Creative Labs v. Aureal

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This is a repost of an article on Usenet describing the lawsuit between Creative Labs and Aureal. It's fairly detailed, and rather interesting. It was written by David Gasior on December 10, 1999, and was posted to fido7.su.hardw.pc.sound:

Aureal / Creative Lawsuit

Summary and Commentary

Today, the 8th of December 1999, marked the day of closing arguments in this eagerly awaited trial. The lawsuit was filed by Creative alleging that Aureal had infringed upon a patent they had obtained through their purchase of E-MU Systems. Creative had originally asked for an injunction to prevent Aureal from selling their Vortex chipsets; this was denied by the court earlier this year.

The case finally made it to trial last month. Each side was given a total of twenty (20) hours to present their case. It culminated today with each side's counsel having two (2) hours to present closing arguments to the eight person jury. This article will serve as a general knowledge summary of the trial, as well as some personal thoughts and observations about the experience.

To start my thoughts, let me just say that real life trials are nothing like those portrayed on television shows like The Practice or Ally McBeal. Attorneys are not as passionate or creative as their tv counterparts, nor do closing arguments move as fast. In a way, it is quite boring. Now, sure, this wasn't an "exciting" trial such as a homicide or school shooting, but I really expected some more theatrics. That said ...

As the plaintiff, Creative's counsel was up first; Mr. Stone was the attorney delivering the closing argument. In a very monotone presentation, he summarized the Creative case by focusing heavily on technical issues. While there were definitely some valid points in his speech, overall he was quite confusing - jumping from point to point without segue or any true sense of coherence. I was completely lost as he spoke. I'll be the first to admit that I'm not a design engineer, but I most likely have a better understanding of the subject matter than anyone on the jury does. I can only imagine what was going through their minds as they had to sit through all this techie talk over the course of the trial. Overall, I was quite unimpressed by the Creative counsel.

After a short break, it was time for Aureal's counsel to present their closing argument; Mr. McMahon did the honors. Unlike the plaintiff's speech, Mr. McMahon was considerably more passionate - raising his voice, pounding his fist on the table, etc. He also tried to focus less on the long, dry technical jargon and took each part of the Creative claim and mentioned which testimony and evidence was sufficient to find in Aureal's favor. As his speech went on, he too began wandering. But he was sure to summarize each section clearly.

So what does the lawsuit come down to?

Dave Rossum, "Chief Wizard" at Creative Labs, received a patent regarding digital sampling with cache memory present when he was at E-MU Systems. Creative alleges that Aureal violated this patent (referred to as "990") when creating the wavetable engine in their Vortex AU8820 and AU8830 chipsets.

So what are some of the key issues?

1) Is the patent valid?

What started off as a simple patent infringement case took a wide detour when evidence was presented that suggested that the 990 patent itself is invalid. When a patent application is filed, the applicant is required to specify any sources that were used in the creation of the invention that are material to the new discovery. When Dave Rossum filed the 990 patent, he did not cite any sources. The patent officer denied the patent based on the fact that when investigated originally, he found other patents that the 990 patent clearly was based on. Through his attorney, Mr. Rossum refuted the denial, claiming that none of those sources the officer cited made use of cache memory, and that was the "new" and "novel" invention that warranted a new patent. And while Mr. Rossum still cited no sources, the application was ultimately approved.

Aureal maintains, however, that the patent was invalid because Mr. Rossum intentionally withheld information from the patent office regarding the technology, including his own use of cache memory in previous products, as well as a very well known patent that Mr. Rossum verified under oath was his inspiration for his invention.

Ironically, it may be modern technology that is Mr. Rossum's undoing; an email sent by Mr. Rossum to his attorney regarding the patent application makes note that the application could possibly be denied again if the officer was "clever" enough to find the additional sources. The evidence was apparently so convincing that the judge is now allowing the jury to not only decide on Aureal's infringement, but also whether or not the 990 patent is valid, and if Mr. Rossum intentionally deceived the US Government when applying for the patent. Aureal's counsel implied that Mr. Rossum was trying to rush the patent through so that he could make more money off the impending sale of his company, E-MU Systems, to Creative.

While nothing will happen to Mr. Rossum (in terms of criminal action) if the jury decides the 990 patent is invalid, the Creative counsel spoke out against the personal attacks on Mr. Rossum, painting him as an honest man, who cooperated fully and forthrightly throughout the depositions and trial. Of course, Aureal's counsel was vehement in their case that the patent was obtained through fraudulent means by Mr. Rossum, highlighting a timeline that showed what Mr. Rossum knew, when he knew it, and posed the question of why he didn't include it with the patent application. Aureal counsel argued this so strongly that Mr. Rossum's hand was seen to be shaking as he drank from his water glass.

2) If the patent is valid, did Aureal infringe?

Because they are the plaintiffs, Creative has the burden of doubt in proving that Aureal infringed on the 990 patent. Creative counsel presented considerable technical information as a whole in support of how Aureal infringed. Aureal counsel, on the other hand, took each of the jury instructions regarding each claimant and presented summary testimony and evidence as to why the jury should find in favor Aureal for each.

In order for Aureal to have infringed on Creative's 990 patent, the total structure of the memory cache (comprised of 4 unique structures) must be present in both the Aureal Vortex chipsets as well as specified in the patent, either "as is" or in an equivalent format. Aureal counsel maintains that Creative did not provide any evidence to support that claim.

In addition, the memory cache must support 10 individual features that are found in the 990 patent. If any of the 10 features are not found on Aureal's chipsets, then it does not infringe on the patent. Aureal counsel maintained that Creative was unable to provide evidence regarding 3 of the 10 features being supported by the Aureal chipset.

Creative also had the burden to prove that there was no substantial differences between the patent and the infringing product. Creative maintains that the differences were insubstantial; Aureal, on the other hand, argued that the Vortex chipset implementation is considerably different as a whole new element was introduced - the PCI bus - which was not even in existence at the time the patent was issued.

The jury also must decide if Aureal "induced" other companies (such as Diamond, Turtle Beach, and Dell) to also infringe the patent by releasing products based around Aureal Vortex chipsets.

3) If Aureal did infringe, what are the damages?

Here's where it got interesting. Each side presented an expert to comment on how much money should be paid by Aureal to Creative if they are found guilty of infringement. Creative counsel argued that while Aureal made approximately $20 million in profit from the sale of the chipsets, they should pay $60 million to Creative for their lost profits, as well as paying an additional $1 million for lost royalties.

Aureal counsel argued that Aureal should not be responsible for any lost profits as Creative cannot prove they lost any profits from the sales of Aureal-based products because of one feature of the wavetable engine. They did say they should only be liable for lost royalties, in the amount of approximately $500,000.

Some interesting developments ...

There were some interesting "revelations" made during the trial that may be of interest to customers. (My personal comments in blue.)

1) During questioning about techonology innovations, a Creative executive actually boasted of having the same product on store shelves at the same price for three Christmases in a row. (Thus shedding light that Creative is really not a technology company, but a marketing company who has no desire to bring state of the art audio to customers at a lower price.)

2) The same Creative executive said that A3D was irrelevant to Creative, only to have emails produced that debated on how to best handle A3D. (Apparently, it wasn't irrelevant enough to create their own A3D driver.)

3) Aureal actually had numerous meetings with Creative over the period of about 16 months, showing them their technology. (I wonder why Creative didn't raise concerns about a possible infringement at any time during that period?)

4) According to Creative counsel, Aureal changed the name of their ASP401 chipset to AU8820 after the above-mentioned meetings with Creative where Creative told Aureal about the EMU8008 and 8010. Aureal said it had nothing to do with Creative's naming convention but the fact that the number 88 is a lucky number for Chinese people, whereas the number 4 has negative connotations. (It was pointed out to me that one of the jurors, an older Asian female, nodded as that reason was mentioned, as if she was acknowledging the information.)

5) Creative failed miserably with their original PCI audio chipsets, the EMU8008 and 8010. By the time Aureal had released their first PCI audio product - the Vortex 1 (AU8820) - Creative was still only shipping ISA solutions, so they purchased Ensoniq in order to acquire their PCI technology. (No surprise there.)

6) Creative maintains that Aureal drove down the price of PC audio with the release of their chipsets. Aureal counsel pointed out that all other aspects of computers (memory, video cards, etc.) have changed prices dramatically. Up until Aureal entered the market, Creative dominated the retail sound card space, yet had never adjusted pricing similar to other industry pricing trends. (Again, no surprise there. When you dominate the market and have no competition, why lower your price?)

7) Aureal argued that the alleged patent infringement was such a minor feature in the overall product. Aureal even went so far as to indicate that the wavetable engine itself was not their focus in the development of the Vortex chipsets, nor is wavetable a major consideration for them at all when selling the chipsets. (This might be one reason why we haven't seen a sound bank editor for the Vortex wavetable engine. Releasing a patch editor could have shown that Aureal was interested in wavetable and may have changed the outcome of the trial if they were found guilty of infringement.)

Even though the events today were long and somewhat slow, the jury decided to begin deliberations immediately. While its not likely, a verdict could come in as soon as Thursday, 9 December 1999. We'll update this article with the verdict when announced.

 David Gasior

8 December 1999


Update: The Verdict

The jury of eight returned their verdict this morning, the 10th of December 1999, finding that Aureal did not infringe on Creative's 990 patent in their Vortex wavetable engine. They sided with Creative in ruling that the patent was still valid, regardless of the way it was filed by Mr. Rossum.

Aureal has not chosen to officially announce anything yet regarding the verdict, though Creative certainly did with this press release. As expected, Creative is appealing the decision, dragging the issue out even longer. From Craig McHugh, president of Creative Labs, Inc.: "We are, of course, disappointed that the final resolution of this issue will be deferred again." Of course, the only reason the final resolution is being deferred is because of Creative's appeal and their refusal to abide by the decision of the jury selected for the trial, a jury agreed upon by Creative counsel.

It'd also be interesting to point out that Mr. McHugh was the same one who made the comments about A3D being irrelevant and having the same product on the shelves for three successive Christmases at the same high price tag. Go figure.

Another point from Creative's press release was from John Danforth, vice president and general counsel of Creative Labs, Inc: "Also from the beginning, we have seen extraneous issues raised by Aureal and ultimately rejected." I'm assuming the main extraneous issue was regarding the validity of the patent, which from what I understand, was only raised after the email from Mr. Rossum was given to Aureal where he commented that a "clever" patent officer might deny his application once again if he found the other sources he neglected to include. The judge apparently did not find it extraneous as she allowed the jury to decide on that as well.

Creative also states "We believe that a new trial will focus only on the infringement issue without the numerous other distractions that this jury had to face." Like Creative counsel Mr. Stone's hilariously-stupid Scrabble reference, where he turned NIGHTDISH into HINDSIGHT. (That would be an in-joke for anyone who had to sit through Mr. Stone's mind-numbing closing argument.)

I think that for Creative to appeal, they have to appeal the entire verdict, including their own patent validity. If they feel the jury asn't able to understand the technology well enough to render a suitable verdict, then all parts of the verdict should have to go to the appellate judge. It shouldn't be "we liked this part of the decision, but not this part, so we want to appeal just that part we don't like".

Regardless, this proves to be a nice victory for Aureal. After having spent so much time devoted to fighting Creative with this lawsuit, hopefully they can now continue working on the issues facing their customers and get back on track of delivering high-quality audio products for the PC space.

Creative will surely continue to focus resources on this issue, not only continuing to fight Aureal, but in a way, to fight the judicial system that ruled against them. How someone can say the jury was smart enough to make a judgement call on one issue, but not another, is very disheartening. For a while longer, this battle of the soundcards will take place in the courtroom, as well as the market place.

It's all about winning and losing. You decide who the losers are.


 David Gasior

10 December 1999

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