Acacia Makes Its Case

By the end of 2004, the total number of companies that had purchased a license from Acacia Technologies Group for their Digital Media Transmission (DMT) patents had reached 277. Included in this number are multinational corporations like Disney, Bloomberg, and Virgin, as well as almost 100 cable companies and more than 90% of the in-room hotel entertainment market in the United States. Acacia has made claims that their DMT patents cover nearly all forms of digital media transmission, including downloaded and streamed content, although not live Webcasts. For the past year, they’ve aggressively pushed a campaign to sign up licensees in a wide variety of industries, while also filing patent infringement suits in four states against both cable and online adult video companies.

Last year also saw a dramatic rise in Acacia’s media presence. A variety of major news organizations reported on stories of Acacia sending informational packets and licensing offers to colleges and universities across the country, which rely increasingly on distance elearning applications that Acacia claims violate their DMT patents. The Electronic Frontier Foundation (EFF), a technology rights advocacy group, has been one of Acacia’s most vocal critics, even going so far as to list Acacia’s DMT patents on their Patent Busting Projects list—released in summer 2004—of ten most-wanted patents that pose the biggest threat to the public domain.

A lot has been written about Acacia over the past year, mostly focused on their DMT licensing campaign. But Acacia’s patent portfolio no longer begins and ends with the DMT patents. In July 2004, Acacia signed an agreement with leading in-room hotel entertainment company LodgeNet to acquire the HotSpot patents, which cover redirected Internet registrations commonly used at wireless hotspots and hotels. In mid-December, Acacia closed a $25 million deal to acquire the assets of Global Patent Holdings, LLC, a privately held patent holding company that owns 11 patent licensing companies and 27 patent portfolios. Global’s 11 includes TechSearch, LLC, which has a portfolio that includes patent portfolios covering topics ranging from video noise reduction to peer-to-peer network communications to broadcasting data and transmission.

Much of the buzz on Internet chat boards and coverage in various media outlets focuses on demonizing Acacia’s actions and denouncing its way of doing business as unethical. Regardless of what you think about Acacia’s business practices, they aren’t going away. The patent licensing and litigation model championed by Acacia sees new life in the increasing number of companies following Acacia's lead, so it’s usefull to examine their model in detail. Let’s start with a look into what it is that they actually do.

What They Do and How They Do It
The core of Acacia’s business model is choosing the right patents to purchase. For Acacia to grow as a company, it must be able to identify those patents which present prime licensing opportunities. "We have a very strenuous due diligence process," says Robert Berman, general counsel for Acacia. "90-95% of the patents we receive do not pass our due diligence." After verifying the validity and identifying the potential for licensing, Acacia formulates a multifaceted licensing campaign that utilizes large-scale mailings of information packets, which often include licensing offers. "The rates are based on a variety of factors, including how integral our technology is to what they’re doing and how far along we are in our licensing program," explains Berman. "We look at each industry or each use of our technology separately and figure out what we think is reasonable including what benefit the infringer is getting from our technology, the amount and frequency of the use of our technology, and what the potential licensee can afford." Then, if companies refuse to purchase licenses from Acacia while continuing to infringe on their patents, Acacia sues for patent infringement.

Acacia finds new patent licensing opportunities from three sources. The first segment is individual inventors who don’t have either the money or the resources to license and enforce their own intellectual property (IP). "Historically, small inventors have been run over by large corporations in terms of intellectual property use. They have not been successful licensing large corporations," says Berman. "But when they have the name, money, and resources of Acacia behind them, the [big corporations] know that the inventor will not roll over and go away." The second segment consists of medium-sized companies who have spent the last few years developing their technology, but who may not have the capabilities in-house to monetize it. "They’re not in the IP enforcement business, and they don’t want to get into it," explains Berman, "but they see a lot of companies making a lot of money from their IP. We become in essence their in-house licensing departments. Large companies might use Acacia when they have a conflict or are afraid to enforce their patents because of a fear of countersuits for infringing somebody else’s patents." The third and final segment is large companies who, because of a conflict of some sort or due to a fear of countersuits, have to outsource their IP licensing needs.

The DMT patents were originally filed by two individuals, Paul Yurt and H. Lee Browne, and commonly are known as the "Yurt patents"; Acacia acquired them when they purchased a company called Greenwich Information Technologies. "[Yurt and Browne] both receive a percentage of the proceeds that are generated from their invention," says Berman. "Yurt continues to consult with Acacia with regards to the technical issues surrounding the DMT patents." Berman cites this continuing relationship to refute a common criticism of Acacia. "This argument that the only thing Acacia does is buy patents assumes that the inventor does not receive any benefit from Acacia’s activities is not true," says Berman. "What we are doing is leveling the playing field by giving inventors the opportunity to monetize all of their hard work."

Patent Abuse or Lawful Licensing?
However nobly Acacia may characterize its approach, some take exception to the sudden unearthing of what for many years were low-profile patents followed by claims that they cover nearly all forms of digital media transmission. "It’s OK to license a patent and litigate against people who are infringing," says Jonathan Singer, principal at Fish & Richardson, a leading patent law firm and counsel for the online adult video companies currently in litigation with Acacia. "The problem in this case is that this is a patent that dates back to 1991. To suddenly come out of the woodwork and say that this patent covers streaming over the Internet—it’s wrong to do what they’re doing."

While the validity of Acacia’s patent claims has yet to be fully determined, the letter of patent law seems to place them in the clear. "There’s nothing in the patent laws or the ethical code that says you can’t buy or obtain the patent from others, just as you could any other property right, and enforce it," says Marc Kaufman, a patent attorney at Nixon Peabody, LLP who sat in on the Acacia panel at Streaming Media East 2004 with Robert Berman. What’s more, he says, "They can selectively enforce the patent, and pick and choose defendants and venues for the trials."

Then there’s the issue of defining what constitutes "coming out of the woodwork." When asked the question, "How integral were the DMT patents in the development of the system that we use today?" Berman had no answer. That said, 194 other patents have cited the Yurt patents. This means that people who are filing other patents have read the Yurt patents prior to filing. Real, in their first patent, cited these patents, all the way back in 1994. But in the end it doesn’t really matter whether or not portions of today’s digital media transmission were influenced early on by Yurt’s patents or not. "We believe that Yurt and Browne invented this technology, and the U.S. Patent Office and 17 foreign patent offices agree with us," says Berman.

In essence, the U.S. patent system is set up as a race. Whoever makes public an invention by documenting its existence, proving its novelty, and being granted a patent first gets control of a mini-monopoly for the next 17 years on that invention as well as all later technology that infringes on any of the claim terms listed in the original patent. "Our patent system has been fundamental in encouraging innovation all way back to Ben Franklin’s time," says Berman. In the 21st century, however, the pace of technological innovation has outpaced the evolution of the U.S. Patent Office. "As a general proposition, the patent system right now is overburdened and needs an overhaul," explains Singer. "With Acacia, though, we’re talking about a patent that was granted in 1991, so what they’re doing is not part of that larger problem."