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Rights to JPEG Patent Questioned

Compression Labs is suing 31 of the biggest names in tech for their use of patented JPEG technology.

Short for "Joint Photographic Experts Group," JPEG is a lossy compression technique for color images and widely used for displaying photographs and graphics on Web sites.

The Austin, Tex.-based video technology developer is a wholly owned subsidiary of Forgent Networks , a vendor of scheduling software -- and IP. After two years of fruitless negotiations, Compression Labs told manufacturers this week it's time to pay up.

Its United States Patent No. 4,698,672 covers the digital still image compression used in the JPEG file format, and the company has been going after an A-list of companies that make digital cameras, printers, scanners, PDAs, cell phones and software that let users save as JPEG.

The 31 accused patent infringers include Adobe Systems, Apple Computer, Concord Camera, Gateway, HP, Kyocera Wireless, PalmOne and Xerox.

Forgent acquired the '672 Patent along with San Jose, Calif.-based Compression Labs, a company it bought in 1997. Compression Labs was awarded the patent in 1986, but never collected royalties or asserted its rights.

Two years ago, long after JPEG had become an industry standard as well as a technical one, Forgent (formerly known as VTEL) began demanding licenses. Director of investor relations Michael Noonan told internetnews.com that before that time, the company hadn't given Compression Labs' patent portfolio any attention.

"It wasn't until we went through a restructuring in 2000 that we started to look at the patent portfolio and realized we had this great opportunity," said Noonan. When asked if it was fair to begin a licensing push so long after the fact, he said, "It's not question of fairness, it's a question of, this is what we have."

According to the company's most recent SEC filing, IP licenses accounted for 83 percent of the company's total revenues for the quarter ending January 31, 2004. Licenses brought in $5.8 million, down from $7.3 million in Q1 2003, with a total of around $90 million coming in from licenses to 30 companies during the last two years. Forgent offers a license in perpetuity for a one-time fee; Noonan wouldn't disclose the terms, but said that the $16 million it charged Sony was comparable.

The defendants could win by playing the waiting game. Earlier this year, the Federal Trade Commission opened a private investigation to determine whether Compression Labs played fair during the Internet Engineering Task Force's (IETF) standards-setting process for JPEG, which took place in the late 1980s and very early 1990s. If it decides the company acted improperly, for example by not disclosing its patent application, the FTC could ask the U.S. Patent & Trademark Office to invalidate the patent. The company says Compression Labs did nothing wrong.

"Our patent was on the public record, and the writers of the patent at Compression Labs had been known as leaders in compression technology," Noonan said.

But Forgent has other patents up its sleeve. In February, it was awarded three new patents for a new process that creates a visual representation of a videoconference, a method of controlling acoustic echo cancellers and a process for improving digital video processing. The echo canceller controller could be used in landline, mobile and voice-over-IP communications, according to Noonan, while the digital video processing has use in video-conferencing.

Noonan said that with around 40 patents in hand, the company is looking at other licensing opportunities.