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Digital Media Patents for Profit

Legal and Legislative Response
Patent infringement claims recently brought by companies such as Acacia or MercExchange are changing the way courts are evaluating the relief of the claim and leading them to employ new tests. Currently, Acacia is litigating its suit against DirecTV and a slew of other companies, ranging from adult entertainment websites to satellite and cable companies, for alleged infringement of its DMT patents. In the summer of 2004, U.S. District Court Judge James Ware reviewed Acacia’s preliminary patent claims and issued a Markman Order, a pre-trial opinion by a judge based on the review of evidence presented on patent validity and infringement claims. Judge Ware ruled that two of Acacia’s patent claim terms against adult entertainment internet providers (the "sequence encoder" and "identification encoder") were indefinite, which in trial would render certain patent claims in the suit invalid.(9) The multiple suits filed by Acacia against adult entertainment, satellite, and cable companies have since been consolidated, and in December 2005, Judge Ware again upheld his previous ruling that two of Acacia’s claims were essentially invalid. A final ruling is anticipated soon, after which the case will likely either go to trial in district court or perhaps be appealed to a higher court.(10)

Significantly, however, corporate and university targets and their legislative allies have begun to fight Acacia’s strategy and the company’s licensing has slowed, with most of its agreements signed in 2004 and 2005. Major companies including Intel and Sirius Satellite Radio filed suit against Acacia Technologies in 2005, seeking declaratory judgments ruling that various Acacia patents were invalid. Member colleges of the American Council on Education are threatening to sue Acacia over its ownership claims of patents for streaming media technology used in online education programs. Meanwhile, legislatures are contemplating changes to the patent system. It remains to be seen if legislation planned by Senators Orrin Hatch (R–UT) and Patrick Leahy (D–VT) will institute a first-to-file patent system with limited damages for infringement.(11) In addition, the Coalition for Patent Fairness has recently stepped up its efforts to encourage legislators to set standards for multiple aspects of patent litigation, including damages. Although individual companies have had only marginal success at fighting Acacia, these regulatory and political changes would strike at the heart of many patent troll business structures. It is unclear how well Acacia’s model would withstand such a concerted counterattack.

Recent declaratory judgment rulings on the validity of allegedly infringed patents could signal a change in the tide for patent trolls, but the ultimate outcome is still uncertain. The Supreme Court’s ruling in favor of eBay against MercExchange directs judges to weigh a broad array of factors—including the public interest in keeping a particular invention in the marketplace—when considering the remedy for patent infringement. Nevertheless, the Court found that the trial judge who denied MercExchange an injunction (only to be reversed by an appeals court) went too far in holding that injunctions should be denied to plaintiffs that don’t make products based on patents they hold, or that show a willingness to license their inventions. The high court ruled that such plaintiffs should have the same rights as other patent holders in pressing for injunctions. Thus, while the eBay ruling is likely to prove inconclusive in terms of stemming the tide of patent troll infringement suits, it does illustrate the conflicts among judicial and legislative bodies with respect to the treatment of patent trolls.

How Can Target Companies Respond?
Regardless of how legislative activities unfold and whether future injunctive relief or damages findings favor defendants or plaintiffs, a well-considered response will continue to be essential for companies that are potential targets for patent troll litigation, and similarly, any intellectual property litigation. Firms operating in industries as diverse as handheld communication devices, traditional retailing, and education are all potential targets.

Essentially, there are three feasible options for external and in-house counsel and executives of target companies to consider. Each should be fully evaluated, and ideally, the selected strategy put in place well in advance of any infringement lawsuits. In some cases, patent holders may determine that to settle immediately makes the most business sense, without consideration of validity of the patents, infringement, or value. Alternatively, companies may analyze the impact of multiple outcomes, perhaps enlisting assistance to assess likely validity, infringement liability, and damages, and then move toward an appropriate settlement. Other companies, after evaluating the same issues, may elect to litigate to an ultimate resolution.

Regardless of the direction chosen, designers, engineers, and other technical specialists can provide important input to counsel as they weigh these complex options. Expert economists may also be retained to assess the numerous economic and financial factors involved and to help determine accurate damages assessments and settlement strategies. This approach will be especially important in the likely event that more patent trolls attempt to pursue the Acacia model of blending licensing tactics with litigation.

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