Patently false?
tactics shift in battle over rights to streaming technology

Check your mailbox. Acacia Technologies—the firm which claims to own rights to the streaming audio and video technology commonly used on the Web—has sent out a new demand for licensing agreements to colleges and universities that includes reduced royalty rates. While Acacia's General Counsel Robert Berman vows that all 4000 higher education entities across the country will eventually hear from the firm, opponents say Acacia's new deal demonstrates a last-ditch effort to collect fees before its patents are revoked.

Just last month, the Newport Beach, California-based Acacia sent a second wave of letters threatening legal action to schools that stream content. The firm demanded licensing fees (a minimum of $5000 annually) and set a deadline of September 15. The action sent the higher-ed community into a tailspin: Just who were these lawyers demanding fees from schools streaming their own content? Although some signed licensing agreements with Acacia, many schools resisted the firm's demands, adopting a "wait and see" strategy.

Acacia is now responding with the lower royalty rates. "I think everyone's reaction so far has been, `Yeah, this is them backing down,'" says Jason Schultz, staff attorney for The Electronic Frontier Foundation, a non-profit organization that works to educate the public about civil-liberties issues related to technology. However, Acacia's Berman insists the company's claims are very strong and that the new licensing structure is due to feedback the firm has received from the higher-ed community.

The New Deal

According to Berman, Acacia had discussions with many schools and listened "intently to the issues they have raised." This new deal, he says, speaks to three common concerns schools had regarding the previous agreement: some colleges and universities do not receive revenues from streaming content; $5000 is a lot of money for many small schools; and larger colleges and universities with multiple locations are unable to track the number of streams.

Now, according to Acacia's letter dated September 2, the royalty fee will be waived for non-profit schools that do not specifically offer online fee-based courses and services containing audio/video content, and for e-learning schools with courses that enroll less than 500 students or utilize less than 14,000 total streams per year.

The latest proposal also reduces the annual minimum fee to $1,000 and provides schools a choice of two payment options: Either pay the company seven cents per audio or video download or $2 for each online enrollment. The deadline has also been moved to November 1. At that point, Acacia says, it will no longer offer waivers and reduced royalty rates.

"We're out to be as fair and reasonable as possible," Berman says, believing the new agreement to be much more school-friendly. But critics are quick to point out that such action begs the question: How much further will they back down if the universities continue to stand up and push back? And what does their strategy say about the validity of their patents to begin with?

According to Schultz, "There's been no engagement on the merits whatsoever. In other words, it's not like Acacia is making a stronger case by saying `Let us explain why our patents are better than you thought.' They're simply saying, `Well, here's a cut-rate deal, take it now while you can.' And honestly, some universities and colleges may. It's so cheap now, they may just say, `OK, fine.'"

Organizations like the EFF, although they're not providing legal advice to colleges and universities, are available to run through the alternatives for those that receive a letter from Acacia. Settlement's certainly an option, but despite Acacia's new offer some still suggest it might be best to wait and see what's happens with Acacia's claims in their current suits against companies in other industries that stream content.

Acacia's Claims

Acacia's licensing efforts for streaming media are based on five DMT (digital media transmission) patents, all of which cover basically the same thing. According to Berman, "It's a portfolio of five U.S. and 17 international patents that cover the transmission and receipt of digital content via a variety of means: via cable, satellite, the internet, microwave, local area network, etc." These patents, Acacia says, entitle them to collect licensing fees from anyone utilizing streaming technology.

Opponents say Acacia's claims are bogus and want the U.S. Patent and Trademark Office (USPTO) to re-examine and revoke them, saying the patents are "overbroad" and "obvious." According to Schultz of the EFF, "It's like owning rights on every microphone, every loudspeaker, every television, every telephone..."

Acacia's efforts to collect licensing fees have evolved in waves. Having initially focused its licensing efforts on adult-media providers, Acacia recently filed suit against specific cable and satellite providers. "Along the way," Berman explains, "a group that we identified as potential infringers on our technology, were schools that offer distance-learning courses that include audio/video technology as part of the courses."

Two sets of litigation have resulted thus far: one against adult-entertainment companies and another against cable and satellite companies. In the former, there's been a Markman Order, that is, the part of a patent case where a judge interprets the language in the claim terms to determine to what they apply and whether those claims are being infringed. According to Berman, in the preliminary Markman Order, "Certain claim interpretations that we proposed were adopted, certain claim interpretations that the other side proposed were adopted, and for other claim terms the judge said, `I think that the patents might be indefinite in certain areas and I would need to hear expert testimony from one skilled in the art to be able to determine what these claims mean.' That process is now in place and there are motions with respect to those claims in question that will be heard in the beginning of December."

In the midst of the Markman activity, Dan Rayburn, executive vice president of StreamingMedia.com, the self-described Consumer Reports of the streaming industry, says Acacia has expanded its efforts beyond the industries mentioned earlier. He says he now receives calls from auto-makers, credit-card companies and billion-dollar companies. "They're going after everyone now." According to Rayburn, Acacia is "hoping they can roll up as many companies as possible so that when they do go to some of the bigger companies, they can say, `Hey, look how many other companies have signed license agreements.'"

Such a portfolio—one that consists of big names like Disney and Playboy (who have both signed agreements)—can be daunting to schools that are already strapped financially. Sometimes, as Rayburn says, "Signing licensing deal is cheaper than fighting a patent case in court." Just this week Acacia inked a deal with Bloomberg, bringing the firm's total agreements, at last count, up to 175. More licensees beget even more, in a sense legitimizing Acacia's claims, opponents argue.

For their part, Acacia's Berman claims the company is not looking to put anybody out of business. He has said Acacia is simply "looking for modest royalties from a lot of people." Why not go after Microsoft, Apple and RealNetworks? Some suggest it's because Acacia doesn't believe its claims are strong enough to withstand a battle with the so-called Big Three. Berman says it's because those firms make the technology but they don't actually use it. Nonsense, says Rayburn. "iTunes is the best-selling digital download service out there," he says. "Acacia clearly doesn't feel that their patents are valid enough because they don't want to take on the big players." Berman says it's not an issue of being afraid of the big companies. He cites names like Playboy and Disney and says, "You can't get much bigger than that." He says the firm has a choice: Acacia can go after the manufacturer, the seller, or the user. "We've elected to pursue the user," he says.

Debunking the Myths

Rayburn cautions that there are misconceptions regarding the Acacia situation. For one, he says, letters to Streaming Media from schools contacted by Acacia indicate they're not concerned about paying since the patents will run out soon. "Not true," says Rayburn. "They're not set to expire until 2011." Another misconception is that some companies think licensing with The Big Three indemnifies them. Nope. According to Schultz, "It depends on your agreement. I can guarantee that all those Microsoft lawyers made sure that they didn't indemnify anybody."

And Berman himself cautions those who expect a swift ruling in litigation against the adult-entertainment industry. "The motions will be heard beginning of December," he says. "That doesn't mean that the judge is going to rule in the beginning of December. It could take a month, two months, three months, one doesn't know." And, obviously, if the case goes to trial, it wouldn't even begin for at least a year. That's if there even is a trial, counters Schultz, believing it's more likely that the court will dismiss the entire case. The defendants intend to file papers asking for the most of the claims to be invalidated. For the remaining claims, the defendants will request a ruling that their technology doesn't actually infringe. "If they win," he says, "the case is over."

Intellectual Property

Patent infringement, licensing fees, Markman Hearings... How'd all this come about? Critics of Acacia's patents claim the company shouldn't "own" streaming technology in the first place, again, claiming the patents are overbroad and obvious. According to Schultz, "They're really trying to own every single form of video transmission on the web. I mean every single one. A lot of patents cover a specific implementation; a particular kind of programming—those are much more likely to be valid. What they think they own is every single way you could ever stream audio or video over the web... and that's just not what the patent system allows."

Rayburn believes the problem lies with the patent office itself: The USPTO is overworked and under-resourced. "The sense these days," he says, "seems to be `Grant the patent and then afterwards if people think it is invalid, let them spend the money to prove that.'" Schultz concurs, particularly on the under-resourced aspect of the patents office. "The USPTO has not in the past and still does not have a very good database of all the great innovations that have given us the modern computer and the Internet, so when people apply for these kind of patents, the patent office can only search the databases they have."

Schultz continues that the fundamental problem is inherent in the patent-granting process itself. "When you apply for a patent," he says, "you make a statement: `This is what I think I invented.' The burden is then on the patent office to find concrete evidence that `No, you were not in fact the first to do it or that it was obvious.' If they cannot find explicit, concrete evidence of that, they have to grant you the patent. By law, they are mandated." Schultz believes this burden needs to be shifted. Patents should not be based merely on an inventor's "Good Faith" belief that they're idea is unique.

What's Next?

The EFF, which had been receiving numerous complaints over the last year-and-a-half about patent holders threatening non-traditional folks in the tech industry ("not your Intels..." Schultz, says, "but rather small start-up companies"), launched a contest in June in which people voted for the worst-of-the-worst patent holders—patents that were the most threatening to the public domain and the Internet. They had three main criteria: patents that were overbroad, claiming much more than they should; that there were actual threats involved—firms were actually going after people, sending letters; and patents that cover tools of free expression—things like how you communicate over the Internet, ways of sending messages or video, ways of publishing things on a website. They posted the Top Ten on their website and guess which company holds the distinction for being Number One? Acacia.

The EFF is now organizing reexamination requests on all ten patents and, according to Schultz they've received a large amount of support from the legal community. "A lot of patent lawyers have volunteered their services pro-bono to help us out and we're organizing teams to take on each patent," he says. They'll be collecting what's called "prior art," evidence of invalidity for each patent—which Schultz says he has—and will request that USPTO reexamine the patents and revoke them.

Despite the common conjecture that such revocation is rare—a common statistic is that out of seven million patents, only 614 have ever been overturned—that's not the whole truth, explains Schultz. "Of those seven million, only very, very few of the patents ever have anybody request a re-exam." He continues: "You have a 90 percent chance of getting in the door. Once you're in, you have a 76 percent chance of at least narrowing the claim if not eliminating the patent. So we actually think we have a pretty good shot based on those numbers."

When asked when to expect a formal petition in regards to Acacia, Schultz says most likely sometime in the spring. Just in time for the Markman ruling? Schultz says that while they obviously don't want to duplicate efforts, he claims, "When that court case is done, whatever's left, we're certainly going after it—one way or the other. And especially if Acacia does in fact file suit against the universities, we're going to step up our efforts as well."

There's a large coalition of schools and universities that have formed a joint defense group. Are they awaiting a lawsuit? Schultz says, "I think what they're hoping to do is to provide a collective response to Acacia. In other words, Acacia's taken the divide-and-conquer perspective and what they're trying to do is to give a collective response as to their opinion of the patents. I would think they're opinion would be pretty poor. They'll say, `Look, we've all looked at it and we don't think we owe you a dime.'"

Berman's response: "The bottom line is there's been a lot of hysteria; a lot of information on chat boards which is just not accurate in terms of what it is that we're asking for, how steep our royalty rates are. You know people are writing articles about how we want five percent of college tuition... that's just not true," especially in light of Acacia's new licensing structure for colleges and universities.

And, again, as to the strategy of "sitting back and waiting" for Acacia's current litigation to be resolved, Berman again says, "We're just at the beginning stages of discovery and it is very likely that this case will not go to trial for at least a year."

Schultz still claims, "It's very likely that they will have many of their claims invalidated." And he concludes: "I think it's actually looking very bad for them." According to Rayburn, "They have their work cut out for them now and I think they're now realizing this industry isn't going to just roll over."