Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

Video download is patent infringement, and there's a price to pay

Posted by - May 24, 2005


By Damien Stolarz for SiliconValleyWatcher
Patent Panner.gifI used to keep a patent watch blog that tracked peer-to-peer (P2P) technology patents. Basically, when you start a company, you're expected to patent your technology, either offensively or defensively, whether you think it warrants it or not. So every company that enters a field starts patenting everything it thinks up, and, to take a cynical view, as long as the diagrams in your patent are different than other patents, you'll have a unique invention - enough to safely do what you're already doing without risk of being sued for patent infringement.

But what if your patent covers your entire industry? And what if you never build your technology but simply sell the patent to a licensing company? That's the case with a company called Acacia (just Google "acacia patent"), which has been enforcing its Digital Media Transmission (DMT) patent since 2002. The patent basically covers any kind of video transmission: download, progressive download, over any type of network, as long as there is file storage involved. Legally, Acacia has a patent on pretty much any type of digital download.

Instead of going after the technology creators, however, Acacia has decided to go after people using the technology profitably. This makes perfect business sense.

With big companies, patents are a sort of barter currency, cross-licensed so that each company can continue to do what it was already doing:

Company 1: "We've got the patent on smaller hard disk drive arms".

Company 2: "Fine, we've got the patent on smaller hard disk drive heads. Lets trade."


It all makes sense when the patents are owned by the same companies that create the technology. But it gets weirder when patent-holding companies enter the picture.


The thing about patents is that by merely writing the patent, you've "invented" the technology. You don't have to have it implemented when you draft the patent, although an expert in your industry must be able to build the invention from your patent.

With a patent as seemingly strong as Acacia's, you'd think the company would be rich - and recently, it has been collecting about $2M per fiscal quarter from the patent. According to Dan Rayburn of StreamingMedia.com, Acacia has sent out more than 20,000 letters to companies it believes are infringing.

Acacia's website does not list a licensing price. So Acacia can decide how much it should demand as a "streaming tax," depending on peoples' ability to pay.

So how much does it cost? From digital cable companies, Acacia is requesting $2-$2.50 for every subscriber. On the Internet side, it used to request a $5000 fee from educational institutions, but has lowered that to $500 in some cases.

Many companies go ahead and pay these relatively nominal flat fees, which include an "amnesty" for back royalties, instead of litigating. This is because it can cost $500 just to have your lawyer sign a letter and fax it on your behalf.

About 200 licensees have paid up so far, including big names like Bloomberg, Disney, Playboy and Virgin.

Acacia clearly sees great potential in this business model. Recently, the company bought another patent that might seem familiar. If you've ever used a WiFi hotspot, you'll notice that it redirects you first to a PAY NOW web page. Once you've paid, you can start using the web as normal. Well, that's patented. Kinda like one-click purchasing on Amazon, in the sense that many techies will cry "foul!" and others will go, "well, yah, if I had invented that I'd think it was clever and I'd want to make some money off it..."

Already, Acacia has taken several companies to court, notably some adult-industry (streaming or downloadable porn) suppliers as well as regional (smaller) cable companies.

One of the deepest ironies is that Acacia's quarterly reports, in digital media form, are hosted by a non-licensee. Also, StreamingMedia.com, which has created a clearinghouse of information about this patent at http://streamingmedia.com/patent/) has conferences archived on its site as downloadable video. StreamingMedia is not a licensee of the patent - and has never received a letter.

Patents are often cited as a way for the "little guy" to protect him/herself from the big corporation that might steal his ideas. It now appears that corporations such as Acacia are stocking up on patents that they didn't invent and certainly never implemented, so they can charge little guys - who use such inventions.

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This patent prospecting is such a good business it makes California real estate look like Beanie Baby futures. I just started my own patent holding corporation and we've just purchased patents for the video previews feature on digital cameras, and we also just bought a patent for the key fob. Instead of going after camera manufacturers and car manufacturers, we've decided to take the infringement lawsuits directly to the users.

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