Engate Patent Infringement Claims
LiveNote Responds to NCRA Regarding Engate
In the wake of LiveNote’s acquisition of Engate and its entire portfolio of realtime patents , NCRA formally requested responses to a number of questions regarding the company’s plans. Although LiveNote’s responses initially were provided on a confidential basis, LiveNote agreed that NCRA could share these responses with members as long as LiveNote’s complete responses were provided to show their context. LiveNote’s original client letter, LiveNote's FAQ, and NCRA’s questions and LiveNote’s responses therefore are being made available in their entirety. Key responses also are quoted below in order to fairly present LiveNote’s position.
Beginning in January 2002, Engate, a Chicago-based company, began contacting scores of court reporting firms, putting them on notice that the company believed the firm’s realtime offerings infringed patents held by Engate. Engate initiated a law suit against seven court reporting firms: one of the originally named firms was dismissed from the case; four ultimately chose to settle with Engate; and two firms (Atkinson-Baker and Esquire) stayed in the litigation until the very end. NCRA organized (and substantially funded) a joint defense effort on behalf of those firms that had received demand letters from Engate. In response to the potential legal threat, countless firms not named in the litigation modified their business activities and/or paid licensing fees to Engate (either through arrangements negotiated directly with the company, or through a “token” arrangement put in place by LiveNote, and accepted by Engate as complying with Engate’s claims).
The litigation came to an end in December 2006, when the U.S. Court of Appeals issued a ruling in favor of the two remaining defendant court reporting firms. The court found no direct or indirect infringement by the defendants (Atkinson-Baker and Esquire) and 22 key litigated claims (based on 16 separate patents) were declared invalid (although the validity of four relatively minor patent claims was upheld by the courts).
Many firm owners and individual deposition reporters never understood the legal basis on which they originally received threatening demand letters from Engate and were forced to buy tokens and pay license fees. We were told by one of the original defendants that they settled and complied with Engate’s demands only because they could not afford to be sued. Like many firm owners, they decided to take the safe position of awaiting the outcome of the Engate lawsuits.
After millions of dollars were spent on legal fees by all the parties and NCRA, the courts determined that there was no patent infringement and that the key patent claims upon which Engate relied were invalid.
Following its acquisition of Engate, LiveNote allowed the time periods for requesting reconsideration by the full court of appeals or to seek Supreme Court review to expire. Accordingly, the existing litigation has ended.
Many firm owners and individual deposition reporters who followed the litigation were hoping to hear nothing further about Engate’s patent claims following Engate’s judicial defeat. That expectation was ended with LiveNote’s announcement that it had acquired Engate and its entire realtime patent portfolio.
In a letter to “valued clients” dated January 5, 2007, LiveNote stated that this acquisition “strengthens LiveNote’s foundation in providing the most powerful workflow solutions to the litigation industry. It also provides an opportunity to make your access to realtime software easier and more convenient than ever before.”
In the accompanying public FAQ, LiveNote explained that the Engate acquisition was “an opportunity to improve the use of realtime transcription software for court reporters and law firms.” In explaining the implications of the litigation, LiveNote stated that the court ruling “only clears up longstanding inconveniences for customers -- it does not change current business relationships.” According to LiveNote, the courts only invalidated “a limited number of patent claims. There are hundreds of remaining claims in the existing Engate patents, along with a significant number of pending patent applications.” Finally, the FAQ stated that LiveNote and Thomson West “have no plans at this time to commence further lawsuits against reporting firms or individual reporters.”
These statements raised a number of questions that NCRA posed to LiveNote and to which they provided their responses. LiveNote explained generally that its “objective was to make LiveNote technology more broadly accessible, make the technology easier and more convenient for our customers, and mitigate legal uncertainty or administrative inconvenience.” However, LiveNote declined to answer our key questions, namely to identify the specific patent claims other than the ones that were invalidated in the litigation that justified past and future token charges and license fees; and also to explain how these other patent claims are different from those that were invalidated by the courts. LiveNote’s answer was that “Thomson does not comment on the validity or applicability of claims that have not been adjudicated. Although the Engate portfolio forms a foundation for the LiveNote licensing program, the Thomson portfolio contains many other patents applicable to legal technology.”
When asked for more details about the possibility of future litigation and their licensing enforcement strategies, it was stated that “Thomson does not comment on its enforcement strategy” and that it is has not licensed its technology to any other realtime software provider “to date” and “reserves the right to protect its intellectual property against infringement by any third parties.”
Finally, when asked what firm owners and reporters should do if a client declines to pay for tokens or a license fee, LiveNote stated that, “To be fully compliant with LiveNote’s intellectual property, all realtime connections are required to be licensed. Reporters can ensure their compliance by purchasing licenses for non compliant connections at www.livenote.com.”
As explained by LiveNote, such licenses can be paid in either of two ways:
1. LiveNote is replacing the “token” system within its own software and bundling the patent licensing fees to which it believes it is entitled into the basic software subscription fees paid by LiveNote users; and
2. LiveNote has stated it will continue to support payment of the licensing fees to which it believes it is entitled through tokens, when something other than LiveNote’s current software is utilized.
If we have learned nothing else over the past four years about patent law, it is that people looking for black-and-white clarity are going to be frustrated. Furthermore, the high degree of uncertainty coupled with the high cost of defending against patent claims makes it virtually impossible to fight (even against patent claims that ultimately prove without merit). This has created an entire industry made up of so-called “patent trolls” who leverage the ambiguity and high stakes of patent law for their own, individual profit. (See: http://www.law.com/jsp/article.jsp?id=1153299926232.)
In the present case, some firm owners and reporters likened Engate to a patent troll because the company itself never actually developed or offered any products or services based on the patents and because they felt like there was never any valid basis for the demands made by Engate in the first place. LiveNote itself has suggested that part of its motivation in purchasing the portfolio was to take Engate out of the picture and “mitigate legal uncertainty.”
However, since LiveNote continues to assert the validity of the nonlitigated patent claims in the Engate patent portfolio it acquired, and since LiveNote refuses to rule out the possibility of future enforcement actions against firms, reporters and other software vendors, this leaves open the question of exactly what is the effect of the final decision in the Engate litigation.
There are two distinct legal issues that are important to consider in the context of the Engate litigation: infringement and validity.
Infringement: The findings of “no infringement” in the Engate litigation are applicable only to the two firms actually involved in the case. The court’s finding was that the specific business activities of these two specific companies in the markets in which they operated did not infringe on the patent claims asserted by Engate.
Any other court reporter or firm accused by Engate (now LiveNote) of violating the specifically litigated patent claims in the future would have to make a similar showing that their particular circumstances and operations were non-infringing.
Validity: The court’s findings that 22 litigated patent claims were invalid, however, are binding in any future litigation involving these same 22 patent claims. It establishes legal precedence that can be used by firms to defend themselves if, in the future, similar patent claims are made against them by LiveNote. And, if the company were to engage in a pattern of litigation against other firms based solely on the 22 patent claims already litigated and found invalid, that could be actionable.
However, only 22 key patent claims in the Engate (now LiveNote) portfolio have actually been litigated and found invalid (and four relatively minor patent claims were upheld in the litigation). Engate (now LiveNote) originally asserted more than 300 patent claims based on the patent portfolio that consisted of 16 separate patents, the vast majority of which have not been tested in court.
It is logical to assume that Engate chose to file (and the courts allowed the litigation to proceed) on the patent claims in which it had the strongest arguments. That does not, however, prevent LiveNote from trying to assert any of the untested patent claims based upon the patent portfolio it now owns (including the new patent applications that LiveNote apparently is pursuing).
As recited above, LiveNote has publicly stated that it “has no plans at this time” to initiate legal action against any other court reporting firm or independent court reporters and that it wishes to shift the burden of compliance from reporters to their clients (the law firms that use interactive realtime services).
However, LiveNote (and its parent corporation, Thomson West) have been more guarded in their responses to our questions, stating that they will not comment on their future enforcement strategies. Furthermore, the company’s position to us is that “to be fully compliant with LiveNote’s intellectual property, all realtime connections are required to be licensed.” In the company’s view, the only way reporters can ensure their compliance is by purchasing licenses for “noncompliant connections.” Although these statements are contained only in LiveNote’s responses to our questions, they seem to indicate the same type of broad claims over realtime technology as Engate’s original demands. They therefore perpetuate the uncertainty that has prevailed since this issue first arose in 2002.
Literally millions of dollars have been spent on the litigation so far by the parties. Atkinson-Baker and Esquire should be acknowledged for bearing the expense of defending themselves throughout the litigation. If either or both had chosen to settle the case, the profession would not have the strong court record on the invalidity of key patent claims that the litigation has produced. This court record will be a critical and invaluable resource if there is future litigation in this area.
We should also acknowledge companies like Stenograph and Summation, as well as some state associations and individual reporters, who contributed financially toward the cost of creating a defense for those firms that chose not to acquiesce to Engate’s prior demands.
NCRA itself has spent approximately $175,000 on an expert legal opinion to assist individuals/firms who received demand letters from Engate in protecting themselves, on an amicus brief filed in the District Court to encourage the judge to continue the case to consider invalidity after the initial noninfringement determination, in supporting the two firms’ defense in the appeal, and on advising NCRA how it can best help its members to deal with this issue while minimizing the likelihood of NCRA being dragged into the litigation.
In addition to this substantial financial investment, NCRA was instrumental in the costly collection of information to support the litigation. A huge amount of “prior art” (e.g., articles, papers, etc.) was provided to help the defendants defend against Engate’s claims. (This included the expert testimony of Past President Merilyn Sanchez, which was repeatedly cited by the courts as decisive in the positive findings.)
Future Implications to the Profession
While we have accomplished so much, and achieved near total success in every aspect of this proceeding, we unfortunately cannot provide complete assurance to individuals and firms that they face no further exposure. Although LiveNote has provided general (albeit not legally binding) public assurances that it has no plans to initiate new litigation against reporters or firms, its actions and public statements clearly demonstrate that LiveNote believes it holds valid patent interests for which it is entitled to compensation. Furthermore, their responses to our questions are more guarded and less assuring.
In assessing the level of risk they may face and are willing to tolerate and the appropriate actions to take in light of the remaining uncertainties, individuals and firms will need to remember that, in cases of intellectual property rights (such as patents and patent enforcement), the ultimate merits of the patent holder’s claims are just one factor; the costs of defending against any potential claim (even when, as has been the case to date, the claims are ultimately found to be without legal merit), must also be taken into consideration.
Ever since the district court’s original invalidity ruling in 2004, Summation has stated on its Web site that “neither Summation’s products nor use of those products by court reporters, attorneys and other professionals infringe any valid patent claim.” More recently, 1360 Studios, Inc., reviewed the Engate court of appeals decision and stated that its product, Transcript Manager Pro, “does not violate any valid patents.” We will need to see how other software vendors interpret the Engate court decision and whether they may be willing to stand behind their products by agreeing to indemnify and hold harmless their customers from any patent infringement claims.
In the meantime, NCRA will continue to acquire and share as much information as possible from all involved parties so that we can provide members with a foundation of facts from which they can make their own informed decisions. As in the past, members will need to make their own independent decisions about what to do. Also, members should avoid making disparaging comments about LiveNote or their patent portfolio or suggesting that others not do business with LiveNote. Members also should avoid providing legal advice to their customers, the lawyers, about what to do. Rather, they should take the same position as NCRA and merely pass along reliable information upon which lawyers may base their own independent decisions.
As in the past, we will continue to explore what actions might be taken to protect the interests of NCRA’s members.