Norfolk jury awards $115M in interactive TV patent case

A small technology company won a $115 million verdict from a Norfolk federal jury last week, on its claim that Verizon Communications Inc. infringed on its patents for interactive television when Verizon developed its FiOS cable system.

ActiveVideo Networks contended that its founder, Leo Hoarty, was a visionary when he started the business in Virginia Beach in the early 1990s and obtained patents that form the basis of much of today’s video-on-demand technology.

Verizon countered that Hoarty’s technology was outdated by 2005 when it began rolling out FiOS, its system to provide television, Internet and telephone services directly to homes over fiber-optic cable.

San Francisco lawyer Daniel Johnson Jr., ActiveVideo’s lead counsel, said Verizon approached his client, and ActiveVideo provided demonstration units under a mutual nondisclosure agreement in 2005.

Verizon kept one of the units for almost two years rather than the two months the companies had agreed to and returned it completely disassembled.

The condition of the equipment and the length of time Verizon kept it bolstered his argument that the company had stolen the technology, Johnson said.

Instead of entering into a relationship with ActiveVideo, Verizon “went out and built a system that looks exactly like the ActiveVideo system,” Johnson told the jury.

Verizon’s lead attorney, Henry B. Gutman of New York, responded that delivery of television and Internet through fiber-optic cable was fundamentally different than providing it through coaxial cable as older cable companies do.

The company decided to go initially with SeaChange International, a leader in the field, and later bought an upgrade from Cisco Systems Inc., Gutman said. Verizon paid almost $100 million to the two companies for their technology, a strong indication that Verizon would have been willing to pay ActiveVideo if it was in fact using its technology.

Johnson said after the jury verdict that the demand for interactive television is just catching up with the technology, and interest in his client’s products has never been higher.

Although much of the testimony during the trial was very technical, Johnson said, he tried to maintain the focus on the novelty of Hoarty’s work 20 years ago and on what he argued was Verizon’s need to recoup a $23 billion investment in FiOS. The company had to offer something more than basic cable service, and interactive TV was that extra something, he said.

Johnson said he filed suit in the Eastern District because the area has been a focus of Verizon’s FiOS service and because of the Eastern District’s “rocket docket” reputation for moving cases quickly through court.

He said filing in the Eastern District required enormous preparation before suit was filed. “That’s the only way you can stay in the game. Once the rocket takes off, it’s a wild ride,” he said.

Indeed, a case with dozens of attorneys and more than 1,000 docket entries was tried to verdict within 15 months of filing.

Although U.S. District Judge Raymond A. Jackson already has entered judgment on the verdict, post-trial motions are pending and a Verizon spokesman promised an appeal to the U.S. Court of Appeals for the Federal Circuit if those motions fail.

Johnson said he also expects to file a request for an injunction that would bar Verizon from continuing to use ActiveVideo’s technology.

The case wasn’t a complete loss for Verizon. It filed a counterclaim that ActiveVideo had infringed on two of its patents. The jury agreed but awarded only $16,000 in damages.