VidStream Prevails in Northern District of Texas Trial Against X

A Northern District of Texas jury has returned a verdict in favor of VidStream LLC, awarding it over $105M against X (f/k/a Twitter). Six claims from two patents were tried, the patents generally related to “a system of receiving and distributing user-generated video content for distribution on television broadcasts and the Internet”. The jury found only one claim from one patent infringed and not proven invalid; the others were found not infringed and proven invalid. The verdict comes in a case first filed in March 2016, by a different plaintiff, Youtoo Technologies, LLC, over patents that were invalidated under Alice years ago, only to have VidStream step in with new counsel and successfully seek a reboot of the case, which request District Judge David C. Godbey granted in April 2021.

Youtoo originally asserted three patents (8,464,304; 8,601,506; 9,083,997), targeting X’s provision of Vine, a short-form video sharing service acquired in 2012 but discontinued in 2017. Later allegations targeted the provision of Periscope, launched in 2015 and shuttered in 2021. The jury found claim 17 of the ‘304 patent infringed and not proven invalid. Claims 22-24 of the ‘304 patent and claims 23-24 of the ‘506 patent were found not infringed and proven invalid. The ‘997 patent fell by the wayside after the Patent Trial and Appeal Board (PTAB) canceled its claims; the ‘304 and ‘506 patents survived inter partes review (IPR).

Youtoo’s complaint was filed in March 2016. By that November, Judge Godbey had granted Twitter’s partial motion to dismiss as to the ‘304 and ‘506 patents under Alice, finding that the patents are impermissibly directed to the abstract idea of “automatically transcoding user recorded video files to a predetermined format that is suitable for a television broadcast or publication on the Internet”. The following month, the Federal Circuit denied Youtoo permission to appeal, ruling that it had not shown the necessary extraordinary circumstances required for an appeal prior to final judgment.

Meanwhile, in early 2017, Twitter had filed petitions for IPR of all three patents, and in late 2017, Youtoo filed for bankruptcy. During the latter proceeding, “a predecessor-in-interest of VidStream purchased various assets from the Youtoo bankruptcy estate in a sale approved by the Bankruptcy Court”, which assets included the patents-in-suit. The Northern District of Texas stayed the case, which was at that point still “active” as to the ‘997 patent. VidStream moved for a lift of the stay, for reconsideration of the invalidation of the ‘304 and ‘506 patents (citing a “sea change” in both the facts of the case and the law of patentable subject matter), for leave to swap VidStream in for Youtoo, for leave to change counsel, and for leave to file an amended complaint.

As noted, the court granted all of those requests in April 2021. Twitter, on its way to becoming X, again moved to dismiss, reupping its challenge to the claims of the ‘304 and ‘506 patents under Alice. This time, in an April 2022 order, the court agreed that the claims are directed to an abstract idea but ruled that they survive the Alice challenge nonetheless. Judge Godbey first characterizes the “general subject matter” of the recited Content Creation and Distribution System (CCDS) as “collecting video data from a user, converting that video into the desired format, and distributing the converted video to a distributor” before ruling that they are “directed to collecting video, transcoding video, and distributing video”, which “fits the format of collect data, process data, output the processed data”, an abstract idea.

However, the court could not distinguish the claims’ purported inventive concept—“moving the enforcement of format compatibility from the server to the user client”—from the reverse inventive concept in existing caselaw: “to move customizable filtering from the client to the server”. Thus, ruled the court, VidStream’s claims survive the patentable subject matter challenge at the second step, at least at the motion to dismiss stage of the litigation. The court moved on to claim construction, issuing an order in December 2023 that largely sided with VidStream as to various disputed terms, most of them left to their ordinary meaning (and several indefiniteness challenges beaten back).

Perhaps emboldened by that order, VidStream moved for a preliminary injunction against X’s ongoing alleged infringement, but here Judge Godbey remained unconvinced. In a July 22, 2024 order, the court rejected this request, focusing its analysis on VidStream’s claim to irreparable harm in the absence of the requested injunction: “VidStream fails to carry its burden of showing that its purported infringement cannot be compensated by monetary damages”, since VidStream is a nonpracticing entity.

Along the winding path that it has taken to the present, Judge Godbey ordered VidStream to file a new certificate of interested parties, as required by Northern District of Texas Local Rules. VidStream did so in April 2021. While many parties treat these local rule disclosure requirements with only high-level attention, VidStream’s quite detailed certificate seems to have been aimed at actually satisfying this obligation. At the highest level, it identifies the following parties as having an interest in the outcome of its rebooted litigation: Covenant Global Alpha Fund, L.P., a Delaware limited partnership whose general partner is MCFGA LLC, the members of which are (1) CFMMMP LLC, (2) JFCFM LLC, (3) CFRBLP LLC, and (4) CFLP LLC. VidStream then moves down a level, disclosing that CFMMMP LLC is an Oklahoma LLC and is owned by Marsh Pitman, an Oklahoma resident; that JFCFM LLC is an Oklahoma LLC and is owned by Joseph Watt, an Oklahoma resident; that CFRBLP, LLC is an Oklahoma LLC and is owned by Robert Browne, an Oklahoma resident; and that CFLP LLC is an Oklahoma LLC and is owned by Ed Abel, an Oklahoma resident.

VidStream’s disclosure is not done there, though, the plaintiff circling back to note that Covenant Global Alpha Fund, L.P. “also has 74 private investors, who are limited partners”. It then lists out additional interested parties, including CGALTD Corporation, an Oklahoma corporation owned by Covenant Global Alpha Fund, Ltd., a Cayman Islands exempted company; GSSK Inc., a Texas corporation of which Ryland and Kerry Reed (both Texas residents) each owns 50%; Beth Harwell, a Texas resident; AspenTech LLC, a Texas LLC owned half each by Reed Williams and Russell Lambert, both Texas residents; J. Reed Williams LLC, a Texas LLC owned by Reed Williams, a Texas resident; Reed Williams himself; Russell Lambert himself; Decker Holdings Ltd., a Texas Partnership owned by W&B Trust, the beneficiaries of which are Wade and Becky Decker, Texas residents; Reynolds Green LLC, a Texas LLC co-owned by Matt Musselman and Will Musselman, both Texas residents; Beckham Group PLLC, a Texas PLLC owned by Blake Beckham, a Texas resident; Blake Beckham himself; Sudon Carlop Holdings Ltd., a Cayman Islands company owned by the Rovrig Trust, the beneficiaries of which are Errol and Suzzanne Pullen, residents of the Cayman Islands; Warren Low, an Oklahoma resident; the Brian E. King Custodial IRA, the beneficiary of which IRA is Brian E. King, a Texas resident; K&NI LLC, a Texas LLC half-owned by each of Karl Buckman and Nelda Sue Buckman, both Texas residents; Voice Team USA LLC, a Florida LLC owned by Sean Gruwell, a Florida resident; Joshua Lambert, a Texas resident; James Lambert, a Texas resident; Sarah Morrison, a Texas resident; Beth Wieser, a Texas resident; April Lambert, a Texas resident; and—finally—Nichols Security Trust, a Texas trust of which Rex Nichols, a Kentucky resident, is the beneficiary.

At the outset of this updated, detailed disclosure of interested parties, however, VidStream indicates that it “does not have a parent corporation, and no publicly held corporation owns 10% or more of its stock”. It does not repeat the representation made in its amended complaint (the operative, second amended complaint) that VidStream is a Texas LLC. Texas state records do not appear to contain an entity of that name. Delaware records, however, identify a VidStream LLC, formed in that state in April 2018.

The winding procedural history of this roughly eight-year litigation, into the grave and back, does not capture the full range of unusual events of the case. For details concerning additional wrinkles, including an order for leave to depose a prisoner, see “Preliminary Injunction Denied in Long-Running, Resuscitated Media Delivery Case” (July 2024). VidStream appealed the denial of its request for a preliminary injunction, unsuccessfully. Prior to trial, X sought to knock out aspects of VidStream’s planned testimony from its damages expert, but Judge Godbey batted those attempts away, holding, among other things, that the expert sufficiently tied four documents—“(1) an enterprise services agreement between Youtoo and AsiaTV regarding a nonexclusive license of Youtoo’s social media features; (2) an executed memorandum of understanding between Youtoo and Verizon regarding a potential license of Youtoo’s on-demand and live programming services and other features; (3) an unexecuted memorandum of understanding between Youtoo and Verizon regarding a license of Youtoo’s linear television service; and (4) a deal review document prepared by Twitter regarding Periscope, one of the accused products”—to the hypothetical license negotiation between Youtoo and Twitter.

X had also attacked the expert’s inclusion of a worldwide user base in his damages calculation. However, Judge Gobdey ruled, among other things, that the expert “opined that ‘Twitter operates a worldwide ecosystem,’ and content ‘generated from U.S.-based Twitter applications is shared worldwide and can increase engagement in foreign markets, leading to advertising revenues attributable to those worldwide markets’”.

The jury sent a note out to Judge Godbey during deliberations, asking, “How will the money be disbursed after our ruling?”, as well as questions concerning whether the jury could control disbursement among entities and over time. Judge Godbey responded, “Any judgment will go to Plaintiff VidStream”, before indicating that the jury had no control over entity- or time-distribution. The $105,444,153 verdict resulted.