a meeting with us. If we could just get in the door, pitch someone face to face, Art and I knew someone would see in our eyes that we believe in this. This is going to be huge.
We were running out of doors on which to knock when I read a copy of the annual report of PolyGram and had an epiphany. PolyGram was in both the movie and music business, and was majority owned by Philips, a major patent holder in the consumer electronics and technology sector. PolyGram/Philips might just be left-brain/right-brain enough to “get it”.
Art called Eric Kronfeld, President of PolyGram North America and spoke to Eric’s secretary, Dee. Art asked Dee if she had a computer on her desk. She did. He asked her if she would like to be able to get any music ever recorded into her computer without having to go to the record store. She would. She asked Art to please hold.
“Eric Kronfeld,” said the voice on the other end of the line. Art was for a moment speechless. Here was the president and CEO of PolyGram North America on the line, on the first try. No delegation, no hoops to jump through, just a willing voice. “What can I do for you?” Kronfeld asked. Art gave a quick overview, which was the equivalent of the letter he had sent to all the others. “Sounds interesting,” Kronfeld said. Art asked if Eric would be willing to meet to discuss it in detail. “How about next week?” Eric said, “Hold on.” With that Dee picked up the line and arranged for us to meet Eric and Jim Caparro, President of PolyGram Group Distribution, at their offices in New York on November 4th 1993.
Countless gold and platinum albums adorned the office walls as we were ushered into the gleaming conference room to wait for Eric and Jim.
Eric strolled into the conference room wearing a V-neck sweater, looking comfortable, even cheerful. He took his seat at the head of the enormous conference table, lifted his fat cigar and graciously asked, “Do you mind?” He lit the cigar, leaned back in his chair and listened to our pitch while he puffed.
Normally confident, I was shitting myself inside. This was one of those rare moments that you absolutely know can change your life. This guy could single-handedly sign a band or green-light a movie. This guy could stroke a check for a million dollars without even stepping out of the room. As the president of both a music label and a movie studio, he placed big bets. Hell, he bred thoroughbred race horses for fun in his spare time, and they won. This guy was a power player.
I plucked up the swagger to meet Kronfeld on his level and launched into it. I was an emissary from the future there to save his entire industry. Sitting beside me was an inventor with a vision so clear it would change PolyGram’s business forever. I detailed how Art had studied aeronautics and astronautics engineering at Purdue, meaning he really was a rocket scientist. I told of Art’s work on electro-optics and advanced weapons systems manufacturing during his years at Texas Instruments. Then I described how in 1986 Arthur Hair, a 25 year old engineer, had his “eureka!” moment at a party in Dallas. His friend, who was throwing the party, had one of the first compact disk players and was showing it off to his party guests. Art took up the story, reaching across the conference table to pick up a coaster, handling it carefully by its edge as if it were his friend’s CD on the night of that party years before, and began to recount what happened:
“I popped the disk out of the CD player” Art said, and asked his friend, “what is this?” Art studied the disk, rotating it side to side. His friend said he didn’t know. That it was digital compact something or other. Art paused, and continued to look suspiciously at the object in his hand. “This is stupid” Art declared. “Why would they trap digital music on hard media?” At that moment, Art put the first pieces of his invention together in his mind. “It should flow over networks,” Art said. So, with a Corona and lime in one hand and a CD in the other, Art’s download obsession began.
I explained to Eric that Art filed for patent protection on his invention back in 1988, because Art’s father, a lifelong engineer for Westinghouse who had patented a method for strengthening steel used in their enormous electrical transformers, told his son, “You better get a patent or the big guys are going to, at best, give you a job or, at worst, steal your idea.”
Art then described his architecture for a system to execute the method protected by our patent in excruciating complexity. Art had a techno-genius way of describing every detail which I called “digital turret’s syndrome.” I gave Art a look that said, take a breath and see if he’s still following. Art paused and asked, “Eric, do you understand what I’m describing?”
Eric Kronfeld reached up, pulled the cigar out of his mouth and leaned forward, elbows on the conference table, and spoke:
“I’ve had a hard-on under the table for the past fifteen minutes.”
The retailers will crucify us.
Alain Levy listened as Kronfeld implored, this is the future and these guys have the patent on it. Levy, chairman of the record label, bristled on the other end of the phone. “Eric, you naive son-of-a-bitch, the retailers will crucify us.” Tower Records, National Record Mart, Sam Goody, Virgin megastore (all gone now) held great sway over the labels and Levy new it. Kronfeld broke the news to us.
“Sorry boys. The deal is off.”
For the next two years Art and I failed to get any record labels to play ball. I was worried that SightSound’s patents would be seen as “torpedo patents,” a derisive term that preceded the now ubiquitous “patent troll,” assigned to patents that lay in wait while others spend the capital to launch, just to litigate later. At this point we had not even thought about licensing our patents, or someday having to sue infringers. We just wanted to create a great company. To do that we knew we had to be first. We had to get music, any music, to sell and prove our point. But how?
Finally, in 1995, we decided to go indie.
Chris Reese broke his parents hearts when he told them he was leaving partner track at a prestigious Pittsburgh law firm to manage his friend’s band, The Gathering Field. I knew that Art’s invention was about to make history and I wanted the world’s first songs for sale as downloads to be great, to be memorable, to be cool. The Gathering Field’s music was all of the above so I called Chris Reese, and he and I negotiated the world’s first download music licensing agreement for a band to sell their music over this new thing called the internet.
The most provocative provision of the agreement was the un-bundling of individual songs from the album. The recorded music industry had phased out the “single” in favor of forcing consumers to purchase an entire CD to get the song they wanted. I believed the consumer would embrace an a la carte model for music downloads and wanted to offer both singles and the entire Gathering Field album.
The band agreed.
Twenty seven year old band manager Chris Reese got it; so much so that he would later become SightSound’s general counsel.
In 1995 SightSound offered the Gathering Field album for six bucks and the singles for one. In 1998 we changed our pricing to 99 cents for singles and $9.99 for an album. Five years later, in 2003, Steve Jobs, with his unrepentant ability to re-remember things his way, told Steven Levy, author of The Perfect Thing, “Nobody had ever sold a song for 99 cents. Nobody really ever sold a song. And we walked in, and we said, ‘We want to sell songs a la carte. We want to sell albums, too, but we want to sell songs individually.’ They thought that would be the death of the album.”
Monkey see monkey do.
For years we tried to convince the record labels, quietly, behind the scenes. It didn’t work. Fed up with what we saw as their suicidal aversion to innovation, we turned our attention to the movie studios. With the movie studios we were brash and very public, as evidenced by our full-page ads on the back cover of Variety and the Hollywood Reporter.
Ari Emanuel was rocketing in ascendance toward the firmament of Hollywood in 1999. Frank Biondi was already there. Ari was the head of the Endeavor talent agency and Frank the former President and CEO of Viacom and former Chairman of Universal Studios was now a tech investor. We put each on the board of directors of SightSound and enlisted their help in scaling the seemingly impenetrable walls of the major movie studios.
We launched an advertising campaign designed to cajole the studios into action. A rabble-rousing ad in the Hollywood reporter in 1999 challenged the “lack of broadband” argument which was often used as an excuse not to license content to SightSound. College students were wired. They were about to steal music and movies on an unprecedented scale if the studios and record labels didn’t meet the exploding demand.
Our move into movies caught the eye of Steve Jobs, who in 1997 had returned from exile to lead Apple. SightSound used the same advertising agency as Apple, Chiat Day. A top executive at the agency relayed to me that “Steve was pissed” that SightSound was only selling to computers running Microsoft operating systems.
Because today Apple is the most valuable company in the world, it’s difficult to remember that in the late ’90s Apple was struggling and near death. Even the famous “think different” ad campaign came about because Steve himself rejected a proposed “We’re back” ad campaign. Reportedly, the recently returned Jobs said “the slogan was stupid because Apple wasn’t back.” In fact, as famously depicted in a Wired magazine cover, Steve’s devotees were implored to pray for Apple’s very survival.
I was leery of the substantial additional capital that SightSound would have to spend to support downloads to Apple users as well as Microsoft. Supporting Apple, with its paltry four percent of the computer market, could be a big money loser for us.
Art had much more technical concerns.
Art likened Apple’s iMac G3, with its gumdrop shape and candy-colored plastic case, to the 1980s children’s toy Teddy Ruxpin. On the surface, the plush toy talking bear looked like a marvel of technology, but the inner workings were rudimentary. Cute on the outside, weak in the guts.
As a quid pro quo for SightSound supporting the Mac operating system, Art wanted a new type of kernel architecture for the Mac OS which would enable the digital rights management the record labels would demand, and, Art wanted Apple to make a handheld portable player.
Our requests were delivered to Steve via a letter from me with a graphic created by Art depicting the entire SightSound ecosystem as it existed in January 1999.
The letter and ecosystem graphic prompted Steve to arrange a meeting between me, Art, Apple engineer Tom Weyer, and fellow Apple employee and so called “Apple Entertainment Evangelist,” Mark Gavini.
Art remembered the meeting well because it was so disappointing.
“I remember it quite well. We met with Mark Gavini and Tom Weyer from Apple at Shutters on the Beach in Santa Monica to discuss our music download business and aspirations to offer movies as well and to determine if Apple could offer DRM capabilities along the same lines as Microsoft. After a lengthy discussion, Tom and Mark concluded that it would take an entire re-write of their OS to adequately support the level of encryption we would need to satisfy the media and entertainment industry. Tom and Mark also indicated that we should not expect such a re-write anytime soon.”
Over the next several years Apple would adopt every aspect of the ecosystem that we proposed, including the development of a handheld player, which would become the iPod, and the “entire re-write of their OS” which would become the Unix-based Mac OS X. They even copied the pricing structure of SightSound with the 99 cent single.
Two years after Art asked, Steve Jobs finally filed for a “design patent” on a portable media player on Oct. 22, 2001, Patent Number: US D469,109S. Art Hair’s invention, known as a “utility patent,” protects the way something actually works. A “design patent,” in contrast, protects the way something looks. This is not to detract from the fact that Steve was a great designer. He was. He was not, however, the inventor of the download music store. As of the writing of this article, the Supreme Court of the United States is hearing a case challenging the excessive value assigned to simple design features in an Apple product. It is the first time the Court has looked at a design patent case since the 1800’s.
Hollywood is the only place you can die of encouragement.
Just two months after the disappointing meeting with Apple, SightSound sold the first feature film download over the internet, Darren Aronofsky’s Sundance Award winning psychological thriller, Pi. After working on our dream for over a decade, Art and I were now a bit famous. We weren’t on the cover of the Rolling Stone, but we made the Wall Street Journal. Capital was flowing in and we were hiring engineers like crazy. Times were good.
Content, though, was still hard to come by.
A few ballsy players made deals. Trey Parker and Matt Stone sold South Park episodes through SightSound, and Harvey Weinstein promised a dozen Miramax films. But, the big guys, to quote Samuel Goldwyn, “stayed away in droves.” They were terrified of Microsoft’s monopoly, and deeply concerned that SightSound’s patents would afford it similar leverage of the download sale of their movies.
In retrospect, it didn’t help that the record labels and movie studios saw SightSound as a leading developer for Microsoft. Ads like the one announcing South Park episodes even contained Microsoft’s name alongside SightSound. The record labels and movie studios conflated SightSound’s patents with Microsoft’s monopoly. Fear of Microsoft, and by association SightSound, would play a key role in their rationalization to license all of their content to Apple. But for now, it seemed like everything was going SightSound’s way, and it would only be a matter of time before the major studios got with the program.
At the turn of the century, SightSound was doing groundbreaking work:
- We sold the world’s first movie download, director Darren Aronofsky’s Pi.
- We sold a Miramax movie as a download with the full features of a DVD.
- We were the first to sell through internet file-sharing programs.
- We were the first to electronically sell into a movie theater.
- We were the first to electronically sell into mobile devices.
- We produced Quantum Project, starring John Cleese and Stephen Dorff, the first motion picture produced specifically for internet distribution.
But, as they say, the pioneer is the guy that’s face down with the arrows in his back. In spite of doing these innovative things, we simply didn’t have enough music or movies in the store to be profitable. The record labels and movie studios were afraid that licensing to SightSound would be an affirmation of our patents.
Defending those patents was about to cost us millions.
The shield and the sword
In October of 1999, SightSound received United States Patent 5,966,440. To us it was additional affirmation that we were making history.
And yet, we were just beginning to understand the frustrating paradox of our patents. On one hand, the patents enabled us to raise capital to launch the download future. On the other hand, the patents, which we saw as a shield, were seen by the record labels and movie studios as a sword held to their collective throats. We believed our patents were a necessary shield to protect us from being “Microsofted,” the turn of millennium term used by start-up companies who were appropriately fearful of Microsoft moving onto their turf. Back then, no one ever feared of being “Apple-ed.”
With limited content to sell, SightSound was bleeding cash, and the dot-com bust was now making it impossible to raise more. We were faced with a Hobson’s choice of funding our operating business or funding the defense of the patents. We were now defending against infringement by the multi-billion dollar German media conglomerate, Bertelsmann, who had purchased, and unceremoniously shut down, a tiny infringer named CDnow. After all of our dramatic firsts on the internet we were being squeezed into becoming just a patent holding company.
On a human level the toll was devastating. From the high-energy peak of a bustling startup with super-smart engineers, we descended through the despair of rounds and rounds of layoffs. We were hamstrung by the very patents that launched us as we waited and waited for the court to rule on their validity. We couldn’t raise money without affirmation of our patents by the Court. We couldn’t compel the record labels and studios to work with us without the leverage of those patents. It was a death spiral for SightSound.
Patent battles are like a three round prize fight. The first round is called the Markman hearing. In this initial battle over “claim interpretation,” the parties argue over what the words used in the patent mean and what the terms of the patents cover. Trust me when I say that this phase makes for truly belabored legal gyrations. Bill Clinton’s famous, “it depends on what the meaning of the word ‘is’ is” seems a fair guide. The second round is Summary Judgement, where the case is tried on papers before only the Judge. Summary judgment is the process of asking the court to rule, without the need for a jury trial, on questions of infringement and validity. The third is a trial by jury to determine disputed facts that establish infringement, and the willfulness of that infringement, and if either or both are found, establish the damages awarded to the patent holder who was infringed.
We had been waiting for over four years for the Federal Court to rule in the Markman phase alone of our case against Bertelsmann. These delays cost money. Lots of it. And the uncertainty around our patents took away all of our leverage with the record labels and movie studios. Combine the uncertainty of our patent litigation, the refusal of the record labels and movie studios to license their content to us, and the bursting of the dot-com bubble, and it was truly the triple witching hour for SightSound.
Finally, in February of 2002 SightSound received a very positive decision. The decision — a Report and Recommendation by Chief Magistrate Judge Kenneth Benson resulting from the Markman hearing — sustained SightSound’s positions in all key respects. But, the damage was done to our operating business. The few remaining employees would have to wait for further affirmation of the patents in the Summary Judgement phase. If it went against SightSound, it would spell the end. If it went in favor of SightSound, we could deal ourselves back in. But, for now, we had to wait.
And while we waited…
Fifteen years after Art filed for his first patent, ten years after reaching out to Apple CEO John Sculley, eight years after the launch of downloadable music on SightSound.com, four years after SightSound sold the world’s first movie download, and four years after Art and I presented our entire approach to Steve Jobs, Apple opened the iTunes music store on April 28th 2003.
Bait and switch.
Steve Jobs, in the book The Perfect Thing by Steven Levy, gives a shockingly candid description of why the record labels licensed their content to Apple instead of the monopolist Microsoft, or the upstart SightSound with its potentially market controlling patent. Steve stated: “Our smaller market share turned out to be an asset! We only convinced them to let us do it on the Mac at first. We said, well, if, you know, if the virus gets out, it’s only going to pollute five percent of the garden here.”
In a November 2003 Time Magazine article Chris Taylor wrote of Steve Jobs: “His iTunes software, which had previously been nothing more than a place to store and play digital music on a Mac, would become a gateway to the Music Store, where you could easily find and save music to your hard drive, CD or iPod music player — no subscription necessary, just 99 cents per song, or $9.99 for an album. Competitors tried to match that price but couldn’t come up with a service as free of restrictions. They said Jobs had been given a sweet deal by the labels because Apple, with its minuscule share of the computer market, was never going to be a real distribution threat.”
In less than a year, in October of 2003, Steve opened up the iTunes music store to the 95 percent of the world that used Windows PCs.
The virus got out.
Hi Scott, it’s Eddy.
On October 20th 2003, Apple sent out a press release touting iTunes for Windows quoting Steve Jobs: “iTunes users have purchased over one million songs in the first three and a half days since our launch last Thursday, which compares with one million songs in the first seven days when we introduced the original iTunes for Mac users last April,” said Steve Jobs, Apple’s CEO. “We’re off to a great start, and our competition isn’t even out of the starting gates yet.”
Starting gate? We tripped the wand eight years ago!
That same day, I got an email from Eddy Cue which said “Hi Scott, I run iTunes and the iTunes music Store. I am interested in hearing more about SightSound. Can we arrange a call?”
My reaction was simply, “you have got to be f#&%ing kidding me?”
After: Art’s letter to John Sculley, patent attached, the back channel outreach through Chiat Day, my letter to Steve Jobs, Art’s eco-system graphic attached, our Steve arranged meeting with Apple engineers, and SightSound’s high profile in the media, I thought, “really? C’mon Eddy.”
It was as if Bill Belichick, architect of the New England Patriot’s infamous Spygate cheating scandal called the Pittsburgh Steelers and said hi, we might have missed some plays, let’s talk.
I knew we were about to receive our long-awaited ruling on the summary judgement motion in the Bertelsmann case. If favorable to SightSound, I would be in an infinitely stronger position to talk with Apple. As anticipated, just three days later the court did finally rule in SightSound’s favor.
In lieu of responding to Eddy Cue, I again reached out to Steve Jobs directly. Steve would not take my call but his assistant, Andrea Nordeman, relayed to Steve that SightSound had achieved a favorable court ruling and that I wanted to know if Apple was interested in purchasing rights to the patents.
Steve never responded, but, Eddy Cue persisted. I had been flying back and forth to New York for meetings with the boutique media and entertainment investment banking firm Allen & Company. Famous for its annual meeting of media moguls in Sun Valley, Allen & Company seemed perfectly suited to represent us as we considered options for our now strengthened patent portfolio.
I ultimately had a call with Eddy Cue which, as indicated by my handwritten notes, took place on Friday, December 5th 2003. Eddy brought a bogus hayseed “aw shucks” demeanor to the call that struck me as offensive, given the history. Eddy was acting as if this was the first time he was hearing about SightSound, our patents, our presentation to Apple in 1999, any of it.
I backed it all the way to the beginning for Eddy and described Art’s invention, SightSound’s historical firsts, our patent portfolio, our recent summary judgement victory, the hiring of Allen & Company, and our hopes that finally, after so many years of effort, we would be justly compensated for our innovations.
Eddy said nothing in return.
It was as if Eddy was robotically absorbing, or even recording, what I said. This was no encounter. It was not a dialogue. I didn’t know what it was. Then Eddy went dark.
Allen & Company followed up with Eddy Cue on my behalf. They told me that Apple exhibited a “laissez-faire” attitude toward patents and relayed that Apple’s position was simply, “Not interested, come and get us.”
In retrospect it seems that Apple never intended to pay SightSound for the use of our patents unless we sued.
Allen & Company got the “Dear John” letter a few months later from Apple.
We successfully settled our litigation against Bertelsmann in early 2004 and turned our attention to Napster. Unimaginable as it seems today, it was not a given that Apple would dominate the download business. Built on the back of the renegade brand name, the new “legal” Napster was in a tight relationship with Microsoft. We believed that a successful defense of our patents against Napster would be a de-facto victory against Microsoft. Even though SightSound had developed all of its download systems to sell to consumers running Microsoft’s operating system our principle fear remained “being Microsofted.” In early 2004 Apple’s market cap was around $10 billion, Microsoft’s was thirty times that at $300 billion. Back then it was rational to be at least thirty times more worried about Microsoft than Apple, in spite of the early success of the nascent iTunes store.
The case against Napster would prove to be nearly fatal to SightSound for a reason I could have never imagined. Napster appealed to the Patent Office for a reexamination of the SightSound patents, a process by which a third party can have issued patents reviewed all over again to verify that the subject matter was patentable and not obvious.
In an interview with the New York Times, I said that I, “…find it wildly ironic that Napster, whose name was synonymous with stealing intellectual property, would appeal to the United States Patent and Trademark Office for help.”
We received the devastating news that the reexamination Napster had requested had been granted. The Federal Court stayed the Napster litigation pending its outcome. To add insult to injury, Napster sued me personally for libel for having said their name was synonymous with stealing.
SightSound was screwed.
The reexamination had a chilling effect on Allen & Company’s attempts to sell the patents. To date, SightSound has raised and spent almost $46,000,000 to launch the digital download revolution. We were not eager to let someone buy the patents for mere pennies, but were were hamstrung by the twin torments of repeated delays in both the Federal court and the Patent Office.
Seeking another way forward, I contacted Q. Todd Dickinson, former Undersecretary of Commerce and Director of the United States Patent and Trademark Office, who was now Chief Intellectual Property Counsel, Worldwide, for The General Electric Company. I proposed a joint venture between SightSound and GE. The financially exhausted SightSound would sell the patents to GE for $1.00 and half of whatever the patents ultimately generate in patent royalties. GE would be obligated to finance all patent prosecution and litigation expenses.
NBC Universal was owned by GE at the time. Under pressure from the other major movie studios NBC Universal strongly opposed the acquisition of the SightSound patents. The deal looked dead until I had a chance meeting with Jack Welch, Chairman of GE. The chance meeting was not in his Connecticut headquarters, or in a far flung factory, but in Los Angeles at the entertainment industry enclave of the Hotel Bel Air. I don’t know if it helped, but, somehow after I told Mr. Welch the SightSound story, the deal got back on track and closed in late 2005.
GE was optimistic that the reexamination initiated by Napster would take around eighteen months and they would know if they had a winner.
The reexamination would take almost six years.
During that interminable delay, Art was recruited away from SightSound to become the Chief Technology Officer of The Walt Disney Studios. It was, perhaps, the most ironic twist in the entire SightSound saga. Steve Jobs was Disney’s largest individual shareholder and a member of Disney’s Board of Directors. Here was a major movie studio, with an avowed opposition to our patents, with Steve Jobs, a major infringer of those patents on the board, embracing the genius of Art Hair and offering him the position of Chief Technology Officer.
At a personal level, Art and I remained friends. But, because of Disney’s onerous restrictions we became estranged professionally. Art’s employment agreement at Disney compelled him to relinquish his board seat at SightSound and prohibited him from discussing SightSound, or its patent battles, with me in any meaningful detail.
I, along with my long suffering CFO Alex Lepore and our loyal board of directors, tried desperately to keep SightSound from unravelling.
SightSound sat dead in the water as Apple surged forward with iTunes and the reexamination by the Patent Office dragged on endlessly, slogging its way through a bureaucratic bog.
Finally, mercifully, by the end of 2010, all three of SightSound’s patents emerged from Reexamination affirmed and upheld by the Patent Office, but the sheer waste of time made it feel like a Pyrrhic victory. SightSound at least looked like it was going to finally be compensated for its innovations.
The Patent Office’s action upholding the patents forced Napster to the negotiating table and we successfully settled the case. Inventor Art Hair, no longer at Disney, was able to rejoin the SightSound board. SightSound prevailed but the cost of the Patent Office delays was incalculable.
While the Patent Office dithered, Apple dominated.
Apple, and the “Death Squad” for patents.
The once struggling Apple now sat on a stockpile of $60 billion of cash, had a market cap that exceeded Microsoft’s, and had no interest in negotiating with SightSound for a patent license. We were forced to sue.
We were progressing successfully through Federal Court in our case against Apple when, in 2011, with a moniker that’s aptly Orwellian in its double speak, the “America Invents Act” was passed. Lawmakers hoped to give both patent holders and challengers a quick and inexpensive way to resolve disputes as an alternative to the courts. The “Patent Trial and Appeals Board” created by the law uses looser standards than a Federal Court to evaluate a patent’s legitimacy. Federal Courts assume that a patent is valid until a challenger provides “clear and convincing” evidence to the contrary. The PTAB requires only that challengers show that it’s more likely than not that a patent is too broad.
Former chief judge at the U.S. Court of Appeals for the Federal Circuit, Randall Rader, said of the new Patent Office regime, “You have 7,000 people giving birth to property rights,” while in the PTAB, there will soon be as many as 300 administrative patent judges “acting as death squads, killing property rights.”
By now, SightSound had already won key battles in the patent infringement trial against Apple. This was unsurprising given our prior successes in the same court against Bertelsmann and Napster. Hoping to avoid facing a jury, only a few months away, Apple threw a Hail Mary pass and asked the Patent Office, through the newly formed PTAB, to reexamine yet again the validity of the SightSound patents under a new regime called a “Covered Business Method” review. The CBM review was designed to protect financial services companies from so called “patent trolls.” Not all patents can be the subject of a CBM review. CBM review is available only to patents that the Board determines are covered business method patents, which the regulations defined as a patent having claims, “used in the practice, administration, or management of a financial product or service.”
SightSound was not a financial services company, and having been already reexamined over a six year period at the Patent Office, we were confident that we wouldn’t be “re-re-examined” and Apple’s request would be denied.
For SightSound, the America Invents Act had metastasized into the Apple Infringes Act. While agreeing that the patented inventions as a whole had no relation to a financial services business, the Patent Trial and Appeals Board held that it could conduct its review because the patent claims recite steps that are “financial in nature” — namely the sale of music and video signals — and such a step made the patents eligible for CBM review. In other words, because you have to pay for the music it was a CBM. The Board abandoned the statutory CBM language and created an expansive idea that anything which is commercial could be called financial, therefore greatly expanding the power and province of the PTAB. Once again an Executive Branch agency, granted an inch of expanded power by Congress, sought a mile on its own accord.
The fix was in.
One of the most treacherous exercises in a patent case is the need for a jury to put themselves mentally back to the way the world was at the time the patent was filed, the so-called “priority date.” In this instance, the three judge panel of the PTAB, which sat as judge, jury, and executioner, had to somehow transport themselves back to 1988 to contemplate Art’s invention.
During the prior reexamination of the SightSound patents from 2004 through 2010, the Patent Office reviewed over 20 different disclosures by a company called Compusonics, and its principal David Schwartz, dealing with audio transmission technology. Back in the 1980s, Compusonics wanted to take a floppy disk and make it bigger. Their so called “Super Floppy Disk” would be used to record music instead of CDs. Today, people know of the floppy disk as a metaphor from a bygone era, a tiny icon on a windows desktop that means “save.” These and similar disclosures are referred to in patent prosecution as “prior art.” The Patent Office found Art Hair’s invention patentable over these references. During the Bertelsmann litigation, which stretched on from 1998 through 2004, Mr. Schwartz was deposed about his work at Compusonics, and no anticipation was found of Art’s invention. In both the Patent Office and in Federal District Court, Compusonics was reviewed and deemed not to be prior art for patentability.
It’s difficult indeed to remember just how radical Art’s idea was in 1988 when viewed through the lens of today. In fact, a full five years after Art filed for his patent, and during the time in 1993 when Art and I were struggling to get anyone to understand the value of our approach, the New York Times ran an article by Steve Lohr titled: “Record Store of Near Future: Computers Replace the Racks.” It predicted that: “In a few years, even a small-town record shop might offer all the titles of the biggest big-city megastore — not on hand, but summoned from the digital files of big computers thousands of miles away, traveling as electronic impulses to machines in the store that copy recordings or movies on blank CD’s or videocassettes.”
Recording onto blank CD’s, videocassettes or for that matter, Compusonic’s failed “Super Floppies” was precisely what the young inventor Art Hair sought to eliminate when he filed for his first patent back in 1988.
Apple brought eight grounds for rejection of SightSound’s patents in its petition to the PTAB, and at the end of the day, all eight grounds were rejected by the PTAB. So one would think SightSound was in the clear, but, the PTAB would not let go. Instead, the emboldened PTAB went on to invalidate SightSound’s patents on grounds not even raised by Apple, claiming it had “discretion” to raise new grounds entirely on its own. The final written decision by the Patent Trial and Appeals Board came up with a ground for combination of the Compusonics prior art that was never raised by Apple, and never articulated by any of Apple’s experts in the case. The PTAB engaged in its own fact finding after the proceedings were closed, and, twenty-seven years after Art Hair first filed, invalidated the patents in a decision handed down on October 7, 2014, which in a cruel twist, was also Art’s birthday. Happy birthday Art, your due process rights were trampled by your government in a stampede to take your intellectual property. The once young inventor, twenty five at the time of his “eureka moment” was now fifty-four.
In the sordid saga of the SightSound patents there was indeed “prior art,” his name is Art Hair, and he just had his life’s work ripped away with the stroke of a pen.
The death squad prevailed.
“We have, always, you know, been shameless about stealing great ideas.” — Steve Jobs 1995
The same year SightSound was selling the world’s first music downloads, Steve Jobs declared of Apple, “We have, always, you know, been shameless about stealing great ideas.” It’s a clip that’s since been viewed a million times online but to me is as raw and frustrating as ever.
More recently, in October of 2014, Jonathan Ive, Apple’s long time design guru was asked what it felt like when they were copied. He replied: “When you’re doing something for the first time, you don’t know it’s going to work. You spend seven or eight years working on something, and then it’s copied. I have to be honest, the first thing I can think, all those weekends that I could have at home with my family but didn’t. I think it’s theft, and it’s lazy.”
Well Jonathan, We know how you feel. Art and I spent those “seven or eight years,” we spent those “weekends,” when we could have been at home. We poured our hearts and souls into launching a company and a revolution.
In 2015, a Wall Street Journal editorial about Taylor Swift’s instantly famous Apple-shaming was nestled right beside a letter to the editor decrying the injustice in the case of SightSound versus Apple.
Eddy Cue, who years before stiff-armed me on the phone call back in 2003, would capitulate quickly to Taylor Swift and issue a mea culpa to her via Twitter:
“We hear you @taylorswift13 and indie artists. Apple will pay artist for streaming, even during customer’s free trial period. Apple will always make sure that artist are paid.”
Inventors, not so much.
C’mon Eddy, tweet me.
The letter about SightSound “The Patent Board is a Loose Cannon,” observed that the SightSound patents “…based on an application filed over 26 years ago had never been held invalid despite numerous attacks. The Board failed to explain why the prior rulings favorable to the patent and involving the same patentability issues weren’t controlling. If patents can be repeatedly challenged on the same grounds in the same forum, few will take the risk of a major investment in the technology covered.”
Exactly. SightSound raised and spent over $46,000,000 launching the download revolution with its patents only to see Apple alone gain billions at our expense. Teddy Roosevelt could have been speaking of SightSound, Apple, and the Patent Office, when in his 1913 autobiography he observed:
“As has been aptly said, the only way to meet a billion-dollar corporation is by invoking the protection of a hundred-billion-dollar government.”
What happens when that corporation is worth over a half a trillion dollars and has a hundred billion dollars in cash? SightSound was forced to repeatedly invoke the protection of the Court in order to “meet” this leviathan, the most valuable company in history. Teddy Roosevelt went further:
“It is absurd, and much worse than absurd, to treat the deliberate lawbreaker as on an exact par with the man eager to obey the law, whose only desire is to find out from some competent Governmental authority what the law is, and then to live up to it.”
“Competent Governmental authority?” The seemingly bipolar United States Patent and Trademark Office giveth with the right hand and taketh away with the left. In the case of SightSound, the Patent Trial and Appeals Board appears indeed to be “the death squad for patents.”
The question of how a patent owner is treated as he or she stands before that “death squad for patents” has made it all the way to the Supreme Court. I attended oral arguments in a related case in that august chamber on April 25th, 2016, and could only hang my head in disbelief as Justice Breyer said:
“…what I would like your comment about is that there are these things, for better words, let’s call them patent trolls, and that the the Patent Office has been issuing billions of patents that shouldn’t have been issued. I overstate but only some. And what happens is some person in business gets this piece of paper and and looks at it and says, oh, my God, I can’t go ahead with my invention. And so what we’re trying to do with this process is to tell the office, you’ve been doing too much too fast.”
Too fast? In the case of SightSound, the government granted patents to inventor Arthur Hair. He went ahead with his invention because he was able to form a company only because the patents enabled him to raise money. The inventor’s work then radically transformed an entire industry. Those patents were then tested and re-tested in court and in reexamination at the Patent Office and repeatedly reaffirmed. And now, a quarter of a century later, the once proud inventor is called a troll and stripped of his property.
In Walter Isaacson’s authorized biography, Steve Jobs himself declared:
“If protection of intellectual property begins to disappear, creative companies will disappear, or never get started. But, there’s a simpler reason: It’s wrong to steal. It hurts other people. And it hurts your own character.”
It is said that “justice delayed is justice denied.” The great frustration of my professional life has been the inability to tell my “Steve story.” I was always told that the only people that need to hear it would be a jury. Apple’s success in keeping the battle with SightSound in the arcane forums of patent law at the Patent Trial and Appeals Board, and the Court of Appeals for the Federal Circuit, has kept my story from ever being told.
Because of the masterful manipulations of lawyers, and the swinging pendulum of patent law, a jury may never have the chance to decide if SightSound should have been compensated for its innovations.
A jury may never hear me plead my case.
Now you have.