SOURCE: Max Sound Corporation

Max Sound Corporation

December 18, 2015 15:46 ET

MAXD Lawsuit Update From CEO

SANTA MONICA, CA--(Marketwired - December 18, 2015) - Max Sound Corporation, (MAXD) provides an ongoing summary of its legal actions against Google and VSL.

Dear MAXD Shareholders,

Many of you have been inquiring about how the cases against Google are going. I'd like to take this opportunity to give you a brief description of where things stand and what we expect next.

First, let me start by refreshing your memory on what the lawsuits are about. In 2014 Max Sound (MAXD) identified patented technology called "Optimized Data Transmission System and Method" that would complement our audio technologies and began negotiations with the owner of that technology, Vedanti Systems Limited, to acquire rights to the technology. In mid-2014, MAXD signed a Licensing and Representation Agreement (the "Licensing Agreement") with VSL Communications, a corporation created by Vedanti to transfer to MAXD the rights to the ODT Patents and related technology. VSL also granted MAXD the right to sue Google and its affiliates for their worldwide infringement of the ODT Patents, as discussed in our press release dated December 11, 2014 http://finance.yahoo.com/news/max-sound-corporation-files-multi-032500895.html In the fall of 2014, MAXD initiated patent infringement lawsuits against Google and its affiliates in the United States and Germany

Unfortunately, after Constance Nash, the CEO of VSL & Vedanti, signed the Licensing Agreement and MAXD paid the agreed upon compensation for the rights to the ODT technology, Nash decided not to honor the Licensing Agreement and began to take actions to undermine MAXD's efforts to enforce the rights to the ODT technology granted to it in the Licensing Agreement. As a result, MAXD was forced to initiate legal proceedings against VSL to protect its rights under the Licensing Agreement, while continuing to pursue claims against Google for infringement of the ODT Patents.

The Legal Team

As most of you are aware, MAXD has retained experienced legal counsel in the United States and Germany to enforce the ODT Patents against Google and its affiliates for their infringement of the patents. MAXD's attorneys in the United States agreed to handle the US lawsuit against Google on a contingency fee, reflecting their belief in the strength of MAXD's patent infringement claim. Together, we feel justice will be served, and MAXD and our Shareholders will prevail!

Legal advisors of MAXD in the United States: Grant & Eisenhofer P.A. www.gelaw.com, and Buether Joe & Carpenter, LLC www.bjciplaw.com.

Legal advisors of MAXD in Germany: Arnold Ruess, Dusseldorf http://www.arnold-ruess.com, and Wittmann Hernandez, Munich http://www.wh-ip.com.

As you are aware, in any legal proceedings, often much of the information surrounding the cases must remain confidential, but here is some information we're able to share with you on these lawsuits. Below are brief summaries for your consideration:

Northern District of California Action

On November 24, 2015 the Northern District Court granted Google's Motion to Dismiss based only on the issue of standing. Our legal team is confident that the Court improperly applied the standard applicable to a party claiming standing as a "virtual assignee" rather than the standard applicable to a party claiming standing as an "exclusive licensee" such as MAXD. This error resulted in a ripple effect of additional errors committed by the District Court resulting in the erroneous conclusion that MAXD lacked standing to sue the Google Defendants for infringement of the '339 Patent.

MAXD claims to have standing as the category of licensee -- an exclusive licensee with the exclusive right to enforce the '339 Patent against the Google Defendants but less than all substantial rights under the patent. The District Court, however, incorrectly analyzed MAXD's standing under the more restrictive "virtual assignee" standard. As the District Court stated, "'the party asserting that it has all substantial rights in the patent 'must produce . . . written instruments documenting the transfer of proprietary rights.'" Id. This requirement however, does not apply to an exclusive licensee, such as MAXD, who does not contend it has been granted "all substantial rights in the patent." Instead, the Federal Circuit has repeatedly held that a license may be written, verbal, or implied, and only if a party contends that it has standing because it holds a license qualifying as a "virtual assignment" must the license be in writing. Thus, contrary to the District Court's ruling, MAXD is not required to produce a written instrument signed by Vedanti documenting the transfer to it of rights to the '339 Patent in order to prove standing as an exclusive licensee. Instead, MAXD can show that it acquired the exclusive right to enforce the '339 Patent against the Google Defendants though an exclusive license, express or implied, based upon any form of evidence, written or verbal. The District Court committed reversible error by applying the wrong "virtual assignee" standard to determine if MAXD had exclusive licensee standing and then ruling that MAXD did not prove standing because "MAXD has not shown through written instruments that it received 'all substantial rights' to the '339 patent."

The record contains substantial evidence sufficient to show an express or implied exclusive license from Vedanti, through VSL, to MAXD to enforce the `339 Patent against the Google Defendants. The MAXD License itself expressly provides that MAXD has been granted the "Exclusive Right" to sue "pre-approved violators of VSL's intellectual property rights." The License identifies the patents entitled "Optimized Data Transmission System and Method" as among "VSL's intellectual property rights," and the '339 Patent is one these ODT patents. The undisputed evidence also shows that the Vedanti and VSL considered the Google Defendants to be "pre-approved violators" of the ODT patents. 

Significantly, Google did not submit any evidence to rebut MAXD's showing that VSL was the agent or alter ego of Vedanti, and the District Court did not make any findings of fact inconsistent with this evidence. Indeed, the District Court's order completely ignored MAXD's evidence establishing that VSL entered into the MAXD License as the agent of Vedanti. Instead, the District Court only addressed the issue of whether VSL should be deemed the alter ego of Vedanti and improperly conflated the agency issue with the alter ego issue. 

Finally, the District Court's ruling that the MAXD License did not transfer to MAXD any rights to the '339 Patent because "that the agreement does not reference the '339 patent anywhere in the document" is erroneous. The MAXD License grants MAXD the worldwide rights to intellectual property relating to technology called "Optimized Data Transmission System and Method" (the "ODT Technology")." The '339 Patent is entitled "Optimized Data Transmission System and Method" and, therefore, is included in the licensed ODT Technology. The patents rights granted to MAXD in the MAXD License are described in generic terms and apply to ALL of the Vedanti ODT Patents. Section 1.01(a) of the agreement provides that "VSL hereby grants MAXD the worldwide license to ODT Technology." Similarly, Section 1.03 of the agreement provides that "VSL is granting the Worldwide License to MAXD to VSL's ODT Technology for all fields of use." The ODT Technology includes the ODT Patents. 

While preparing to file an appeal, MAXD is simultaneously seeking that the Superior Court compel the inventor and VSL to comply with the Licensing Agreement (see Superior Court heading below), which should give us the opportunity to restore the claim without an appeal.

German Court Action

On December 8, 2015 MAXD was apprised that the inventor and VSL had ignored the US Superior Court's December 4th Ruling, and through a new German attorney hired by VSL, Nash (inventor of the '339 Patent) made additional inaccurate, misleading and unlawful statement(s) to the court thereby tainting the proceedings. Therefore, after careful consideration, MAXD and its legal team decided to withdraw its German claim against Google and its affiliates, in order to protect our ODT patent rights in Germany from irreparable harm. One of the several strategies we are employing is to pursue our damage claims and legal recourse against VSL and Nash (see below).

American Arbitration Association Proceeding

In August 2015, MAXD initiated an arbitration proceeding before the American Arbitration Association to confirm the rights it was granted by VSL pursuant under the Licensing Agreement and to prevent VSL, Nash and related parties from interfering with those rights. On August 25, 2015, an Emergency Arbitrator issued an Emergency Preliminary Injunction Arbitration Award in favor of MAXD prohibiting VSL from 1) disavowing the validity of the Contract (with MAXD); 2) altering any corporate or other entities formed, owned or controlled by VSL that has any connection with the Contract; or 3) licensing, selling, assigning or transferring, any of the technology, patents, or intellectual property, connected to the Contract in any manner, and 4) is required to cooperate with the pending ODT enforcement litigation and fulfill its contractual obligations.

Superior Court Action

MAXD filed a petition in California Superior Court seeking confirmation of the Emergency Arbitration Award. On Friday December 4, 2015 a California Superior Court ruled in MAXD's favor and confirmed the Emergency Arbitration Award against VSL. VSL attempted to overturn the decision by the California Superior Court by seeking a Writ of Appeal from the California Court of Appeals on December 10, 2015. The Court of Appeals denied VSL's appeal on December 16, 2015.

Moving Forward

The Board of Directors and I are fully convinced that our legal strategies will confirm the Company's Rights to all ODT Patents worldwide (including the US '339 Patent) originally granted to MAXD under the License Agreement. MAXD will revisit pursuing enforcement of these rights in Europe after the MAXD completes enforcement of its rights confirmed by the Emergency Preliminary Injunction Arbitration Award in Superior Court. We anticipate full enforcement of the Emergency Preliminary Injunction Arbitration Award through the Superior Court, and believe this will have a positive effect on the issue of its standing to enforce the `339 patent against Google in Federal Court. Thereafter, we plan to license and/or enforce the ODT Patents pursuant to our rights with the substantial universe of companies infringing the ODT patents.

As always, I look forward to providing you with a full Company update in early January 2016. At that time I'll share information and share with you the progress made in 2015 and the outlook for 2016. Feel free to contact me anytime at john@maxsound.com.

Happy Holidays & Best Wishes from all of us at MAXD.

JOHN BLAISURE

CEO MAXD Corporation

www.maxd.audio

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: Statements in this press release which are not purely historical, including statements regarding Max Sound's intentions, beliefs, expectations, representations, projections, plans or strategies regarding the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements involve risks and uncertainties including, but not limited to, the risks associated with the effect of changing economic conditions, trends in the products markets, variations in the company's cash flow or adequacy of capital resources, market acceptance risks, technical development risks, and other risk factors. The company cautions investors not to place undue reliance on the forward-looking statements contained in this press release. Max Sound disclaims any obligation and does not undertake to update or revise any forward-looking statements in this press release. Expanded and historical information is made available to the public by Max Sound Corporation and its Affiliates on its website http://maxd.audio or at http://www.sec.gov.

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