Federal Circuit Affirms Patent Win for Netflix

The Federal Circuit has issued a non-precedential ruling affirming a decision by the Patent Trial and Appeal Board (PTAB) that claims in a Broadcom patent related to video-on-demand technology were unpatentable.

The Broadcom patents at issue were challenged via a petition for inter partes review (IPR) proceedings at the PTAB.
The PTAB had determined that certain claims of Broadcom’s U.S. Patent No. 6,341,375 unpatentable under 35 U.S.C. § 103, which states:

A patent for a claimed invention may not be obtained, notwithstanding that the claimed invention is not identically disclosed as set forth in section 102, if the differences between the claimed invention and the prior art are such that the claimed invention as a whole would have been obvious before the effective filing date of the claimed invention to a person having ordinary skill in the art to which the claimed invention pertains.

The PTAB ruling concerned the meaning of the term “drive server” in the patent. The question was whether a “drive server” requires computing capabilities, or whether storage capacity was enough. The Federal Circuit agreed with the PTAB that “drive server” only requires storage capacity, not computing capabilities:

The intrinsic evidence indicates a “drive server” is simply a collection of disks from which another element, the control server, retrieves data in response to a user’s request. The claim language itself calls for a “drive server” that is “configured to present a plurality of compressed data streams in response to one or more first control signals.” … This language indicates the drive server simply responds to requests without a need for computing capabilities.
Although term “server” suggests computing capacity, the court agreed with the PTAB that the intrinsic evidence, including the claim language and the specification, supported the broader interpretation.

In the IPR, Broadcom sought the narrower construction to avoid the claims being invalidated by prior art. Under the broader construction, the claims were found invalid as obvious under 35 U.S.C. § 103.

Broadcom had included in its patent claims a “preferred embodiment” of a DVD drive server (also called a disk library) containing DVD drives and disks. Broadcom conceded that its proposed construction would exclude this preferred embodiment if the disk library didn’t contain an additional computer.
The Federal Circuit concluded that constructions that exclude a preferred embodiment are “rarely, if ever, correct and would require highly persuasive evidentiary support.” In this case, said the court, such support was absent.

In 2020, Broadcom sued Netflix after Netflix allegedly refused to a licensing deal for Broadcom patents related to streaming.
The patents at issue cover technologies such as dynamic load balancing on networks, systems and methods for processing data using networks, and “Multiple Pathway Session Setup to Support QoS Services.”

Broadcom claimed that these patents covered crucial elements of the Netflix streaming service.
According to Variety, the suit claimed that Netflix’s infringement contributed to the rise of cord-cutting (i.e., cancelling cable TV subscriptions), which drove down demand for Broadcom’s chips in set-top boxes.

The complaint alleged:

As a direct result of the on-demand streaming services provided by Netflix, the market for traditional cable services that require set top boxes has declined, and continues to decline, thereby substantially reducing Broadcom’s set top box business.

As StreamTV Insider reported,

Indeed, the traditional pay TV industry has seen dramatic subscriber losses in recent years and that may be due, at least in part, to the continued rise of subscription and ad-supported streaming services. The Leichtman Research Group calculated that the largest pay TV providers in the U.S. – representing about 95% of the market – lost about 4,915,000 net video subscribers in 2019.

One commentator suggested sarcastically,

Perhaps we can now expect Cunard to sue the airlines for superseding the lucrative transAtlantic trade their liners once had or see Standard Oil suing Tesla for loss of revenue because people like electric cars?

In the course of the patent litigation, Netflix asked the judge to impose a $2,000-per-day "coercive sanction" against Broadcom for violating a discovery order by refusing to hand over documentation of 2,400 patent licenses unless Netflix agreed to "onerous and unnecessary" restrictions.

In 2022, a federal district judge in the Northern District of California issued a judgment on the pleadings invalidating claims from one of the Broadcom patents asserted.
The judge in that case noted that Netflix claimed that claim 1 of the patent at issue, directed to an efficiency improvement for distributed computing systems, was “no different from the commonplace occurrence of a manager assigning tasks in an office.”

The judge concluded that the claim was unpatentable:

Countless other analogs can be found in everyday life stretching back through time, from Roman magistrates allocating work to citizens in the Forum to meet the needs of the city, to the host of a local restaurant directing customers to the bar, a table, or other location in the restaurant based on the customer’s needs and the waiters’ availability to address those needs. Such a ‘fundamental [and] long prevalent’ practice is a quintessential abstract idea.

Earlier, the same judge invalidated other claims of the patents at issue for being directed to abstract ideas “akin to the time-honored practice of delivering packages from one address to another, using different carriers and routes depending on which is most efficient considering the recipient’s address and preferences.”
Broadcom has had other recent losses related to patent litigation.

In 2020, Caltech won a $1.1 billion patent verdict against Apple and Broadcom, as the LA Times reported. Broadcom was ordered to pay $270.2 million in a case involving patents related to wireless data transmissions. At the time, it was the sixth largest patent infringement verdict of all time.
Caltech had sued Apple and Broadcom in 2016 and claimed that iPhones, iPads, iPods, Apple Watches, Mac computers, HomePod smart speakers and AirPort wireless routers used infringing Broadcom components.

The patents “allow for faster data transfer” and hardware simplification.
In June, the US Supreme Court declined to hear the appeal of Apple and Broadcom. There will now be a new trial on the question of damages, unless the parties settle first.