Digital Media Patents for Profit

This article first appeared in the 2007 Streaming Media Industry Sourcebook. Click here to view the digital version.

Consider a small business holding more than 1,000 patents but commercializing few or none itself and suing companies it views as infringers. A century ago this might have described Thomas Edison’s revered Menlo Park laboratory. Today it could refer to a "patent troll" or patent holding company. Since Intel’s former general counsel Peter Detkin invented the term(1) five years ago, the activities of these companies have been the subject of heated public debate and numerous headlines.

Recently, however, the term patent troll has emerged as a convenient label for a variety of business strategies, applicable both to many established companies and to companies with an exclusive strategy of licensing and litigation. In its most common meaning, patent troll refers to a company that asserts patent rights as its primary business model (a patent troll may or may not commercialize technology or products embodying that technology) in order to generate revenues from either licensing agreements or damages settlements with alleged infringers.

Since late 2005, technology media outlets have spotlighted litigation involving a diverse set of companies associated with patent trolling in the digital media and information technology industries:
--Research in Motion Ltd. (RIM), the maker of BlackBerry email devices, agreed to pay $612.5 million to settle an infringement claim from patent-holding company NTP Inc.
--Software maker Visto Corporation has sued seven companies offering wireless email services, including RIM and Microsoft, for allegedly violating its patents.
--Burst.com won a $60 million settlement from Microsoft Corporation and is suing Apple Inc. for alleged infringement of Burst’s patents for super-fast digital media transmission.
--The U.S. Supreme Court reversed a lower court damage award and an appeals court grant of an injunction to MercExchange LLC, which had alleged that eBay Inc.’s "Buy It Now" feature infringed its patents.
--Acacia Research Corporation expanded an infringement lawsuit over video-on-demand services, originally filed against DirecTV, to include 45 cable, internet, and satellite companies.

In these types of cases, patent litigation can represent either a plaintiff’s primary business strategy, a means to expand market opportunities for its technology, a simple case of patent protection, or a final attempt to monetize assets prior to bankruptcy. One patent troll frequently cited in the media, Acacia Research Corporation, holds a large array of patents in the digital audio and video content distribution segment. A brief study of Acacia’s history provides some useful insights into the motivation, relative success, and likely future of patent troll strategies.

Acacia: The Growth of a Patent Troll
Acacia Research Corporation, incorporated in 1993 and based in Newport Beach, California, has two business units: CombiMatrix (a producer of biotechnology products) and Acacia Technologies Group (which maintains and licenses its electronic technologies patent portfolio). Acacia Technologies holds patents for a variety of electronic applications including credit card protection technology, a variety of computer systems and software, and digital media technology. The company claims to control more than 160 patents, including 50 patent portfolios it obtained in 2005.

Acacia’s revenue has continued to grow since 2002, the year that it completed a secondary offering on the NASDAQ. Between 2002 and 2005, Acacia Technologies Group’s revenues increased 455%. In addition, Acacia has secured at least 11 licenses since 2005 and has licensing deals involving internet advertising (Priceline.com), bar code reading (Nokia), credit card fraud protection (RadioShack), and network data storage (IBM). Although its portfolio includes patents representing multiple industries, one technology in particular—digital transmission of audio and video media—has emerged as a major component of Acacia’s litigation and licensing strategy.

In 1995, Acacia purchased a number of patents related to networked digital media from inventors Paul Yurt and Lee Browne. These patents, as well as patents it has subsequently acquired in this area, have since been bundled into a collection termed the Digital Media Transmission (which it has trademarked as "DMT") patents. One school of thought, promoted by Acacia, holds that the DMT patents are central to interrelated system operations. Amid growing public acceptance of that perception, DMT has become Acacia Research Corporation’s primary weapon in attempting to secure dominance in the sector.

Acacia pursues a single-minded business strategy: targeting infringers of technology patents that it owns and seeking compensation through licensing agreements or litigation. Acacia has filed 39 infringement lawsuits since January 2004, two-thirds of them in the U.S. District Court for the Northern District of California.(2) This litigation spans the company’s technology portfolios.