AI Bulletin – July 23, 2020

• $125 million verdict for willful infringement of image recognition patents
• Trade secret theft complaint against former CTO of predictive modeling software developer
• SEC Actions for fraudulent ICO and against machine learning start up
• AI and special visa program bills introduced in House and Senate
• Inspector General audit of DoD’s AI framework
• New proposed securities regulations governing use of AI by asset managers
• QE in the News – IP Rising Star Deepa Acharya

SPOTLIGHT – EAGLEVIEW LITIGATION

Willful Infringement of Aerial Image Recognition Patents Results in $125 Million Damages Award

Background. EagleView Technology Corporation is a provider of aerial imagery, data analytics, and geographic information systems. In 2013 and early 2014, it entered into negotiations to be acquired by Verisk Analytics, a multinational provider of predictive analytics to insurance companies. During the due diligence process, Verisk reviewed EagleView’s patent portfolio, including five patents directed to machine learning-assisted image capture and 3D modeling algorithms. The parties agreed to a $650 million acquisition in January 2014. But in December the FTC challenged the transaction, alleging that it would create a virtual monopoly in rooftop aerial measurement services and reports, and Verisk and EagleView opted to mutually walk away from the proposed acquisition.

Complaint and Causes of Action. In September 2015 - less than a year after the dissolution of the merger - EagleView filed a complaint for patent infringement against Verisk and a subsidiary in the U.S. District Court for the District of New Jersey. The complaint alleged infringement of nine EagleView patents. Further, EagleView alleged that the infringement was willful based on Verisk’s review of the patents during the due diligence period.

Inter Partes Review (IPR) Petition and Motion to Dismiss. In February 2016, Verisk submitted an IPR petition to the Patent Trial and Appeal Board (PTAB) to invalidate EagleView’s patents. Simultaneously, Verisk moved to dismiss the complaint, arguing that the patents were unpatentable because they were directed to abstract ideas. In August 2016, the district court denied the motion to dismiss. In 2017, PTAB issued its final rulings on the IPRs (example here), upholding the validity of over 90% of the challenged patent claims. The PTAB specifically cited as evidence of non-obviousness examples of public praise of Eagleview’s technology by Verisk’s CEO during the proposed 2014 acquisition.

Motion for Summary Judgment. In January 2019, Verisk moved for Summary Judgment, arguing again that EagleView’s patents were unpatentable as merely abstract ideas. In denying that motion, the district court ruled that “the asserted claims are directed to an improvement in the functioning of a computer. They solve the specific problem of generating a roof repair estimate without direct human measurement of a roof. The claims rely on the concrete and specific technological solution of a computer's correlating, with or without user input, different locations points on two, different, non-stereoscopic aerial views of a roof section and then calculating via photogrammetric methods from the correlated aerial views a mathematical model of the roof section.” This, the court emphasized, “suggests a specific inventive concept.”

Trial. The case proceeded to a twelve-day jury trial in September 2019. During the trial, EagleView’s attorneys introduced internal Verisk documents showing that Verisk viewed EagleView as a revolutionary threat, and had been pricing aggressively to try to take its market share. After less than two hours of deliberation, the jury found that Verisk willfully infringed five EagleView patents, and awarded $125 million in damages for lost profits. The district court also issued a temporary restraining order (TRO) preventing Verisk from selling any products using technology found to infringe on EagleView’s patents. On October 18, 2019, the district court converted the TRO into a permanent injunction.

What’s Next. On November 12, 2019, Verisk moved for a judgment as a matter of law and a new trial. On the same day, EagleView moved for an award of enhanced damages and attorneys’ fees pursuant to the jury’s finding of willful infringement. If granted, an award of enhanced damages authorizes the district court to “increase the damages up to three times the amount found or assessed.” 35 U.S. Code § 284. Both motions are currently pending before the district court. Execution of the monetary judgment has been stayed while the motions are considered.

OTHER RECENT DEVELOPMENTS

TRADE SECRETS

• Stats Perform, which provides predictive modeling software to sports leagues, media outlets, and betting operators, filed a complaint in the Northern District of Illinois against its former Chief Technology Officer, Helen Sun, for breach of contract, breach of fiduciary duty, and trade secret misappropriation. Stats Perform has also requested a temporary, preliminary, and permanent injunction enjoining Sun from publishing or otherwise distributing its proprietary information and requiring her to turn over her devices for inspection as to the presence of Stats Perform trade secrets.

SEC ACTIONS

• On July 20, the SEC filed a complaint against YouPlus, Inc. and its founder, Shaukat Shamim, for fraudulent raising $11 million from investors YouPlus is a start up that purported to use machine learning technology to analyze video content and deliver customers insight, . The complaint alleges that despite promising investors that it had 150 paying customers for its machine learning tool and had generated millions of dollars in revenue, the company had, in fact, four paying customers and had generated less than $500,000 in its lifetime. The US Attorney for the Northern District of California has filed a parallel criminal action.
• A federal judge in the Southern District of New York has entered final judgment in the SEC’s case against Eran Eyal, CEO of cryptocurrency startup Shopin. Eyal had pled guilty to counts of securities fraud in connection with Shopin’s May 2017 Initial Coin Offering, which raised $42.5 million. Final judgment required disgorgement of $457,040, which Eyal satisfied through payment of Ether tokens.

U.S. GOVERNMENT & REGULATION

• The National AI Research Resource Task Force Act, a bill co-sponsored by U.S. Senators Rob Portman (R-OH) and Martin Heinrich (D-NM), has found support among tech company leaders and universities. The bill would form a taskforce of government, industry, and academic experts to create a plan for building a national AI research cloud. Google, Amazon Web Services, Microsoft, and Stanford University are among the entities voicing support.
• U.S. Representatives Jim Langevin (D-RI) and Elise Stefanik (R-NY) have introduced the National Security Innovation Pathway Act which establishes a special visa program for foreign citizens working to protect national security concerns. To be eligible, foreign nationals would need to be employed by entities working on innovative national security solutions, including federal agencies, universities, federally funded research organizations, and venture capital firms that invest in military or related research.
• The Office of the Inspector General released an audit calling on the U.S. Department of Defense to establish a governance framework for the use of artificial intelligence. The report recommended steps that the DoD take to create an appropriate governance standard and highlighted the further need to implement security controls to protect the data used to support AI projects.

INDUSTRY STANDARDS

• The International Organization of Securities Commissions (IOSCO), a multilateral organization of securities regulators including the SEC, has proposed new regulations governing the use of artificial intelligence and machine learning by asset managers and market intermediaries.

QUINN EMANUEL IN THE NEWS

• Deepa Acharya, a partner in QE’s Washington, D.C. office, was named as a Rising Star in the field of Intellectual Property by Law360 Magazine, which recognizes top attorneys under the age of 40 in their practice areas. She holds B.S. in Electrical and Computer Engineering from Carnegie Mellon, and most recently won a $1.1 billion verdict against Apple and Broadcom for infringement of three Caltech data transmission patents.