RealNetworks Prevails in First Test of Patent Reform

Citing a recent Supreme Court decision declaring obvious improvements to existing inventions unworthy of patent, Northern California District Judge William Schwarzer ruled entirely for RealNetworks last Thursday in a patent infringement dispute brought in 2003 by a San Francisco technology licensing company.

Friskit, Inc. claimed to be the first innovator of a system "enabling consumers to conveniently find, personalize, and play streaming media over a network." The company says it maintains an active index of over 9 million songs, and licenses that index to companies that provide playlist services. That index was based on a patent portfolio that at one time appeared to protect its streaming search and playback system.

But the Supreme Court ruling last April in KSR v. Teleflex set forth a new precedent: that obvious improvements to existing innovations (what the law calls "prior art") are not worthy of patent. That presented a new test for Friskit, whose patented innovation was essentially a playlist on top of an index. And as Judge Schwarzer ruled, "the idea of integrating these different components was not novel."

By granting RealNetworks' motion for summary judgment, the four patents in Friskit's portfolio were declared invalid. Based on a quick read of Friskit's Web site this morning (which only lists three), that could be the company's entire portfolio. Friskit may not only have lost its case; it may have lost the foundation of its business.

The ruling could send the first shock waves of change to the technology "portfolio" industry: companies which purchase instant innovations' patents on the cheap, and base their business model on successfully defending those patents in court. Friskit v. RealNetworks demonstrated that those cheap patents may not be worth the paper they're not written on.

Before Thursday's ruling, though, the Friskit case had already made news for attempting to set a completely different legal precedent: In early July, Friskit's attorneys made a motion to have RealNetworks' legal counsel disqualified, on the basis that they conferred with RealNetworks at length prior to being hired. While that may sound like an unusual claim for a motion, just to make certain, RealNetworks filed a counter-motion, urging the judge to disqualify Friskit's attorneys...for having filed the original motion.

According to a report by Law.com, Judge Schwarzer refused to entertain the oral arguments of either side in that little dispute. He dismissed both motions but took Friskit to task, saying the idea that lawyers have to be hired before they can be interviewed for possible hiring "seems to me to defy common sense." Though there's no evidence of this, it also suggests Friskit's attorneys may have forced the company to enter into a similar pre-hiring deal...forcing Friskit to wonder why that doesn't happen with other attorneys' clients.

Last week's news was followed up with more good news for RealNetworks yesterday. The company reaped 52% greater revenue this year over the prior year, with $136.2 million. Its costs remain relatively high, but net income of $8.9 million was still substantially higher than the previous year. Analysts are attributing the company's gains to an unexpected surge in Rhapsody subscribers during the last quarter.