Then David said to Goliath, Thou comest to me with a sword and with a spear and with a shield but I come to thee with naught but a sling and stone.
The story of David and Goliath is a familiar tale, but the modern retelling in the form of TiVo vs. EchoStar has an unfamiliar twist. Instead of relying on its already sizeable advantages in money, power, distribution, and legal firepower, Goliath has asked the judge over and over again to ban the use of slingshots. The question that concerns ACT and our members is: “Will all future innovative Davids be forced to face their Goliaths with nothing at all?”
Therefore, ACT has filed a rather unusual amicus brief with the U.S. Federal Court of Appeals in the patent infringement case between TiVo and EchoStar, in which we asked the court to deny EchoStar’s motion for a stay that would further delay the District Court’s permanent injunction order. Working with Ray Millien, one of Intellectual Asset Management Magazine’s Top 250 IP Strategists and a potential candidate for head of the USPTO according to CongressDaily, our brief explains how this seemingly insignificant motion could have far reaching consequences to all innovative small firms.
While we have written about this case in the past, we are not a party to it, nor are EchoStar or TiVo members of our association. In fact, we have never gotten involved in a patent dispute between two companies before.
Creative Destruction, Not the Destruction of Creativity
Throughout our organizational history, ACT has borne witness to the transformative power of intellectual property, particularly patents, for innovative technology startups. We have written about patent policy extensively, filed briefs in court proceedings, debated it with policymakers, and even launched an entire online community dedicated to helping startups manage their intellectual assets. We believe that this moment in this case represents a critical juncture in the patent system and its ability to serve the needs of entrepreneurs, including the more than 3,000 technology companies that ACT represents.
The entrepreneurs with great ideas and a grand vision, who built and rebuilt this nation, might have been relegated to mere historical footnotes without the patent system. Lacking the ability to protect their innovations from larger, well-heeled competitors, companies like Hewlett Packard could have been easily bullied out of the market, or worse still, may never have entered it at all. The democratized American patent system, which is open to anyone regardless of their race, class, or gender, has provided such fuel to the fire of genius as to create an economic engine unlike any the world has ever known.
If EchoStar is granted yet another stay in this case, the follow-on effects could undermine the entire value of the patent system for smaller firms. The result would be a system that only served the most established, well-funded, and dominant players in any market – a system that would perpetuate the “destruction of creativity” rather than “creative destruction.”
An Unlikely Significant Moment in the Future of Innovation
EchoStar’s latest motion to stay the injunction following a courtroom defeat may seem like an insignificant moment in an otherwise standard patent infringement case. However, very little about this case is "standard." In fact, this case and its circuitous path through the legal system, demonstrates not only why entrepreneurs DESERVE the right to protect their inventions, but perfectly illustrates why they NEED to protect them from larger competitors.
TiVo is an unquestionably innovative firm. The TiVo is the kind of disruptive technology in which few established players would ever dare to invest, let alone bring to market. It was technology that nobody knew they needed, that destabilized existing business models in the TV industry, and reinvigorated debate over fair use concepts like time and space shifting. TiVo went forward and convinced many to invest in their vision. The result was the creation of a product so powerful that it created an entirely new market and even a new verb.
The quality of TiVo’s patents is not in question. While we have all seen poor quality software patents, everyone seems to agree on the validity and quality of TiVo’s patents. They have withstood a re-exam at the PTO, and EchoStar is not challenging their validity. In fact, many other larger firms that have entered the DVR market are already licensing them from TiVo (Comcast and DirecTV are well known licensors).
As the TiVo CEO explained to USA Today back in 2005, “the company was built on the concept that innovation and killer products can win the day over price wars and the clout of big cable companies.” Even today, with a fully established product, TiVo continues to spend an astonishing 25% of its revenues on R&D. Let’s put that in perspective: the world's most respected innovator, Apple, is currently spending only about 3.3% of its revenues on R&D.
Without a patent system to protect its investments in innovation, TiVo’s entire business philosophy would be quixotic at best. Yet, the future of the American economy rests on our ability to inspire and reward those innovators willing to take the risks necessary to invent the next generation of technology.
EchoStar’s Actions Represent Why Innovators NEED to be able Protect Their Inventions
For small companies a patent is not simply about one claim. A patent provides a clear message to competitors, partners, and investors that you have something of value. It tells the world what you are working on, and why it might be important. And while the right to exclude is a pretty key part of a patent’s value, sometimes what you really want to do is just send a message “don’t tread on me”! But EchoStar decided they could ignore the patents, roll out a copycat TiVo, and outlast them in court.
Of course companies have the right to defend against patent infringement lawsuits*, especially in an era where the patent pool has been poisoned with patents of incredibly poor quality. But after the courts and even the U.S. Patent and Trademark Office had ruled in favor of TiVo, EchoStar kept appealing and asking for stays. It became clear they were never interested in stopping their infringement. And it looks like it’s has been paying off: during the stays EchoStar has been granted since the District Court decision in 2006, the company has leveraged that infringement to nearly double the number of its DVR subscribers!
Without the injunction, the only message EchoStar will have gotten is “taking from the little guy pays dividends.” If EchoStar is able to validate its misbehavior, we may endanger the entire class of entrepreneurial innovators.
EchoStar is Writing the Playbook for Killing Small Innovators
After exhausting all of its options to appeal this case on the merits, EchoStar is now inventing new ways to stall in hopes that TiVo will simply die before they have to change their practices. If only EchoStar’s engineers were as creative as their lawyers.
In essence, EchoStar has written the playbook for larger firms who want to trample on the IP rights of smaller competitors. If the court does not rule these tactics illegal now, they will undoubtedly be employed by many larger firms looking to stifle upstart competitors or simply use their innovations without paying for them. That is how this seemingly insignificant motion – and our Amicus response – could become critical for the future of the patent system. And that is why the Appeals Court should deny EchoStar’s request for yet another stay in this case.
* After the Supreme Court’s decision in the MercExchange vs. eBay case it’s clear that injunctions are not an automatic right – and we support that concept. What we like about the eBay decision was that the court continued to support the concept that an injunction was unequivocally an "equitable remedy." In simple terms, shutting down an infringer is a legitimate, reasonable response. And it is absolutely the kind of response you need when the infringer refuses to get the message.