Patent litigants target DVRs

Forgent Networks, which has so far garnered more than $100 million in fees on its so-called JPEG patent, is going after the digital video recorder industry.

The Austin, Texas-based maker of licensing and scheduling software owns four patents it claims give it the right to collect royalties on computers or similar devices, such as those made by market leader TiVo, that record, store and play back video- and audio-transmitted signals.

While three of the patents primarily involve videoconferencing systems, patent No. 6,674,960 specifically addresses recording television signals to a computer.

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What's new:
Forgent Networks, which has netted more than $100 million dollars in fees on its so-called JPEG patent, holds additional patents that it says give it rights to royalties on DVR technology.

Bottom line:
It's unknown whether patents held by others predate Forgent's claims, which would thereby invalidate them. But Forgent's DVR patent plans could potentially roil a good number of tech companies.

More stories on DVR technology

The patents also predate patents and other intellectual property owned by other companies, Forgent Chief Financial Officer Jay Peterson said in an interview.

"You'll see activity on the DVR (digital video recorder) patents in the next three to nine months," he said. "We've got an early file date."

The patents haven't been tested in court, and it's unknown whether patents held by others predate Forgent's claims, thereby invalidating them. Nonetheless, Forgent's plans, considering the company's history, will likely roil a large swath of tech companies, as well as invigorate the rancorous debate between intellectual-property activists and patent holders.

The popularity of DVRs has made TiVo a household word--and a constant topic of takeover discussions on Wall Street--in just a few short years. DirectTV, Comcast and other broadband companies also offer DVR services, making them potential licensees, or defendants.

The computer industry has also jumped into the DVR game with Microsoft's Windows XP Media Center multimedia software. Nearly every major PC maker sells a unit with that version of Windows.

Still, DVR shipment numbers remain relatively small compared with PCs, which reached a record 177.5 million units in 2004, according to IDC. DVR shipments in the United States totaled 4.4 million in 2004, and the market is expected to grow to 10.7 million by 2008, according to research firm IDC.

The popularity of DVRs and the fanaticism of their owners currently far exceeds estimates of the size of the market for the technology. Shipment numbers may increase as cable and satellite giants duke it out for subscribers using DVRs, but video on demand is another programming tool that service providers will use in addition to DVRs.

The problem with patents
When it comes to DVR patents, enforcement is still somewhat up in the air. Many of those in the market are watching a case between two of the early DVR entrants: TiVo and EchoStar. The companies have been embroiled in a patent infringement case since January of last year.

While the applicability and viability of the DVR patents have yet to be determined by a court, one subject that will likely be a major issue of discussion is the date of Forgent's patents. The U.S. Patent and Trademark office granted the company's four patents in 2001 and 2002; the patent applications were all filed in 2000 and 2001.

The applications, however, derive from earlier, abandoned applications that stretch back to May 1991. Compression Labs, which Forgent acquired in 1997, filed the original applications.

TiVo filed the applications for some of the primary patents in 1998. The company has a number of patents, and recently acquired some from IBM. "Prior art" invalidates subsequent patents.

TiVo representatives declined to comment for this story.

The expense, scope and potential liability of patent and intellectual-property litigation has prompted calls for patent reform from a number of parties, although concrete solutions seem hard to come by. Some have called for an end to patents on software. Others have said that patent offices need to provide a method for early dispute resolution and better patent screening.

"The real issue is that we should only grant patents for truly new and nonobvious inventions," said Adam Jaffe, dean of Arts and Sciences at Brandeis University and co-author of "Innovation and Its Discontents: How Our Broken Patent System Is Endangering Innovation and Progress, and What to Do About It." "More examiners are needed at the patent office," Jaffe said.

Anatomy of a patent
If anything, Forgent has the wallet to put up a fight. Approximately four years ago, the company reviewed its patent portfolio and came across U.S. patent No. 4,698,672 awarded to Compression, which purportedly gave the company a patent on a method for compressing motion (that is, video) or still files.

Initially, Forgent tried to sell the patent to Compaq Computer to give it a counterclaim in its suit against MPEG LA, which revolved around motion compression patents. The deal fell through and Forgent more closely examined its claims

for still compression. In Forgent's opinion, the JPEG standard, used to compress images in cameras and on computers, infringed the "672" standard.

In the last three years, the company has struck licensing deals with 38 companies, Forgent's Peterson said, including Sony, Nokia, Sharp, Hitachi, Adobe, Macromedia and NEC. In all, Forgent has received more than $100 million in fees from these deals.

Is this a TiVo?

Forgent Networks owns four patents that it claims give it the right to collect royalties on computers or similar devices that record, store and play back video- and audio-transmitted signals. The abstract, or summary, for one of those patents, U.S. patent No. 6,674,960, reads as follows:

A computer-based television signal recording device is provided. This recording device allows for the recording of input streams onto a mass storage device such as a computer hard drive. The playback of individual programs can be done independently of the recording. A user interface is provided which has a list of the recorded television signals, and the user can select for playback any of the listed recorded television signals.

Generally, the royalty fees on devices such as digital cameras, where still compression is essential, are about 1 percent. A digital camera bought for $500, therefore, brings Forgent $5. The royalty on some software products is less, he said.

A lawsuit pending in the U.S. Northern District of California seeks damages from 40 defendants, including Dell. Four defendants have already settled.

Between 800 and 1,600 other companies could become licensees, Peterson added, depending in part on the outcome of the lawsuit.

"We believe that we have received only about 10 to 20 percent of the value (of the patents) so far," he said, meaning that damages, royalties and licensing fees from the patent could reach $1 billion.

A "Markman" hearing to determine the applicability of the JPEG patents in the pending suit will take place in September or October. While the trial would then be scheduled for nine to 12 months later, suits often settle after the Markman hearing. Markman hearings take place before a judge, rather than a jury, and set technical definitions that will later be used at trial to establish whether infringement took place.

The patents expire in 2006 in the U.S. and 2007 in Europe, but claims filed in the next two years will remain valid.

"The patent, in some respects, is a lottery ticket," Peterson said. "If you told me five years ago that you have the patent for JPEG, I wouldn't have believed it."

But he also asserted that no one should shed tears for some of the licensees. The Joint Photographic Experts Group, which set the JPEG standard, knew of the "672" patent while developing the standard, Forgent says. One bombshell the company will reveal at trial is a written note from a Japanese delegate discussing the patent.

"If you don't pay the inventors to be creating, there is a significant bust in the business model," Peterson said.

JPEG itself has hotly denounced Forgent's efforts to collect royalties.

Ironically, Forgent licensed the 672 patent under the MPEG standards committee. It brings in a much more modest $1 million a year to the company, Peterson said.

CNET News.com's Richard Shim contributed to this report.