Ever hear of Acacia Research? Not many people have, but if you're in the business of streaming audio or video entertainment online, you'll probably be hearing from them.
Located in Newport Beach, Calif., Acacia Research Corp. discovered gold in November 2001 when it completed its purchase of Greenwich Information Technologies, whose main asset turned out to be a group of patents on a method for streaming media.
The patents, the company says, cover just about all streaming media: video-on-demand services, Internet radio, pay-per-view movies, and video news clips offered at sites like CNN.com. Even previewing 30 seconds of a song on iTunes or Amazon.com may fall under Acacia's portfolio of five U.S. and--at last count--17 European patents.
Time Warner, Disney, Sony, Universal, and just about every other content provider on the Internet all need to watch out. So should Microsoft, RealNetworks, and Apple, makers of the software that most people use to stream audio and video to their desktops. If successful, Acacia's patient strategy of going after smaller prey first--particularly members of the unpopular online pornography industry--may leave bigger Internet players without a legal leg to stand on.
In fact, so far Acacia is winning both in court and out. A lawsuit against 18 adult sites is making its way through a federal district court in southern California's politically conservative Orange County. Two of the five U.S. patents are at issue. The key one (No. 5132992, "audio and video transmission and receiving system") was filed in January 1991 and granted 18 months later.
It describes a digital communication system that would "permit a person to receive transmissions of audio, video...programs at their home, or other location, which the person could play back as it was being received or...retain for playback at a later time," to quote from one of Acacia's current court filings. The patent, with 58 claims divided into six sections, attempts to cover just about every possible system falling under its all-encompassing title.
The first of several hearings, to define eight key phrases, was held on 6 February. Meanwhile, over 100 firms have chosen to settle, paying royalties of 1 to 3 percent of their streaming-media revenue for the license that averts an infringement lawsuit. Those companies range from Radio Free Virgin, in Los Angeles, an Internet radio network that delivers a variety of music styles on 60 "channels," to LodgeNet Entertainment Corp., in Sioux Falls, S.D., an on-demand movie provider for hotels, to Cyberheat Inc., in Tucson, Ariz., which runs Topbucks, an online payment service used mostly by porn sites.
Each license should be a disturbing harbinger for future defendants in Acacia lawsuits. Take Radio Free Virgin, a member of the Richard Branson family of Virgin businesses, which includes a chain of music megastores and an airline. It had access to some of the best legal advice on two continents, yet it chose to license rather than fight.
LodgeNet's services are not essentially different from any cable company's video-on-demand offerings; its license hints at a frighteningly large sweep of non-Internet services that might be covered by Acacia's patent portfolio. And Cyberheat was a member of the original group of adult entertainment companies sued by Acacia. It settled, presumably knowing the strength--or weakness--of its legal position.
Among the remaining defendants are VS Media Inc., Calabasas, Calif., which runs VideoSecrets, an erotic photo and video purveyor, and Flirt4Free, a porn chat service. In a recent article in AVN magazine, VideoSecrets' president, Gregory Clayman, described an early meeting with Acacia's senior vice president and general counsel, Rob Berman. Clayman wrote that Berman "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.'"
Acacia is no stranger to collecting royalties. It earned US $26 million from a patent, now expired, used in the V-chip, a television component that lets parents block objectionable programming. But that could be a mere drop in the royalty bucket. If it wins the streaming media lawsuit and begins to enforce its patents throughout cyberspace, the sky's the limit. Time Warner, Microsoft, and the other large companies currently sitting on the sidelines might do well to begin defending their streaming media businesses sooner rather than later.