The opinions expressed in this article are those of the author and do not represent the views of any company or organization with which the author is associated, nor should they be viewed as legal advice.
Just when most of us thought that developing our industry couldn't get any more challenging - with increased pressure from the credit card associations and government regulation - we have a new and perhaps even more difficult problem at our door: improper attempts by companies and individuals to contort patents they've obtained to cover what is done on the Internet.
I believe in our patent system. When used as intended, it creates an incentive for people to invent the new technologies that make this country great; unfortunately, that system has become increasingly misused and abused by those who seek to profit from technologies they did not invent and which they are not entitled to claim as their own.
Now more than ever, patent holders are trying to exploit their power by buying patents to technology they did not themselves invent in the hope of collecting large sums of money from individuals or companies that they believe use the patented technology. What makes this practice problematic is that, in some circumstances, the company that acquired the patents tries to extend the patent to cover technology far beyond what was granted by the United States Patent and Trademark Office (USPTO) and agreed to by the original applicant. After interpreting the patent to have this overly-broad meaning, the patent holder targets companies or individuals and puts to them the choice of paying an unwarranted license fee or paying attorneys to defend against a patent infringement suit. This strategy is often effective because the cost of the license is placed just below the cost of litigation, making the prudent business decision to license.
This clearly appears to me to be an abuse of the patent system, and although it has been going on for many years, companies seem to be chomping at the bit to patent and attempt to enforce patent claims on our generation's greatest commun-ication medium: the Internet.
Patent holders use this strategy because they know some of the ugly realities of the patent and judicial systems. The reality is that the USPTO receives an average of 300,000 patent applications per year, which is nearly 1,000 new applications per day. The USPTO currently faces a backlog of two to three years. While the USPTO collects fees that are intended to cover the cost of the patent process and allow it to hire new examiners to reduce the backlog, each year the Congress takes away a portion of this income and applies it to the government's general fund. As such, the patent examiners typically have only limited time to read and understand each application, to research the prior art, to correct errors in the patent applications, and to engage in a back-and-forth exchange with the patent applicant about what is new and what is not. While most examiners try to do a good job, they don't have the time or available resources to know of everything that's been invented in a particular field; they need to rely on the patent applicant's honesty to make them aware of developments that they may overlook. Some applicants act honorably and, unfortunately, some do not. The reality of the judicial system is that once a patent is issued by the USPTO, the courts put those accused of infringement to the task of proving the patent invalid by "clear and convincing evidence." Challenging patents can cost companies between $1-10 million, and the litigation can last from one to three years. Making matters worse, many of the decisions of the trial court in this area are reversed.
Given the enormous amount of time, money, and effort involved in challenging a patent through litigation, it's no wonder so many companies capitulate rather than fight. The result is that many licenses are signed even though the licensee believes s/he does not infringe and/or the patent is invalid. The real question then becomes, "How fair is this to smaller businesses or businesses that just can't and don't want to afford to stick up for what they believe in?"
This is exactly what's going on between Acacia Media Technologies and our industry. Acacia claims its "DMT" patents cover commonly-used systems and methods of transmitting compressed video and audio data over a network. As a practical matter, Acacia claims that if your company is involved with the streaming or downloading of audio or video over the Internet, you are infringing. "All the methods we have looked at for streaming audio and video over the Internet are covered by our patents," says Rob Berman, senior vice president and general council for the company. Berman further states, "While certain components existed prior to 1991, our inventors were the first guys to put all the components together to make the process known as video streaming and Video-on-Demand."
If you're involved in the Adult Web industry, you have most likely received a letter from, or are in litigation with, Acacia. Acacia has sent out thousands of these letters and has set a variety of deadlines to either license with them or be prepared to face legal action. It is telling that, roughly a year ago, in our only meeting with Mr. Berman, he pulled out the bills from his company's earlier efforts to enforce its patents, to show us how much patent litigation costs. The clear message was, "This is what you are going to face if you decide to challenge our patents."
Was this really what our Founding Fathers had in mind when they created the Patent Office? Pay up or pay millions in legal fees? Personally, I think not! As previously mentioned, the burden of proof falls almost solely on the defendant and their ability to gather all the evidence possible. Many people reasonably believe that litigating against Acacia will be more expensive than just caving in to their demands and paying up. I strongly believe Acacia's scheme to be an abuse of the system, and have decided that it would be wrong to give in when I believe Acacia's patents are not infringed by my company, are invalid, and are unenforceable. I also know that if our industry takes the easier course and pays off Acacia, that others are sure to follow. Individuals within and outside our industry are already in the process of, or have, formed businesses to copy Acacia's slick and potentially lucrative model. If Acacia's patent(s) are found to be valid and as broad as Acacia says they are, it will only encourage these others, and the Internet as we know it will change right before our eyes. We all could be forced to pay licensing fees for every click-through, page view, advertising banner, pop-up, and so much more. If you still believe this is not a serious problem, just take a look at www.ideaflood.com.
Unfortunately, this type of threat seems to be dividing the industry rather than helping us all to come together. Companies that people expected not to license, have licensed; companies that people expected to license are litigating; and some companies that are litigating are upset at those who are sitting on the sidelines, waiting for the outcome. Accusations are flying about those within our own industry working with or for Acacia, literally biting the hand that has fed them for years. Just take one review of the Webmaster boards and you'll see the animosity going on almost every day about this issue.
The one thing that we do know for sure is that at the end of this, one party will prevail and one party will not, and only a judge and/or a jury will be making that final decision. Meanwhile, both parties end up spending a tremendous amount of time and money in pursuit of what they feel is just. When the dust settles, it will be very interesting to see how this and other, similar cases affect our industry. Acacia may be one of the first to test us, but most certainly it will not be the last. How the industry deals with this, together or apart, will almost certainly set the precedent for the future, as it has already divided us in many ways. o
Gregory L. Clayman is the president of VS Media, Inc., dba Videosecrets. Videosecrets, and its live service Flirt4Free, has long been a leader in video-conferencing technology as one of the first companies to produce live interactive adult video-conferencing shows that require no software downloads or plug-ins. Greg can be reached at [email protected].
