Company wants its pound of flesh
A small Newport firm sues porn Web sites, saying they owe it licensing fees.
By TAMARA CHUANG
The Orange County Register
NEWPORT BEACH – The diminutive Acacia Research Corp. is taking on the online porn industry in a patent infringement case that could someday include any company that offers videos, music or other digital content over Internet, satellite and cable lines.
The 22-employee Acacia, which buys patents and enforces them, filed complaints in federal court against 27 adult Web sites, giving them until Dec. 15 to respond to claims they are violating a 10-year-old patent Acacia owns. While some have responded, the rest could face a costly court battle, which Acacia plans to expand to include digital media and video streaming industries.
"It's not like we singled out the adult entertainment industry. They just happen to be the biggest users of video streaming technology on the Internet and have been doing it for several years and making money," said Rob Berman, Acacia's senior vice president of business development and its general counsel.
Some sites are now in talks to hand Acacia 2 percent of revenue generated from a technology Acacia has dubbed Digital Media Technology (DMT). With the adult online niche expected to bring in $461 million this year, according to market researcher In-Stat/MDR, 2 percent could generate as much as $9 million for the struggling Acacia. The small company posted $37 million in losses and $800,000 in revenue the first nine months of this year.
DMT encompasses five patents issued from 1992 to 2000 by the U.S. Patent Office that cover digitally "compressed and encoded audio and/or video information (that) is sent over standard telephone, cable or satellite broadcast channels ... preferably in less than real time," says U.S. Patent No. 5,132,992.
That, says Acacia, includes MP3 downloads, Internet streaming and video-on-demand systems in hotel rooms.
"If you have a Web site, and you have video on your Web site, and it's digitized and stored on your server," Berman said, "in most cases, yes, we feel that process is covered by our patents."
But not everybody agrees.
"It seems to me that the claims that they're making are huge," said Tom Hymes, editor-in-chief of Adult Video News, a trade journal for the adult Internet industry. "It seems to me that they're saying to anyone, if you stream video over the Internet, you're violating their patents. In the future, everything you do will use streaming video."
Hymes says he knows at least 30 companies that have been served with notices that their business practices or business is violating Acacia's patents.
"The industry is mobilizing in different ways. Several companies are looking into pooling their resources and hiring attorneys to fight this together," he said. "This has implications far beyond the adult industry."
Acacia isn't the only one pursuing online delivery of digital information patents. Connecticut-based US Video Interactive plans to pursue licensing on a similar patent, said Gerry Kaufhold, a principal analyst with market researcher In-Stat/MDR.
Patent-infringement cases have been common with the Internet. PGP Corp. in Palo Alto has the patent on secure communication over the Internet. PanIP in San Diego, claims to have the patent on e-commerce.
"All they need is one win. If they have something that is shown to be an enforceable patent, their notoriety goes up a notch," Kaufhold said.
Acacia, which moved to Newport Beach from Pasadena in February, was founded in the 1980s as an intellectual- property firm that acquires companies to make money off licensing fees. Back then, it was a one-third owner of Greenwich Information Technologies, which developed the digital media patents. Last year, Acacia acquired the rest of Greenwich and began to pursue ways to increase revenues.
Acacia has had nominal success with the V-Chip, a technology it acquired after buying SoundView Technologies. The V-Chip allows parents to block selected shows on their televisions.
Two years ago, TV manufacturers mobilized to fight Acacia's patent-infringement claims over the V-Chip. More than a dozen manufacturers decided to pay the one-time licensing fee, which brought in $24.1 million in revenue in 2001 for Acacia, up from a mere $100,000 in revenue in 2000.
The others went to court, and, four months ago, Acacia lost its case. It's now pursuing antitrust charges alleging the TV manufacturers colluded to avoid paying the fees.
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