Meet the patent troll that won a $308 million jury trial against Apple

Personalized Media Communications makes nothing except lawsuits.

Apr 09, 2021

A few weeks ago, a company you’ve probably never heard of, called Personalized Media Communications (PMC), won a $300 million patent verdict against Apple. Here’s the verdict form.

PMC is what patent lawyers call a “non-practicing entity,” or NPE. The company has acquired over 100 patents that date back to applications from the 1980s, and it uses them to demand money from companies that do stuff—mostly internet companies.

Not only does PMC not make anything, it’s never really tried. The company’s CEO admitted under oath that it’s never done any research and development1. Its principals simply manipulate the patent system to get more patents, many of which have priority dates that connect them to the original applications from the 1980s.

And they’re still on the move; as of November, they were in licensing discussions with more big companies, like Walmart and Disney.2 PMC, which has been a party to more than 20 federal court litigations so far, has said Disney should pay it a cool $43 million for its streaming video services.3 And the company currently has pending litigation against Amazon and Netflix.

So how do they do it?

You can’t understand how the NPE business model works without looking at how companies like Personalized Media Communications win at trial.

I’d love to read the transcript of the PMC v. Apple trial that just concluded, but I can’t. The transcripts aren’t yet on public databases, and are still being analyzed and redacted4 by the lawyers on both sides. They won’t be public until a few months after trial. 5

However, there is another set of documents that reflects directly on this case: transcripts from the PMC v. Google trial that took place in the same court—Judge Rodney Gilstrap’s courtroom in Marshall, Texas—back in November of 2020.

PMC’s case against Google resolved very differently than the case against Apple. PMC lawyers wanted Google to pay as much as $183 million in damages, saying that YouTube infringed four PMC patents. But the verdict was a clean sweep for the defense: the jury found that Google didn’t infringe any patents, and PMC walked away empty-handed.6 PMC recently gave notice they will appeal their loss to the Federal Circuit, which is not surprising.

The PMC v. Google transcripts provide a close look at how PMC, one of the oldest and most successful NPEs, operates. In the case against Apple, PMC employed a different law firm, and put forward different witnesses. They changed up their game, faced a different opponent, and ended up with a huge verdict. When the PMC v. Apple transcripts become available, it will make for a fascinating comparison.

A Family Business

During opening statements, PMC attorney Arun Subramanian described the origin story of PMC inventor and founder John Harvey to the jury:

John Harvey went to Yale in the 1960s on a Navy ROTC scholarship, and he graduated and served in the Navy. He actually was deployed to Vietnam twice on a Navy destroyer… We've got some pictures here from his younger Navy days.
He was a communications officer. He worked with things like encryption, signal processing, and it was really in the Navy that Mr. Harvey's fascination with communications technology really took shape.
So fast-forward a few years to 1981. Mr. Harvey sat down with an electrical engineer whose name was Jim Cuddihy. And together, Mr. Harvey and Mr. Cuddihy put together ground-breaking inventions in communications technology that were ahead of their time.7

TVs in the 1980s had “rabbit ear antennas, “knobs” that “would sometimes fall off,” and “grainy pictures,” Subramanian said. “By using the power of computing and digital signals and networks,” Harvey and Cuddihy sought to “enhance and improve what TV… could be in the future.”

They filed their first patent application in 1981, and founded PMC that year. Today, Personalized Media Communications lawyers describe the company as a “family-run business” with seven employees.

PMC’s business “is to license out the technology of Mr. Harvey and Mr. Cuddihy so that companies that want to use that technology with permission can do so,” Subramanian explained. “The company has over 20 licensees, and they've earned millions and millions of dollars from companies who have paid for the right to use PMC's technology.”

The job of a non-practicing plaintiff is to normalize their business. And that’s not as hard as you might think. How could Harvey and Cuddihy not have something special, if so many big companies paid them millions of dollars? And they’re talking about those huge licensing deals right here, in front of a black-robed federal judge who has already explained that patents—and the judges, juries, and lawyers who deal with them—are Very Important Things.

To the extent that Harvey and Cuddihy ever had an idea for an actual product, it seems to have been a kind of computerized graphical overlay on top of a TV screen. At some point in the early 1990s, PMC demonstrated a prototype to some potential investors in New York City. The prototype system consisted of a VCR and a computer that were hooked up to another TV screen, which combined the video streams in some way. It wasn’t connected to the internet.

Whatever this contraption was, it was likely pathetically out of date when it was shown off. By the early 1990s, in universities, computer scientists were tinkering with the first web browsers; on the consumer market, Prodigy and CompuServe were already duking it out for dominance, with more than a million paying customers between them.

PMC never made any for sale. And as the CEO admitted, they didn’t even spend on R&D. Instead, they embraced the fantasy language of the patent troll—one in which real companies, like Sony and Arris and other licensees, “took licenses in our inventions because they were using those inventions,” in the words of PMC’s general counsel, Thomas Scott.8

Subramanian’s opening statement did a decent job of making it sound like John Harvey was a scrappy engineer who was ahead of his time. He left out that Harvey spent his post-Navy life working in finance, not engineering. PMC is largely a collaboration between two old Yale buddies, one of whom became an investment banker, and another who became a patent lawyer.

The Submarines Surface

Subramanian went on to explain how PMC’s four patents (1, 2, 3, 4) were infringed by various YouTube features. PMC claimed a patent on a “remote intermediate transmitter station” covered YouTube’s system of caching videos at Edge Nodes. Subramanian showed PMC’s ‘528 patent, which in Claim 21 describes “determining the absence of complete generated television image data,” and then “advancing to subsequent information.” Then, summoning a fanciful world in which early YouTube engineers had even heard of the ‘528 patent, much less ‘followed’ it, Subramanian told the jury:

Following the steps of the methods in the '528 patent, YouTube knows how to skip over the missing frames and the incomplete frames and go to the next complete one. So that's what's happening behind the scenes.

Subramanian also claimed that YouTube’s system of showing thumbnails infringed a PMC patent related to a “multimedia presentation,” and that PMC’s U.S. Patent No. 7,769,344 described YouTube’s DRM system.

All four of the patents claim priority back to a 1981 application. How is this possible, when patents typically have a 17-year or 20-year term? Well, it used to be possible to file so-called “submarine patents,” in which the application can be filed and then argued over (prosecuted) at the U.S. Patent and Trademark Office for an extremely long time. Then the clock starts ticking towards expiration only after the USPTO grants the patent.

This particular method of manipulating the patent system was banned in 1995, when the USPTO changed how it calculates patent terms. But Thomas Scott—PMC’s general counsel, who testified at this trial—was determined to be one of the last to take advantage of the old system. In June 1995, one day before the new law went into effect, Scott filed more than 300 new patent applications—all linked to the original 1981 patent.

In 1999, Personalized Media disclosed this strategy to the New York Times, adding that its goal was to “seek licensing agreements from companies using technologies described in its patents.”

Harvey and Scott were one of the earliest, boldest proponents of pure patent licensing as a business model. It has paid off handsomely. All four of the patents it used against Google, just like the DRM patent it used against Apple, appear to be linked to that batch of hundreds of applications that Scott filed just under the wire in 1995.

“They exist to exploit the patents”

Google didn’t even try to invalidate the patents at trial. Instead, its lawyers focused on the non-infringement—emphasizing that these old patents were simply not relevant to YouTube.

“These patents are old 1981 inventions, and they don't apply to the sophisticated internet we have today,” Google lawyer Charles Verhoeven told the jury during his opening.9 He continued:

PMC—they’re a licensing company. They do not make any commercial products. They do not sell any commercial services. They exist to exploit the patents that Mr. Harvey has obtained over the years. That’s all they do…
The inventions in this case, three out of the four of them, all occurred in 1981. The fourth one occurred in 1987. That's 25 years before Google even acquired YouTube. 25 years. Now, we've been around this world long enough to know that in 25 years, technology doesn't look anything like it looked the previous 25 years.
Today, we have laptops. We have smartphones. We have the Internet. There was no Internet that was commercially available in 1981, none. And there's no mention of the word ‘Internet’ anywhere in these patents.

Two days later, when PMC general counsel Thomas Scott was on the stand, Verhoeven was again able to emphasize PMC’s do-nothing business model.10

Q. (Mr. Verhoeven) Did PMC's prototype work ever lead to a commercial product, whether it was made by PMC or another company?

A. (Mr. Scott) It certainly did.

Q: Okay. What commercial product?

A. Well, the ones made by our licensees.

Q. And it's your testimony that they developed your prototype?

A. No, they -- they developed their products and -- and took licenses in our inventions because they were using those inventions.

Q. Did any outside parties, and by that I mean non-PC -- non-PMC entities, invest money in the development of the prototype?

A. Not -- no.

Q. And the prototype itself, not the licenses, but the prototype, that was never sold to anyone, correct?

A. No.

Q. The prototype no longer works?

A. No, it does not work anymore -- any longer.

Google met with PMC principals at least twice, in 2011 and 2015, to discuss buying its patents. In the first meeting, PMC employees showed off claim charts demonstrating how they believed Apple infringed—and how much money Google could make by buying PMC’s patents to launch a lawsuit against Apple. Both pitches fell flat, since Google never made a purchase.11

Google was communicating with PMC as early as 2009, when then-PMC chairman Gerald Holtzman sent an email to Google’s Kent Walker entitled “Our New Patents.”

In 2011, Holtzman, who passed away in 2018, along with PMC licensing agent Boyd Lemna, made a presentation to Google urging the search giant to purchase PMC’s patents—to sue Apple. They presented claim charts, and (allegedly) estimates of how much money Google could make by buying PMC patents and launching lawsuits.

Google met again with PMC in 2015 in New York. A lot of the testimony about these meetings was in a sealed court, and isn’t available in the transcripts. But it’s clear that the discussions didn’t work out, and everything went quiet until 2019, when PMC filed its lawsuit.

In the end, is Apple a victim of PMC? In a strictly logical sense, yes, I do see it that way. In my view, the NPE business model is simply unethical, regardless of how much money its victims have.

But Apple is a particularly unsympathetic victim. Not just because it’s one of the richest companies on earth, but because Apple has such a long history of leveraging intellectual property, and particularly DRM, in ways that are anti-competitive and bad for society. That’s why Cory Doctorow sees an “especial and delicious irony” in Apple losing so big in a trial that’s purportedly over, in part, who invented DRM. His recent post inspired by the PMC verdict recounts how Apple has pushed the limits of the IP system to its own benefit. I highly recommend it, and if you want a more holistic view of how IP gets abused, Cory’s work is required reading.

Letters Patent

Discussion about this post