A Patent Claim That May Cost Millions

[Dave Farber <dave () farber net>]

Delivered-To: dfarber+ () ux13 sp cs cmu edu
Date: Mon, 03 Nov 2003 08:55:36 -0500 (EST)
From: provost () georgetown edu
Subject: Chronicle article: A Patent Claim That May Cost Millions
To: dave () farber net
_________________________________________________________________

This article is available online at this address:

http://chronicle.com/weekly/v50/i11/11a03501.htm

              - The text of the article is below -
_________________________________________________________________

Finding it hard to keep up with all that's happening in academe?
The Chronicle's e-mailed Daily Report keeps you up-to-date in a
matter of minutes by quickly summarizing current events in higher
education while providing links to complete coverage on our
subscriber-only Web site. The Daily Report and Web access come
with your Chronicle subscription at no extra cost. Order your
subscription now at http://chronicle.com/4free?es
_________________________________________________________________


  From the issue dated November 7, 2003



  A Patent Claim That May Cost Millions

  By SCOTT CARLSON



    Few people have heard of Acacia Research Corporation, but
  John H. Payne III has given the company a lot of thought ever
  since it threatened the heart of his courses at the University
  of Virginia.

  Acacia has sent Virginia and other colleges a letter making an
  audacious claim: that the company owns long-forgotten patents
  covering the use of sound and video on the Web and is entitled
  to 2 percent of the revenue from courses that use such
  technology. The patents, which expire in 2011, cover the
  concept behind storing and transmitting sound and video, not
  the technical details.

  "It's as though they claim they hold the patent on air," says
  Mr. Payne, who runs the university's distance-education
  program. He says online audio and video are integral parts of
  not just distance education but of many classroom-based
  courses.

  "Those technologies are being incorporated into libraries and
  general-studies courses on campus," he says. "In
  more-traditional courses, we archive a lot of materials, so if
  a student misses a course, they might be able to see the
  lecture online." If Acacia's 2-percent fee were applied to
  courses and programs all over the university, "that would add
  up to a whole lot," he says. The University of Virginia will
  earn about $240-million in tuition this year, although
  university officials don't know how many courses use online
  audio and video technology.

  Risks of Litigation

  Acacia's demands, which have also been issued to companies
  that use the technology, have made college officials wonder
  about the future of online video and audio, two Internet
  features that many have taken for granted until now. They say
  that Acacia's licensing demand, backed by the threat of
  lawsuits, would add a huge new expense to colleges' technology
  programs, which are already running under tight budgets. And
  officials say that such costs could force colleges to stop
  adding new media features to course sites, which could hamper
  innovation in higher education.

  College lawyers are scrambling to figure out how to respond to
  Acacia, and in the meantime they're saying little. It's
  possible that they will find a silver bullet that will shoot
  down Acacia's claims.

  But they don't seem to have found it yet, and more and more
  colleges are getting letters from the company. Some college
  lawyers have hinted that they might fight Acacia's patent in
  court, but doing so could be an expensive and risky process.
  Acacia has already won some battles outside of higher
  education: It persuaded dozens of online pornography
  companies, as well as a popular online radio station and a
  major pay-per-view video company, to sign licensing agreements
  that turn over portions of their revenues.

  Ben Rawlins, general counsel for the Oregon University System,
  which received letters from Acacia, says that although the
  licensing claims ask for only 2 percent of gross revenue, a
  seemingly small proportion, that fee would hit colleges hard.
  "When you're talking about your entire distance-ed budget, 2
  percent of that on an annual basis would get up there," he
  says.

  Chilling Effect

  Acacia, based in Newport Beach, Calif., owns 5 U.S. patents
  and 17 international patents that it says cover the transfer
  of various kinds of media over the Internet, a process often
  called "streaming." Acacia says the patents cover many
  instances in which audio and sound files are digitized,
  compressed, stored on servers, and then streamed to other
  computers for decompression and playback.

  Millions of people listen to and watch streamed files every
  day with software like Microsoft's Windows Media Player,
  Apple's QuickTime, and RealNetworks' RealPlayer. Using those
  programs, motion-picture companies show the latest movie
  trailers to filmgoers. Rock bands offer music to fans. Even
  The Chronicle supplements some online articles with, say, a
  snippet of a student film or a sample of a composer's music.

  For colleges, online audio and video have brought the
  classroom to the desktop computer. A recent survey by Gartner,
  a technology-research firm, indicates that 40 percent of
  college courses incorporate some sort of online audio or
  video. That figure could grow to more than half of college
  courses by next year.

  Sally M. Johnstone, director of the Western Cooperative for
  Educational Telecommunications, which seeks to integrate
  technology into teaching, says that colleges are using online
  audio and video in all areas of teaching.

  Acacia's patents might have a chilling effect, she says, not
  just on uses for existing technology, but on how quickly
  colleges adopt new ones. "If there is a whole new set of
  financial demands layered on top of what is already being
  paid, it's going to be really hard for colleges to continue to
  serve students in the way that they are," Ms. Johnstone says.
  "This is going to make people very nervous about what they
  should and shouldn't do."

  Jane Zahner, a professor of education at Valdosta State
  University, says that she uses audio clips in her
  distance-education courses to comment on students' papers.
  "Those are such basic tools," she says. "How could a company
  own them?" If administrators ask professors to limit their use
  of online media, she says, professors might still try to find
  a way to use it anyway: "There would be a fair amount of civil
  disobedience going on."

  Colleges' use of online audio and video isn't limited to
  education. Many admissions offices offer video tours of their
  institutions on college Web sites. College radio stations
  frequently transmit their signals over the Internet.

  And a number of major-college sports teams now offer video
  features. The University of Nebraska at Lincoln Webcasts
  entire games on HuskersNside, which has been up for a year and
  has more than 2,000 subscribers. Jeff Abele, who manages the
  site for the university, will not comment on what Acacia's
  claims might mean for the service, but he says many
  institutions have been eager to offer similar sports features.

  A Scent of Money

  Robert A. Berman, general counsel and senior vice president
  for business development at Acacia, says there is finally
  money to be made on his company's patents, which were granted
  in 1991 and sat idle through the Internet boom of the 1990s.

  "Money wasn't being made using streaming at the time," Mr.
  Berman says. "If you remember, everything on the Internet was
  free, and people were just figuring out how to use the
  technology."

  Acacia did not send letters to Apple, Microsoft, or
  RealNetworks, companies that have built businesses on
  developing and licensing online-media programs, for simple
  business reasons, Mr. Berman says.

  "It makes more sense from a business perspective for us to
  license the user of the technology that is receiving a
  recurring income stream from its use, rather than trying to
  license a software manufacturer that is giving away the
  software or licensing it for small amounts on a one-time
  sale," he says.

  He predicts that online video will become a main component of
  the courses that more and more colleges are selling online.
  "How good would their product be if it couldn't have audio or
  video content in it?" Mr. Berman asks. "In our estimation, it
  wouldn't be nearly as good. So frankly, on that basis, we
  might be entitled to much more of a royalty."

  But, he says, Acacia is reasonable and willing to negotiate.
  Colleges that cannot afford to give up 2 percent of their
  revenue or can't track their use of online video or audio
  might sign up for a fixed annual fee. He says Acacia's goal is
  not to put colleges out of business because if colleges don't
  make money from online media, Acacia won't make money.

  Making money through licensing has become an important goal
  for the company, which has been in the red over the past
  several years. A recent quarterly report noted that the
  company wants to acquire more technology patents and is
  serious about licensing those it already owns. If it doesn't,
  the report said, "our financial condition may be adversely
  impacted."

  So Acacia continues to send out letters to colleges.
  "Ultimately, we will get around to everybody," Mr. Berman
  says. "Our goal is to address these issues outside of court.
  We're not afraid to go to court if we have to."

  Last month lawyers from more than a dozen institutions set up
  conference calls to discuss Acacia's notices of infringement
  and how to respond to them. Calls have included lawyers from
  Azusa Pacific University, Georgia Institute of Technology, the
  Johns Hopkins University, the Montana University System, Seton
  Hall University, Stanford University, University of Maryland
  University College, the University of Pennsylvania, the
  University of Virginia, the University of Wyoming, and
  Valdosta State University.

  Most of the participants declined to comment on Acacia's
  patent claims. But one college lawyer, who asked not to be
  named, said that Acacia's demand would significantly hurt
  colleges, and that they wouldn't rush to sign the licensing
  deal. "I think our folding is highly unlikely," the lawyer
  said.

  The Oregon University System, also a participant in that
  meeting, got three letters -- for infringement at Portland
  State University, Western Oregon University, and the Oregon
  Institute of Technology. Mr. Rawlins, the system's general
  counsel, says a patent lawyer is reviewing the letters.

  He is also investigating whether the colleges already license
  streaming software through companies like Microsoft or
  RealNetworks. Depending on what their contracts say, those
  companies might have some responsibility for helping to defend
  the university from a lawsuit. Officials at Apple and
  Microsoft say they know nothing about Acacia's letters.

  But Mr. Rawlins says, "When we go back and look at the
  contracts and the threads through them, we could have a lot of
  interesting people on our side."

  Acacia has sent its letters to many small and midsized
  institutions. Western Oregon University and the Oregon
  Institute of Technology are the two smallest colleges in the
  Oregon system, Mr. Rawlins says.

  "You could also theorize that the smaller ones do not have the
  funds to fight," he says.

  In this, Acacia seems to have followed classic tactics for
  winning patent-infringement cases. Lawyers and patent experts
  say that patent holders often send notices of infringement to
  smaller companies first, hoping that such companies would
  rather sign small licensing deals than go through risky and
  expensive litigation.

  The risks of going to trial are considerable. One observer who
  requested anonymity suggests that colleges might be playing
  into Acacia's hand by banding together to fight the company.
  If the colleges were to lose in court, the observer says, the
  case would set a strong precedent that the company could use
  in seeking payments from other institutions.

  As court battles go, patent fights are among the priciest,
  costing several million dollars on average. A patent dispute
  can involve hiring researchers to invalidate the claims,
  getting experts to testify, and filing and sorting through
  reams of documents. And patent lawyers, who must pass special
  bar exams, are among the most expensive to retain.

  Mr. Berman says that Acacia is not using the threat of
  expensive litigation to bully smaller colleges. "There is no
  question that the cost of litigating is a disincentive, but we
  are not using that as a tactical advantage," he says. "We
  think that our patents stand on their own, and that our
  technology greatly enhances their online curricula, and that
  that speaks for itself."

  The Search for 'Prior Art'

  Patents can be struck down in court if they are deemed too
  broad or if the defendants can show that the patent came after
  closely related research or inventions -- what is called
  "prior art."

  Lawyers and experts who have looked at Acacia's patents say
  that because the patents appear to be so broad, they have a
  hunch that prior art exists.

  But that does not mean that a college or company could beat
  Acacia in court. The company hired Gregory Aharonian, a
  technology-patents expert, who says: "There could be some
  prior art where you can make a subtle argument, but it just
  gets tricky in a court before a judge. When you get in front
  of a jury with dueling experts, which is what I think this
  would come down to, a lot of patent litigators don't like
  that. You don't know what the outcome is going to be." Many
  companies facing a patent-infringement suit would settle and
  sign up for a licensing deal in such a case, he says.

  Ieuan G. Mahony, an intellectual-property lawyer who often
  works with the United States Distance Learning Association,
  says that colleges can unite to share the costs of litigation.

  "A patent holder might want to divide and conquer," he says.
  If institutions start signing up for licenses, Acacia can make
  a "lemmings argument" in court against those who hold out.
  "They can say, 'A whole bunch of smart people have paid me to
  license these, so how can you say that these are invalid
  patents?' It's a domino effect," Mr. Mahony explains. "If
  there are weak links in the industry, that buttresses Acacia's
  case as well."

  Once a company starts sending out notices of infringement, the
  "juggernaut is rolling," Mr. Mahony says. A defendant might
  stall, betting that the patent holder's claim is not as strong
  as it's billed to be. A patent holder, meanwhile, is betting
  that the defendant would rather negotiate a deal than fight in
  court.

  "It's a big, elaborate, expensive game of chicken," Mr. Mahony
  says.

  Taking on TV

  Acacia has played that game before, although it hasn't always
  won. The company owns a patent for video- and audio-censoring
  technology that Acacia officials say covers the V-chip. A
  standard component of televisions today, the V-chip allows a
  parent to block violent or sexual television programming.

  In the past few years, Acacia has been pursuing claims on that
  patent and managed to sign $23-million worth of licensing
  deals with major television manufacturers like Hitachi, JVC,
  Philips Electronics, and Samsung. Acacia took other companies
  to court.

  But in September 2002, the U.S. District Court for the
  District of Connecticut granted a summary judgment to the
  Consumer Electronics Manufacturers Association and the
  Consumer Electronics Association, saying that their V-chip
  technology did not violate Acacia's patent. Acacia has
  appealed.

  Acacia's video- and audio-streaming patents were originally
  granted to Greenwich Information Technologies, a company whose
  main business was helping inventors secure patents. Before
  Acacia purchased Greenwich's patents two years ago, Mr. Berman
  says, his company hired law firms and researchers in the
  United States, Europe, and Japan to make sure the patents were
  strong enough to withstand a court challenge.

  In 2002 Acacia began firing off letters to companies that were
  making money on online video and audio: Internet radio
  stations, hotel pay-per-view companies, and, mainly,
  pornography companies.

  "We get a lot of patent-infringement-claim letters, and we
  throw most of them in the garbage," says Zack Zalon, general
  manager of Radio Free Virgin, the Internet arm of Virgin
  Records, which is owned by the flamboyant billionaire Richard
  Branson. But Acacia's letter "stood out," Mr. Zalon says.

  Virgin's patent lawyers examined Acacia's claims, talked with
  the company, and decided to strike a deal. "We felt that a
  drawn-out, protracted legal battle would end up in Acacia's
  favor anyway," Mr. Zalon says, "and that at the end of the
  day, we would be offered the same license after the lawsuit as
  before." He says that Acacia was open to negotiation and easy
  to work with. He won't offer details on the deal.

  Strange Bedfellows

  Acacia's interactions with pornography companies have been
  less amicable. Adult Video News, the pornography industry's
  trade publication, has run many stories over the past year
  quoting indignant members of the industry. Tom Hymes, the
  magazine's editor, asked his readers to "show the world that
  just because you peddle porn on the Net doesn't mean that
  you're going to roll over every time someone points a patent
  at your head."

  But without putting up a fight in court, more than 40
  companies have already signed licensing agreements with
  Acacia, including important players in the pornography
  industry like Vivid Entertainment and LFP Inc., the production
  company of Larry Flynt, Hustler magazine's publisher.

  E. Michael (Spike) Goldberg, chief executive of
  HomegrownVideo.com, is leading 10 pornography companies in a
  fight against Acacia. He believes Acacia's patents are too
  broadly written and could be knocked down in court. The
  companies have hired Fish & Richardson, a prominent law
  firm that specializes in intellectual property, technology
  law, and patent defense.

  Mr. Goldberg says that Acacia thought the porn industry would
  be easy pickings, adding that Mr. Berman once called the
  industry "low-hanging fruit."

  "They think we're unsophisticated," he says. "The perception
  is that we're a bunch of guys sitting behind desks with oily
  chests and gold chains, but we're not. We're executives like
  everyone else." Mr. Goldberg says he is taking a calculated
  risk in fighting back, and he has hopes that colleges will
  take the gamble with him.

  His company and the companies who have joined him in the suit
  are relatively small -- his own HomegrownVideo grosses less
  than $5-million a year -- and bills from Fish & Richardson
  are a heavy burden. He fears that if he loses his suit, Acacia
  will bump up its licensing fee to between 6 and 10 percent.

  But Mr. Goldberg believes that his lawyers have found enough
  prior art to defeat Acacia in court, so he is pressing ahead.
  He has a message for administrators in higher education: "I
  know it's not comfortable to hear this from someone in adult
  entertainment, but join up with us. If we end up signing with
  Acacia, there goes all of the work we've done. It would be a
  shame to see that go to waste."

   HOW 'STREAMING' WORKS

  Acacia Research Corporation says its patents cover the
  transmission of video and audio files from remote servers--a
  process often called "streaming."

  The following summarizes the process described in five patents
  owned by Acacia:

  Step 1: A video or audio clip is put into a digital format.

  Step 2: The digital file is compressed to make it more easily
  transmitted and stored.

  Step 3: The compressed file is stored, perhaps on a server.

  Step 4: A request for the file comes in, and it is sent--over
  the Internet or via satellite--to the requesting computer.

  Step 5: That computer decom-presses and reads the file, then
  plays it.

   SOURCE: U.S. Patent and Trademark Office

_________________________________________________________________

You may visit The Chronicle as follows:

   http://chronicle.com

_________________________________________________________________
Copyright 2003 by The Chronicle of Higher Education 

-------------------------------------
You are subscribed as interesting-people () lists elistx com
To manage your subscription, go to
 http://v2.listbox.com/member/?listname=ip

Archives at: http://www.interesting-people.org/archives/interesting-people/