Acacia Makes Its Case

That Larger Problem
A quote from a slide in a presentation available on Acacia’s Web site highlights the driving force behind all of this hullabaloo: "Patent licensing revenues are $150 billion annually [and are] expected to grow to $500 billion a year by the end of the decade." This rapidly expanding revenue pie has attracted many new players who are fighting for a slice of their own. "There seem to be new players entering the patent licensing market everyday," says Berman. "Yet there are also companies like Xerox and Kodak who have been licensing technology for years and making billions of dollars from it."

The potential problem, arguably, lies more in the system that’s in place than specific claims of technology patent infringement. First off, since Internet companies operate across state lines, they can basically be brought to trial anywhere in the U.S. Despite the highly esoteric nature of many technology patents, there’s no system in place to ensure that the most qualified judges are assigned to each case. "Many patent cases are decided by judges and juries with little technical background and sometimes even little knowledge of patent cases," says Kaufman. "There are several jurisdictions that are well known for having a lot of patent expertise, but there’s nothing that says that you have to bring every case before these courts." While there is no system at the district court level, all appeals to decisions rendered at this level do get sent to an overseeing court of appeals for the federal circuit, which is able to ensure uniformity in the nationwide interpretation of patents.

What concerns Singer most is the way that many of these patent licensing companies have begun to selectively target certain companies. "The shift in a lot of these cases is from going after big companies to going after the little guys," he laments. "These people don’t have the resources to fight if the charges aren’t justified. It’s more expedient for them to pay just a little bit of money [for the license]." [For more on what you can do if approached by Acacia, read the sidebar, "So You’ve Just Been Approached by Acacia…"] "It’s the rare group of small businesses who are willing to band together and fight," Singer concludes.

Litigation Station
When Acacia initially pursued litigation against Homegrown Video and other online adult video companies, public opinion interpreted this as an attempt by Acacia to go after the so-called low-hanging fruit. But just as with video tape recording and VHS-based distribution, the adult video industry has been a pioneer of streaming technology. Now some members of the adult video circle find themselves on the frontlines of the DMT patent fight. After being approached by Acacia, a group of purveyors of online pornography organized the Internet Media Protective Association (IMPA) and collectively hired prominent patent law firm Fish & Richardson to defend its case.

In mid-July, U.S. District Judge Joseph Ware, the presiding judge in this case, announced the first results of the Markman hearings, which were conducted earlier in the year. In patent litigation, Markman hearings are used to define the terms of a patent, thereby determining the proper interpretation, or construction, of a patent’s claim terms. The results of these hearings are referred to as a Markman Order. While nothing in Judge Ware’s initial ruling portends a quick end to this case, he did hint that he believes that at least some of Acacia’s claims are overly broad, even going so far as to recommend that the defendants should file for summary judgment. "Judges don’t often litigate the case on behalf of one of the parties," says Kaufman. "When a judge encourages a party to file a motion on a new issue, it indicates that [he or she] is favorably disposed to ruling in their favor, but that doesn’t mean that that’s going to happen." If the judge rules on a summary judgment hearing in the defendant’s favor, then any patent claim containing the disputed claim term (in this case, "identification encoding means") would be ruled invalid. This doesn’t render all the patents invalid—only the specific patent claims that contain the disputed claim term.

Summary judgment hearings were originally scheduled for the first week of December, but Judge Ware postponed them in response to Acacia filing a request with the multidistrict panel to move their cases against cable companies in Arizona, Minnesota, and the northern district of Ohio to either the central or northern district of California. "Our case should be consolidated with the cable cases," says Fish & Richardson’s Singer. "They’re the same patents with the same issues. It would behoove the judicial system to have these folks all appear in front of Ware." After the ruling, "Any further cases that we file would automatically be moved to whatever jurisdiction that the multidistrict panel selects," says Berman. To avoid the potential of having to listen to the same testimony twice, Judge Ware won’t hold summary judgment hearings until Acacia’s consolidation request is resolved.

"After the judge holds the summary judgment hearings, then we’ll go forward with whatever’s left in the case," says Singer. If the IMPA defendants emerge victorious, then current DMT licensees should be able to get out of their licensing contracts. "A standard provision in our agreement provides that if all of the applicable claims are held to be invalid or unenforceable the agreement immediately terminates," says Berman. "If anybody has evidence of non-infringement or invalidity of any of our patents, we invite them to sit down with us and resolve the matter in a non-litigation forum. We do our due diligence but are not perfect. We will always listen to what people have to say. But saying that a patent is invalid and having proof of invalidity are not the same thing."

In theory, all Acacia has to do is prove that one of the claim terms in its DMT patents is valid to pursue infringement, but the reality is somewhat more complicated. "If we were in a lawsuit and I sued you for 50 claims, and you won 49 and I won one, you’re still infringing," explains Singer. "But because the court will tell you what that one claim means, you can change your system so that you don’t infringe anymore." Because of the legal hurdles still left to be addressed, "if it does go to trial, I would expect it would go to trial in 2006," says Singer, "but we don’t think it will reach that point."