Engate Claims Regarding Patent Infringement

Laurel Eiler, RDR, NCRA President

January 30, 2003 - As some of our members are already aware, Engate Inc., through its attorneys (the Chicago law firm of Stadheim & Grear Ltd.), has begun sending letters to court reporting agencies across the country alleging that these firms have infringed on the company's "portfolio of United States patents directed to various feature functionalities of realtime reporting. The portfolio includes 15 issued patents, as well as pending applications." Though a court has not yet ruled on the validity of Engate's patent claims, the company is urging these reporting agencies to agree to a royalty licensing arrangement to protect themselves from possible future claims and litigation.

As we understand it, Engate itself is not a manufacturer or developer of realtime systems or software. Rather, it acquires patents on specific processes and/or technologies in the hopes that this will create future opportunities to require licensing fees from users of similar technologies.

Currently Engate is in litigation against three large reporting agencies. That litigation has been underway for more than a year, and the three court reporting firms have expended large amounts defending themselves against Engate's claims. Three additional reporting agencies previously named in the suit have chosen to settle with Engate rather than fight the patent infringement claims. The terms of these settlements are secret.

In this court proceeding, Engate has asserted numerous claims involving its 15 patents. As we understand it, a majority of those claims relate to interactive realtime, where the attorney can annotate, mark, issue code or otherwise manipulate the content of the court reporter's realtime feed. However, a small number of Engate's claims involve features within the CAT system itself. Moreover, Engate has made the argument (and the court has not yet ruled on this issue) that through the simple act of offering these interactive realtime services, the court reporter creates an inducement for attorneys to infringe on their patents.

Again, it is important to stress that, at this point in time, the court has not addressed whether the Engate patents are valid or whether infringement actually has occurred. Engate's recent letter to other reporting agencies is simply the next step in its attempt to assert its patent claims and expand the number of reporters and firms from which it hopes to obtain payment.

On December 2, 2002, the judge in the Engate proceeding ruled that the three reporting firms named in the suit cannot be held liable for the choice of realtime systems or software used by the reporters who work for them as independent contractors. While this drastically undermines Engate's ability to make firms the target of its patent infringement claims, the three named firms still face additional claims. The decision does not address Engate's infringement claims relating to their employees or their offer to provide interactive realtime services or software. The decision also does not preclude that company from making the same claims of infringement directly against individual court reporters.

Because of this ruling, Engate has sent out these letters to agencies whose reporters may be using realtime software or offering to provide interactive realtime services or software. Engate also believes that the agencies receiving these letters may have "performed realtime reporting services for one or more of the companies against whom Engate is currently in litigation," attempting to obtain payment from those agencies that may have functioned as independent contractors for the three companies.

In its proposed license agreement, Engate is demanding an "up-front payment for past use of the patented technology, and a running royalty of $.35 per page transcribed in any deposition in which realtime reporting services are used, subject to a multiplier for additional users of realtime services during such deposition." To encourage participation in the license agreement, Engate promises to waive the up-front payment, so long as the agreement is executed prior to February 28, 2003. After that date, the upfront payment would be $10,000 for reporting companies with greater than 20 reporters and $7,500 for reporting companies with less than 20 reporters. Moreover, the company threatens that "these terms will no longer be available, and both the up-front payments and royalty rate will increase," if it gets a favorable ruling from the court on its patent claims.

With full understanding of the potential effect this litigation may have on court reporting, NCRA has taken several critical steps in response:

NCRA's legal counsel has followed this litigation closely and worked with the defendants' attorneys to provide information, contacts and other resources that can be used by the defendants to demonstrate that no valid patent has been infringed because the processes and technology were in use prior to the patent applications being filed. NCRA will continue to monitor the progress of the litigation and offer what support it can to those companies currently involved.
NCRA believes that the manufacturer of realtime systems and software, not the consumer who buys it, should be responsible for assuring that their product does not infringe on any valid patents. (When a piece of mass-market software involves a patented application, licenses are often obtained by the software manufacturer directly from the patent holder or the software manufacturer may expressly indemnify, defend and hold harmless the users of its software for any patent infringement claims.) NCRA is contacting all of the realtime and litigation-support manufacturers regarding this litigation to determine their willingness to work with NCRA members to resolve these complaints as quickly as possible and indemnify the users of their software for any infringement claims involving Engate's patents.
NCRA is actively investigating ways to pool resources and facilitate an organized and effective response by those firms currently targeted by Engate and those that may be targeted in the future.

Any firm or individual who receives a demand letter is strongly urged to seek advice from competent legal counsel since there is possible substantial financial exposure if the patents ultimately are determined to be valid. Even though NCRA believes the responsibility for defending against patent infringement claims should lie with the manufacturers of the allegedly infringing software, this does not relieve any firm or individual from defending itself against any asserted claims. Engate's attorneys apparently believe that end users are more easily pressured and so continue to target them. NCRA is hopeful that we can formulate a plan for collective action that will accelerate achievement of a positive solution in this critical matter; however, only your own legal counsel, familiar with your own particular circumstances, can advise you on what actions you need to take, as an individual, to protect your own interests. Whether you wish to take the risk of ignoring the Engate demand letter is a decision only you can make in consultation with your own legal counsel.

In addition, any member (or agency with which a member is affiliated) who receives a letter from Stadheim & Grear or Engate should consider forwarding a copy of that letter to the provider of the realtime software they use and request that their vendor indemnify, defend and hold the member or agency harmless from and against any and all patent infringement claims.

Finally, if you have received the Stadheim & Grear letter, NCRA would like to know. In addition to notifying the manufacturer of your realtime software, please forward a copy to NCRA, 8224 Old Courthouse Road, Vienna, VA 22182-3808, to the attention of Peter Wacht. Feel free to contact us with any questions by phone (703-556-6272) or e-mail (pwacht@ncrahq.org).

During the months ahead, NCRA will continue to report on new developments regarding the Engate litigation and any organized efforts to respond to this serious threat. Please know that NCRA and its board is fully committed to taking all possible steps to assist members faced with these demands, to protect the interests of its members and to protect the overall stability of the profession.

For the most current information on the Engate matter, visit " pathattribute="0">NCRA's Key Issues Area.