Examining SMT’s Lawsuit Against MLBAM

On Thursday, a company called Sports Media Technology (“SMT”) sued MLB Advanced Media (“MLBAM”) over Statcast. The complaint in the lawsuit is 92 pages long, and I read it so you don’t have to. But if you did want to, here it is.

According to the lawsuit, in 2006, MLB and MLBAM entered into a contract with SMT to develop PITCHf/x. However, according to SMT’s lawsuit, MLBAM then breached that contract, poached at least one key engineer from SMT, then used SMT’s PITCHf/x technology to create Statcast.

According to SMT, Sportvision and MLBAM signed a contract before SMT purchased the company that gave Sportvision exclusive rights to provide use of their PITCHf/xpitch-tracking system for three full MLB seasons. However, SMT now alleges that MLBAM has not only failed to live up to that agreement but they’ve also been working with third parties to emulate that technology. Per SMT, that not only fails to fulfill the contractual obligations of their agreement but also is a misuse of their patented technology.

Now let’s make one thing clear at the outset: the Complaint represents only one side of the story. We don’t know if it’s true or not, and SMT’s case has real problems. We’ll get to those in a second.

Some reports have pegged this as a simple breach-of-contract suit, framing it as SMT suing MLBAM for prematurely terminating the deal in 2016 so as to proceed with developing Statcast. But that’s not really accurate.

Certainly, SMT is suing MLBAM for breaching the contract. MLBAM’s position seems to be that they did not exercise a 2016 contract option, and the contract ended then. But MLBAM’s problem is that, if the complaint is true, MLBAM admitted to the contract still being in effect after they say it was terminated. According to the Complaint, Kenny Gersh, on behalf of MLBAM, stated in 2017 correspondence with SMT that the contract was still in effect:

To be clear, MLBAM has not taken the position that it has terminated the current PITCHf/x agreement as amended. Rather, MLBAM intends to cooperate and continue abiding by the ongoing portions of the agreement and will hold SMT to doing the same.

If that’s true, then MLBAM is going to have a really hard time arguing that the contract didn’t run through 2019 as originally contemplated. But MLBAM may have other documents, and that correspondence may be out of context. There are a lot of unknowns here.

But the most important cause of action here isn’t breach of contract; it’s theft of trade secrets and patent infringement. According to the lawsuit, SMT and ESPN co-own Patent 7,341,530 (which it calls the “‘530″ Patent”) and grants them exclusive ownership of “any form of MLBAM pitch tracking and any form of MLB broadcaster strike zone and pitch visualizations through December 31, 2019.” From paragraph 241 of the lawsuit:

At a minimum, PITCHcast infringes claim 31 of the ‘530 Patent, which recites: A method of providing strike zone information, comprising the steps of: determining a location of a strike zone for a first batter by receiving an indication of one or more positions on said first batter in an image of said first batter and using said indicated positions to automatically calculate height and a three dimensional volume of said strike zone; determining a first position in a video, said first position corresponding to said location of said strike zone; and adding an image for said strike zone to said video at said first position, wherein said step of determining the first position includes: converting the three dimensional volume of said strike zone to two-dimensional locations within the video using data in video.

And this patent infringement claim is where SMT’s suit runs into problems. In order to understand what is being alleged here, it helps to understand the differences between Statcast and PITCHf/x, about which you can read more here. Unlike PITCHf/x, which utilizes high-speed cameras, Statcast date is captured with doppler radar. But Statcast isn’t dependent only on the radar; it includes cameras, too. SMT is basically saying that, under its patent, it owns all methods of pitch-tracking which use cameras. That might be overbroad. And it might also be a stretch to say that, because SMT owns the rights to a system that is based solely on cameras, it also owns the rights to a radar system which uses cameras. A lot of this is going to come down to the very technical details of what, specifically, MLBAM’s cameras do, and the technical legal details of whether or not MLBAM conceded to SMT’s ownership via the contract.

And what of SMT’s claim of “theft of trade secrets”?  Legally, it’s defined (and, as with most things, we’re oversimplifying here) as using another business’s intellectual property or confidential information without permission. It’s also, under some circumstances, a federal crime. However, just alleging something doesn’t make it true, and allegations this sensational, should they turn out to be baseless or unsupported, could expose SMT’s counsel to a hefty sanctions motion. SMT is represented by Pepper Hamilton, a top-end Biglaw firm considered one of the best in the country but which has had a few scandals in the past.

All in all, given the fact-based issues SMT alleged, I would be surprised if this case didn’t survive a motion to dismiss. Beyond that, we simply don’t have enough information yet.

And that’s the biggest problem for MLBAM, which has nothing to do with the merits of the suit. This type of technology case is very expensive to litigate, partly because even the best patent suits sometimes last years, and partly because the end goal of most plaintiffs is an injunction — that is, a court order barring the defendant from continuing to infringe on the patent.

[G]oing for a contested temporary injunction is a very risky bet, with over 75% denied. In contrast, securing a permanent injunction — presumably after a win on the merits — is an almost automatic result, suggesting rewards for patent owners who successfully stay the course in competitor cases. So keep in mind that going for a preliminary injunction can be an expensive and unsuccessful detour, while the opposite is true for patent cases that ultimately resolve in the patentee’s favor.

To put some figures on this, consider that the median cost of a patent lawsuit with less than $1 million in damages is a whopping $650,000 — and only goes up from there. But damages in technology patent lawsuits can run into the millions, or even billions. It’s reasonable to expect millions of dollars in attorney fees on this case. So about the only thing we know for sure about this case is that we’re in for a long, expensive, and grueling process, with lots of expensive lawyers and a lot of money expended.