The licensing company that filed suit against DirecTV Group Inc. over technology being used for the satellite company’s video-on-demand services is not exactly a household word except, perhaps, in the households of entertainment and media executives.
Newport Beach-based Acacia Research Corp. has filed dozens of patent infringement lawsuits, most recently turning its attention to Hollywood and technology firms.
Acacia is a special breed of company that acquires patents from universities and other researchers and then licenses them to third parties. It also aggressively sues any company it believes is infringing on those patents.
“Traditionally, entertainment companies haven’t been the target of these types of companies,” said Victor de Gyarfas, a partner in the intellectual property litigation group at Foley & Lardner in Los Angeles. “But in recent years, they’ve increasingly become so.”
Patent infringement suits filed by “patent holding” companies such as Acacia have risen as the industry converts to digital media and relies more heavily on advanced technologies to distribute their motion pictures and television shows.
Most of the suits are not as voluminous as the numerous copyright claims filed against the studios by the alleged writers of their screenplays. But defending against such litigation is swiftly becoming a regular cost of doing business.
“They’re more complicated and harder to explain,” said Arnold Peter, an entertainment partner at Lord Bissell & Brook LLP. “It’s easier to show somebody an idea you put in a treatment and compare that to a couple of episodes of a reality program than understand the technology and see how it fits.”
Patent trolls
Defendants of patent infringement lawsuits call companies like Acacia “patent trolls.”
But Acacia’s chairman and chief executive, Paul Ryan, says that the company serves a legitimate role by getting new technologies into the marketplace and then ensuring that the original patent holders aren’t taken advantage of by infringers.
Often the only way to do that is by going to court.
“Many larger companies don’t like us because we’re leveling the playing field a bit,” said Ryan. “We don’t mind if people call us trolls.”
Acacia acquires patents and then shares the licensing fees with the original patent holders. The company claims to control 120 patents in 32 separate “portfolios.” The company Web site states it has licensing deals with Nokia for the use of bar codes, RadioShack Corp. for credit card fraud protection and IBM Corp. for network data storage.
In the DirecTV suit, Acacia claims that it has 123 licensing agreements for digital transmission of programming via the Internet, cable, satellite and other technologies with companies involved in hotel in-room entertainment, e-learning, news and adult entertainment.
The suit, filed in U.S. District Court, is still pending and officials at DirecTV did not return calls for comment.
Other Hollywood-related patents Acacia holds and licenses include those in the field of audio/video enhancement and synchronization, digital video production and interactive television, according to its Web site.
Acacia, which also has a separate biotech subsidiary, has had mixed financial results in its licensign business. It reported a second-quarter net loss of $1.8 million, compared with a net loss of $1.2 million for the like period a year earlier. Revenues were $2.7 million from $666,000.
Ryan said the company has not been profitable due to non-cash amortization charges related to the acquisition of patents for its portfolio. But he said Acacia plans to be cash flow positive by the end of the year and may be profitable in the near future as it adds new licensing deals that generate more revenue. This year, nine new licensing campaigns were launched.
Acacia is far from the only firm that has sued Hollywood companies over technology issues. Many of the patent suits involve the entertainment industry’s online downloads or Web sites. Forgent Networks, an Austin, Texas-based software and licensing company with a large patent portfolio, recently filed an infringement suit against 15 companies, including DirecTV, Time Warner Inc. and Charter Communications Inc., over a patent that allegedly covers digital video recording over the Internet.
And last year, a Pittsburgh-based company called SightSound Technologies settled an infringement suit for $3.3 million against now-defunct N2K and CDnow, a subsidiary of Bertelsmann AG, over a patented technology of downloading music and movies from the Internet.
“The entertainment industry is a proxy for anyone who wants to publish information on the Web,” said Jason Schultz, staff attorney at the Electronic Frontier Foundation in San Francisco, an advocate of First Amendment rights on the Internet. “When you post photos, you are stepping into a world of patent trolls.”
