Acacia Makes Its Case
Acacia isn’t the first company to follow the patent licensing and litigation model, and it won’t be the last, as a flood of new companies with similar aspirations follow its lead. Here, Acacia's Robert Berman gives his company's side of the story, while patent experts provide an opposing view.
By Geoff Daily
March 9, 2005
The Accordent Capture Station: Introducing the first affordable, all-in-one hardware appliance for capturing, editing, and publishing online rich media presentations for eLearning, corporate communications and online lectures
By the end of 2004, the total number of companies that had purchased a license from Acacia Technologies Group for their Digital Media Transmission (DMT) patents had reached 277. Included in this number are multinational corporations like Disney, Bloomberg, and Virgin, as well as almost 100 cable companies and more than 90% of the in-room hotel entertainment market in the United States. Acacia has made claims that their DMT patents cover nearly all forms of digital media transmission, including downloaded and streamed content, although not live Webcasts. For the past year, they’ve aggressively pushed a campaign to sign up licensees in a wide variety of industries, while also filing patent infringement suits in four states against both cable and online adult video companies.
Last year also saw a dramatic rise in Acacia’s media presence. A variety of major news organizations reported on stories of Acacia sending informational packets and licensing offers to colleges and universities across the country, which rely increasingly on distance elearning applications that Acacia claims violate their DMT patents. The Electronic Frontier Foundation (EFF), a technology rights advocacy group, has been one of Acacia’s most vocal critics, even going so far as to list Acacia’s DMT patents on their Patent Busting Projects list—released in summer 2004—of ten most-wanted patents that pose the biggest threat to the public domain.
A lot has been written about Acacia over the past year, mostly focused on their DMT licensing campaign. But Acacia’s patent portfolio no longer begins and ends with the DMT patents. In July 2004, Acacia signed an agreement with leading in-room hotel entertainment company LodgeNet to acquire the HotSpot patents, which cover redirected Internet registrations commonly used at wireless hotspots and hotels. In mid-December, Acacia closed a $25 million deal to acquire the assets of Global Patent Holdings, LLC, a privately held patent holding company that owns 11 patent licensing companies and 27 patent portfolios. Global’s 11 includes TechSearch, LLC, which has a portfolio that includes patent portfolios covering topics ranging from video noise reduction to peer-to-peer network communications to broadcasting data and transmission.
Much of the buzz on Internet chat boards and coverage in various media outlets focuses on demonizing Acacia’s actions and denouncing its way of doing business as unethical. Regardless of what you think about Acacia’s business practices, they aren’t going away. The patent licensing and litigation model championed by Acacia sees new life in the increasing number of companies following Acacia's lead, so it’s usefull to examine their model in detail. Let’s start with a look into what it is that they actually do.
What They Do and How They Do It
The core of Acacia’s business model is choosing the right patents to purchase. For Acacia to grow as a company, it must be able to identify those patents which present prime licensing opportunities. “We have a very strenuous due diligence process,” says Robert Berman, general counsel for Acacia. “90-95% of the patents we receive do not pass our due diligence.” After verifying the validity and identifying the potential for licensing, Acacia formulates a multifaceted licensing campaign that utilizes large-scale mailings of information packets, which often include licensing offers. “The rates are based on a variety of factors, including how integral our technology is to what they’re doing and how far along we are in our licensing program,” explains Berman. “We look at each industry or each use of our technology separately and figure out what we think is reasonable including what benefit the infringer is getting from our technology, the amount and frequency of the use of our technology, and what the potential licensee can afford.” Then, if companies refuse to purchase licenses from Acacia while continuing to infringe on their patents, Acacia sues for patent infringement.
Acacia finds new patent licensing opportunities from three sources. The first segment is individual inventors who don’t have either the money or the resources to license and enforce their own intellectual property (IP). “Historically, small inventors have been run over by large corporations in terms of intellectual property use. They have not been successful licensing large corporations,” says Berman. “But when they have the name, money, and resources of Acacia behind them, the [big corporations] know that the inventor will not roll over and go away.” The second segment consists of medium-sized companies who have spent the last few years developing their technology, but who may not have the capabilities in-house to monetize it. “They’re not in the IP enforcement business, and they don’t want to get into it,” explains Berman, “but they see a lot of companies making a lot of money from their IP. We become in essence their in-house licensing departments. Large companies might use Acacia when they have a conflict or are afraid to enforce their patents because of a fear of countersuits for infringing somebody else’s patents.” The third and final segment is large companies who, because of a conflict of some sort or due to a fear of countersuits, have to outsource their IP licensing needs.
The DMT patents were originally filed by two individuals, Paul Yurt and H. Lee Browne, and commonly are known as the “Yurt patents”; Acacia acquired them when they purchased a company called Greenwich Information Technologies. “[Yurt and Browne] both receive a percentage of the proceeds that are generated from their invention,” says Berman. “Yurt continues to consult with Acacia with regards to the technical issues surrounding the DMT patents.” Berman cites this continuing relationship to refute a common criticism of Acacia. “This argument that the only thing Acacia does is buy patents assumes that the inventor does not receive any benefit from Acacia’s activities is not true,” says Berman. “What we are doing is leveling the playing field by giving inventors the opportunity to monetize all of their hard work.”
Patent Abuse or Lawful Licensing?
However nobly Acacia may characterize its approach, some take exception to the sudden unearthing of what for many years were low-profile patents followed by claims that they cover nearly all forms of digital media transmission. “It’s OK to license a patent and litigate against people who are infringing,” says Jonathan Singer, principal at Fish & Richardson, a leading patent law firm and counsel for the online adult video companies currently in litigation with Acacia. “The problem in this case is that this is a patent that dates back to 1991. To suddenly come out of the woodwork and say that this patent covers streaming over the Internet—it’s wrong to do what they’re doing.”
While the validity of Acacia’s patent claims has yet to be fully determined, the letter of patent law seems to place them in the clear. “There’s nothing in the patent laws or the ethical code that says you can’t buy or obtain the patent from others, just as you could any other property right, and enforce it,” says Marc Kaufman, a patent attorney at Nixon Peabody, LLP who sat in on the Acacia panel at Streaming Media East 2004 with Robert Berman. What’s more, he says, “They can selectively enforce the patent, and pick and choose defendants and venues for the trials.”
Then there’s the issue of defining what constitutes “coming out of the woodwork.” When asked the question, “How integral were the DMT patents in the development of the system that we use today?” Berman had no answer. That said, 194 other patents have cited the Yurt patents. This means that people who are filing other patents have read the Yurt patents prior to filing. Real, in their first patent, cited these patents, all the way back in 1994. But in the end it doesn’t really matter whether or not portions of today’s digital media transmission were influenced early on by Yurt’s patents or not. “We believe that Yurt and Browne invented this technology, and the U.S. Patent Office and 17 foreign patent offices agree with us,” says Berman.
In essence, the U.S. patent system is set up as a race. Whoever makes public an invention by documenting its existence, proving its novelty, and being granted a patent first gets control of a mini-monopoly for the next 17 years on that invention as well as all later technology that infringes on any of the claim terms listed in the original patent. “Our patent system has been fundamental in encouraging innovation all way back to Ben Franklin’s time,” says Berman. In the 21st century, however, the pace of technological innovation has outpaced the evolution of the U.S. Patent Office. “As a general proposition, the patent system right now is overburdened and needs an overhaul,” explains Singer. “With Acacia, though, we’re talking about a patent that was granted in 1991, so what they’re doing is not part of that larger problem.”
hat Larger Problem
A quote from a slide in a presentation available on Acacia’s Web site highlights the driving force behind all of this hullabaloo: “Patent licensing revenues are $150 billion annually [and are] expected to grow to $500 billion a year by the end of the decade.” This rapidly expanding revenue pie has attracted many new players who are fighting for a slice of their own. “There seem to be new players entering the patent licensing market everyday,” says Berman. “Yet there are also companies like Xerox and Kodak who have been licensing technology for years and making billions of dollars from it.”
The potential problem, arguably, lies more in the system that’s in place than specific claims of technology patent infringement. First off, since Internet companies operate across state lines, they can basically be brought to trial anywhere in the U.S. Despite the highly esoteric nature of many technology patents, there’s no system in place to ensure that the most qualified judges are assigned to each case. “Many patent cases are decided by judges and juries with little technical background and sometimes even little knowledge of patent cases,” says Kaufman. “There are several jurisdictions that are well known for having a lot of patent expertise, but there’s nothing that says that you have to bring every case before these courts.” While there is no system at the district court level, all appeals to decisions rendered at this level do get sent to an overseeing court of appeals for the federal circuit, which is able to ensure uniformity in the nationwide interpretation of patents.
What concerns Singer most is the way that many of these patent licensing companies have begun to selectively target certain companies. “The shift in a lot of these cases is from going after big companies to going after the little guys,” he laments. “These people don’t have the resources to fight if the charges aren’t justified. It’s more expedient for them to pay just a little bit of money [for the license].” [For more on what you can do if approached by Acacia, read the sidebar, “So You’ve Just Been Approached by Acacia…”] “It’s the rare group of small businesses who are willing to band together and fight,” Singer concludes.
Litigation Station
When Acacia initially pursued litigation against Homegrown Video and other online adult video companies, public opinion interpreted this as an attempt by Acacia to go after the so-called low-hanging fruit. But just as with video tape recording and VHS-based distribution, the adult video industry has been a pioneer of streaming technology. Now some members of the adult video circle find themselves on the frontlines of the DMT patent fight. After being approached by Acacia, a group of purveyors of online pornography organized the Internet Media Protective Association (IMPA) and collectively hired prominent patent law firm Fish & Richardson to defend its case.
In mid-July, U.S. District Judge Joseph Ware, the presiding judge in this case, announced the first results of the Markman hearings, which were conducted earlier in the year. In patent litigation, Markman hearings are used to define the terms of a patent, thereby determining the proper interpretation, or construction, of a patent’s claim terms. The results of these hearings are referred to as a Markman Order. While nothing in Judge Ware’s initial ruling portends a quick end to this case, he did hint that he believes that at least some of Acacia’s claims are overly broad, even going so far as to recommend that the defendants should file for summary judgment. “Judges don’t often litigate the case on behalf of one of the parties,” says Kaufman. “When a judge encourages a party to file a motion on a new issue, it indicates that [he or she] is favorably disposed to ruling in their favor, but that doesn’t mean that that’s going to happen.” If the judge rules on a summary judgment hearing in the defendant’s favor, then any patent claim containing the disputed claim term (in this case, “identification encoding means”) would be ruled invalid. This doesn’t render all the patents invalid—only the specific patent claims that contain the disputed claim term.
Summary judgment hearings were originally scheduled for the first week of December, but Judge Ware postponed them in response to Acacia filing a request with the multidistrict panel to move their cases against cable companies in Arizona, Minnesota, and the northern district of Ohio to either the central or northern district of California. “Our case should be consolidated with the cable cases,” says Fish & Richardson’s Singer. “They’re the same patents with the same issues. It would behoove the judicial system to have these folks all appear in front of Ware.” Berman says that an end-of-January 2005 hearing is scheduled, although he estimates that it will be two additional months before results from the hearing are heard. After the ruling, “Any further cases that we file would automatically be moved to whatever jurisdiction that the multidistrict panel selects,” says Berman. To avoid the potential of having to listen to the same testimony twice, Judge Ware won’t hold summary judgment hearings until Acacia’s consolidation request is resolved.
“After the judge holds the summary judgment hearings, then we’ll go forward with whatever’s left in the case,” says Singer. If the IMPA defendants emerge victorious, then current DMT licensees should be able to get out of their licensing contracts. “A standard provision in our agreement provides that if all of the applicable claims are held to be invalid or unenforceable the agreement immediately terminates,” says Berman. “If anybody has evidence of non-infringement or invalidity of any of our patents, we invite them to sit down with us and resolve the matter in a non-litigation forum. We do our due diligence but are not perfect. We will always listen to what people have to say. But saying that a patent is invalid and having proof of invalidity are not the same thing.”
In theory, all Acacia has to do is prove that one of the claim terms in its DMT patents is valid to pursue infringement, but the reality is somewhat more complicated. “If we were in a lawsuit and I sued you for 50 claims, and you won 49 and I won one, you’re still infringing,” explains Singer. “But because the court will tell you what that one claim means, you can change your system so that you don’t infringe anymore.” Because of the legal hurdles still left to be addressed, “if it does go to trial, I would expect it would go to trial in 2006,” says Singer, “but we don’t think it will reach that point.”
Acacia’s New Year’s Resolution
For 2005, Acacia has a robust set of goals that it will actively pursue. In the last week of September 2004, Acacia began a licensing campaign for its HotSpot patents, a campaign that the company will continue in the new year. Acacia will also develop campaigns for the 27 patents that it acquired from TechSearch, some of which Berman suggests may have Internet applications. “Our hope is, as we move forward, that Acacia is not known as the DMT company,” says Berman. “but rather the premier patent licensing firm with many technologies. Our recently announced acquisition plans are a major step in that direction.”
As such, does Acacia’s strategy benefit anyone besides Acacia itself? Opinions vary. “These technology licensing firms provide a mechanism by which owners of patents that never would have been able enforce their property right can now enforce it,” says patent attorney Kaufman. But this benefit doesn’t come without a cost. “This is like personal injury coming to patents,” says Singer. “One way or the other we all end up paying for it.”
Regardless, patent licensing companies are nothing new, and the system has not been altered dramatically in recent years to make it more receptive to their insurgence. “I think that many people have trouble viewing patents as property as they’re an intangible asset,” says Kaufman. And included in the rights granted to property owners is the right to exclude others from duplicating the invention. “Nothing’s changed except that the public has come to realize how powerful patents can be.”
That increased awareness is a good thing, because Acacia has no plans to change the way that it does business. “We will not allow companies to continue to use our technology without a license,” says Berman. “You can certainly expect additional litigation in 2005.
streamingmedia.com |
