September 24, 2003 -- (WEB HOST INDUSTRY REVIEW) -- You may not be familiar with the name Acacia Media Technologies (acaciaresearch.com) yet. However, that may change if the company is successful in its campaign to generate licensing fees from a patent it says gives it rights to streaming media.
It could turn out to be the proverbial license to print money for the Newport Beach-based company. According to Acacia vice president Rob Berman, a group of five patents it owns gives it the right to digital content that "employs digital signal processing to achieve high rates of data compression."
It's a wide concept, and one that could potentially give Acacia a right to a percentage of revenues by streaming media. This potentially includes everything from Internet-distributed news, sports and porn clips to non-live programming, movies-on-demand over cable systems, and even digitally encoded content broadcast by Wi-Fi and satellite.
Needless to say, considering the scope of the claims, Acacia thinks it may be on the verge of a large payoff. "We think it could be big," says Berman.
Acacia acquired the group of five patents two years ago when it bought up the rest of a tech company, Greenwich Information Technologies, that Acacia had invested seed money in as a venture capital outfit.
Since then, Acacia has transformed itself into a company engaged exclusively in acquiring patents for licensing. Acacia buys up patents from the original owners who either don't have the "sophistication or resources" to enforce them, Berman says. It's a strategy the company employed several years ago when it acquired the patent to the V-Chip, the content-blocking device found in many televisions.
Acacia profits when it can get companies to start paying licensing fees on the patent. In the case of the so-called Digital Media Transfer (DMT) patents, Acacia says it would expect to charge licensing fees of up to two percent of gross subscription revenue for online firms.
Not surprisingly, the tactic has run into opposition among those who make a living off of streaming media. Some adult industry webmasters, for example, are banding together to fight the company, saying Acacia is strong-arming its way into their business.
"If it's a valid patent then they have the right to enforce it. But I think they're invalid patents and I don't think I should have to pay them," says Spike Goldberg, CEO of Homegrown Video, an adult Web site that has been hit by a lawsuit from Acacia. "They just showed up one day and are asking for a piece of my business. I feel like I'm being blackmailed."
To fight back, Goldberg has organized a group of companies into a proto-industry trade association for the online adult entertainment industry known as the Internet Media Protective Association (IMPA). The first act of the new group will be to take Acacia to trial.
He believes Acacia is deliberately targeting adult businesses to build a legal precedent it could use to go after larger users of the technology, like Apple, Real Networks or Microsoft. If the company can set a precedent against the smaller players, says Goldberg, the company would be better able to press its case further up the line.
That kind of precedent building isn't unheard of, says Richard Belgard, a patent consultant based in Cupertino, California. "In some cases, companies can generate a precedent that can be leveraged in follow-up cases," he points out.
But Goldberg is also critical of what he calls aggressive legal tactics on the part of Acacia. Among other things, he points out that the company decided to launch the lawsuit in notoriously conservative Orange County and uses the term "adult" throughout the wording of the suit. "This is a technical issue. Why would they mention the word adult unless they were trying to use that against us?"
For his part, Berman fiercely denies Acacia is targeting the adult industry and paints the issue in terms of protection of intellectual property. "We've sent letters to everyone - online sports sites, cable networks, anyone we think may have to pay us licensing fees," he says.
Berman says the adult industry, often home to smaller companies, is not used to paying licensing fees for technology. "That's something they'll have to get used to."
An early legal battle seemed to be in Acacia's favor when five adult-oriented companies - Extreme Productions, Go Entertainment, Lace Productions, WebZotic and Wild Ventures - were hit with an injunction handed down by a judge from the U.S. District Court in Orange County, California preventing them from transmitting streaming media from their Web sites.
But none of the companies involved even bothered to appear in court to challenge Acacia’s claims, which suggests to Belgard that a "robust defense" of the patents still needs to be launched in a court to test their validity. "I've looked at all of the patents. They're not so absurd. They're not completely without merit. But they are hyper technical," he says. "They need to be tried in court."
Which is exactly what Goldberg hopes to do. The IMPA has hired respected law firm Fish & Richardson to challenge the case. "I'm a CEO and I'm supposed to be working on my business but this case is taking up all of my time," says Goldberg, who estimates about a quarter of a million dollars has been spent on the legal challenge so far (donations to the legal fight can be made at impari.org).
Goldberg says he would like to see some of the bigger players in the industry who will eventually be affected by any ruling step up and help with the bills, since this may be the best time to stop Acacia. "If there's one thing I would say to anyone in the industry - and this includes web hosters - it's that this potentially affects everyone," he says.
In the case of Web hosting companies, says Goldberg, if the revenue demanded by Acacia cuts the profitability of webmasters, possibly reducing their numbers, it translates into less business for hosts - not to mention a drop in demand for potentially lucrative streaming media hosting services.
Berman says his company has $35 to $40 million in the bank to finance its legal operations, but he does admit there's a bit of a gamble in this kind of business. "Are we guaranteeing we'll win? No. I can't say that. There's always a risk when it comes to the law," says Berman.
But he thinks the company has a good chance in its bid to enforce its patent. "This is our business. We acquire patents for licensing. We do a lot of work before hand, talking to experts, soliciting legal opinions, doing our due diligence. We take what we do very seriously. We would not have launched this bid if we didn't think we would win."
