[Ecommerce] Chronicle of higher education on Acacia patent on use of sound and
video on the Web
James Love
james.love@cptech.org
Wed Nov 5 03:03:04 2003
This article is available online at this address:
http://chronicle.com/weekly/v50/i11/11a03501.htm
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
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Copyright 2003 by The Chronicle of Higher Education
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