So, how did you read the title to this article? An industry that infringes patents? Or, an industry that attacks infringers of patents? Therein lies the multi-million-dollar question.
Late last year, the adult Internet industry became all abuzz about one Acacia Research Corporation (www.acaciaresearch.com), an outfit that suddenly is bombarding adult Webmasters with threats of lawsuits concerning patents relating to Internet-video technology. The song goes something like, "If you are streaming, you owe us." Because this is an important but emerging story, AVN Online goes to press not clear about the specifics. However, this obviously is an issue of huge magnitude given the number of operators that already have been threatened.
When this column debuted in the late 1980s (in our sister publication, AVN), everyone contemplated that its focus would be on battles against censorship - government regulation of the adult media industry. More than a decade later, it's amazing to find that the topic de jour is patent law, and for the second time in less than a year. April 2002's column in AVN ("The 7 1/2-cent DVD Stickup," p. 214 - You do read both publications, don't you?) addressed an assault on the video manufacturers by a consortium of owners of DVD patents. What is taking place now is a similar enforcement effort, this one with Internet-related patents.
For those who missed the "DVD Stickup" article, recall that you can obtain a patent on an invention. Under its constitutional power to "promote the progress of science and the useful arts, by securing for limited times to... inventors the exclusive right to their discoveries," Congress has enacted laws allowing inventors a monopoly over a "process, machine, manufacture or composition of matter" or an improvement over such a thing. To obtain a patent, such an invention must be "new, useful and non-obvious to one of ordinary skill in the art to which the subject matter pertains." This monopoly lasts about 17 years.
An inventor files an application in the Patent Office, where it is evaluated by an examiner. If the application ultimately is approved, the inventor (these days, inventors are usually corporations) has the exclusive right to use the invention until the patent either expires or is held invalid. And once a patent has been approved, it can be invalidated in court only by clear and convincing evidence.
The idea of a patent is a tradeoff. The inventor makes the application, which is public record and which must disclose all of the details of the device or process (commonly including drawings). In return for that total public disclosure, the inventor is granted a monopoly until the patent expires or is held invalid. Theoretically, the inventor bestows on the public complete details on how to use the invention; in return for educating the public, the inventor has an exclusive right to use the invention for a limited period.
In today's environment, patents are valid far too long, especially those involving electronics. When inventions become obsolete in such a short period of time as they do in electronics, the public does not realize a fair deal where it can be prevented from using the invention until it is totally obsolete.
Understand this monopoly power. A patent owner's leverage is the ability to prevent anyone else from using it - at all. Having the power to do that, the method of profiting from patents usually is by "licensing" them. If you want to utilize an unexpired patent, contact the patent owner and negotiate a license. For example, you can manufacture all of the superwidgets you want if you negotiate a royalty with the patent holder, such as 50 cents for each superwidget that you make.
Notably, the inventor also can prevent anyone from knowingly selling products that infringe a patent. That is called contributory infringement.
Not only can patents be licensed but, like most everything else, they can be bought and sold, inherited, or given away. Unlike tangible property (i.e., real estate and three-dimensional objects), however, patents can be held invalid by a court.
As noted, convincing a court to invalidate a patent is a tall order - clear and convincing proof is required. An example of a way of doing that is to convincingly establish "prior art" - that someone already was using the product or process before the supposed invention of it. You cannot obtain a patent on something that already has been invented.
Now, a slight digression is worthwhile, both to give some entertainment value to this otherwise dull topic and to make a point. It seems that, during the 1830s, 39-year-old Charles Goodyear, a struggling entrepreneur who had spent much of his life in and out of debtor's prison, was operating a fledgling business in the Sandy Hook section of Newtown, in northern Fairfield County, Connecticut. It was there that he stumbled on the process of vulcanization of rubber - reportedly, when he accidentally dropped some treated rubber on a hot stove. Ironically, the process was named vulcanization, after Vulcan, the Roman god of fire. Without vulcanization, rubber is a virtually useless material, gooey in warm weather and brittle in cold.
Goodyear patented his invention, which would give rise to the entire rubber-tire industry as we know it. Unfortunately, Charlie Goodyear never realized the fruits of his revolutionary, albeit stumbled-upon, invention. His checkered financial past made it impossible for him to raise capital, so the best he could do was to license his invention for a pittance - to those companies that were willing to pay him at all, with many blatantly using his invention without any license whatsoever. Goodyear died a pauper in 1860, leaving his family saddled with over $200,000 in debts.
Against that background, perhaps the most significant dynamic in the patent law comes from a 1971 United States Supreme Court case with an improbable name, Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 401 U.S. 932. Generally, it holds that if a patent owner loses one infringement suit on the grounds of invalidity, the patent is unenforceable against anyone else - it is effectively dead.
The "one loss kills the patent" rule creates perhaps one of the most interesting dynamics in the law - a game of "chicken" between patent owners and infringers. Patent owners must be careful not to lose any infringement actions; because of this, some will knowingly infringe the patent, betting that the patent owner will not take that risk. In that light, consider the following examples:
Suppose, as is the case with many of the readers of this column, you have a small, technology-driven business, David, Inc. During the course of running David, Inc.'s business, you experience a flash of brilliance or, perhaps, dumb luck, and discover a process that revolutionizes what you do. It may result from the kind of around-the-clock experimentation, hard work, and thinking that epitomizes the American Dream and gave rise to the likes of Alexander Graham Bell's invention of the telephone. Or, on the other hand, you experience others' view of the American Dream - a win-the-lottery type of invention process, such as Charlie Goodyear's vulcanization of rubber. Either way, you obtain a patent on your invention.
Goliath, Inc., on the other hand, is a multinational conglomerate that spends millions annually on high-tech research, with an R&D staff including a building full of eggheads with nothing to do but invent things and attorneys to secure patents on the inventions. Goliath, Inc. always has a portfolio of pending patent applications, along with a staff charged with enforcing the patents that have issued.
Two radically different dynamics can exist here. It depends upon whether David, Inc. is infringing one of Goliath, Inc.'s patents, or the reverse.
As with Charles Goodyear, David, Inc. will experience difficulties enforcing its patent against Goliath, Inc., and for several reasons. First, patent litigation is expensive. David, Inc. will need to match Goliath, Inc.'s massive litigation resources, lawyer-for-lawyer and expert-for-expert. And if you think attorneys are expensive, expert witnesses usually cost even more. Moreover, even assuming that David, Inc. can amass the resources needed to take Goliath, Inc. to task for infringing its patent, if David, Inc. loses the case on invalidity grounds, it entirely loses its patent, which may be its single, largest asset. So what happens? Like Goodyear, David, Inc. may have to settle for licensing its patent to Goliath, Inc. for pocket change, to avoid the risk of not being able to license it to anyone.
However, if the reverse happens - David, Inc. wants to use a patent owned by Goliath, Inc. - things are very different. David, Inc. simply does not possess the resources to challenge the validity of Goliath, Inc.'s patent. It therefore must crawl into the patent-licensing office at Goliath, Inc., hoping that it can negotiate a license fee that will not put it out of business.
There are other dynamics to all of this. David, Inc., for example, can shore up its bankroll by licensing its patent to other, modestly sized companies that it could afford to challenge in court. With those license fees coming in, it may then become more economically manageable for David, Inc. to take on Goliath, Inc. in court. And if David, Inc.'s patent is one of several that normally would be packaged together, it can join a consortium created to enforce a group of patents. That is what has been going on with the DVD patent owners, as well as the ones that brought about this article.
If David, Inc. needs to use one of Goliath, Inc.'s patents, and finds itself in the same boat with many other companies that also need it, the entire group of them might all chip in to challenge the validity of Goliath, Inc.'s patent. Although this is a group of competitors that are challenging Goliath, Inc.'s patent, the strength of numbers should overcome their differences arising from competition. If it does not, then Goliath, Inc. can divide and conquer all of the David, Inc.-sized companies.
Indeed, the last example mirrors the present situation. Acacia Research Corporation is a large, publicly traded company, announcing its annual revenues at nearly $25 million and investments of nearly $85 million. "Acacia Media Technologies," a subsidiary, "owns U.S. and International pioneering patents covering the transmission and receipt of digital audio and/or video content via several means including the Internet, cable and satellite," the company proclaims, which is known as "Digital Media Transmission" or "DMT" Technology. Therein, apparently, is the rub for this industry, which likely has no single player with the wherewithal to challenge the validity of any of Acacia's patents (if, indeed, such a challenge exists, which is not now known).
As an example of its modus operandi, another Acacia subsidiary, Soundview Technologies, filed a patent infringement lawsuit against 17 television manufacturers, claiming infringement of its Patent which relates "to television video and audio blanking technology, commonly known as ?V-chip' technology." Interestingly, Acacia boasts of already having licensed its V-chip technology to giant companies, including Philips, Hitachi, Samsung, Sanyo, L.G., Daewoo, Matsushita, and JVC, among others, but it conspicuously omits the magnitude of the licensing fee. You might be less likely to recognize the names of some of the defendants that they sued.
Acacia apparently is embracing the same strategy with respect to its DMT Technology patents owned by another of its subsidiaries, Acacia Media Technologies. One writer opined that Acacia's growth strategy was to "hire more lawyers" (D. Donovan, "Patent Play" Forbes, March 18, 2002). This obviously is a developing story, so stay tuned.
Clyde DeWitt is a partner in the Los Angeles, Calif.-based national law firm of Weston, Garrou & DeWitt. He can be reached through AVN Online's offices, at his office at 12121 Wilshire Boulevard, Suite 900 Los Angeles, CA 90025 or over the Internet at [email protected]. Readers are considered a valuable source of court decisions, legal gossip and information from around the country, all of which is received with interest. Books, pro and con, are encouraged to be submitted for review, but they will not be returned. This column does not constitute legal advice but, rather, serves to inform readers of legal news, developments in cases and editorial comment about legal developments and trends. Readers who believe anything reported in this column might impact them should contact their personal attorneys.
