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Forgent Sets Sights on PVRs

Forgent , which already has several claims pending, unleashed a new wave of patent litigation, this time against companies using digital video recorder technology.

On Thursday, the Austin, Tex.-based company dropped paper on 15 others, claiming they infringe U.S. Patent No. 6,285,746 (the '746 Patent). Defendants include: Cable One, a subsidiary of The Washington Post Company , Charter Communications , Comcast , Cox Communications, EchoStar Communications , The DIRECTV Group , Time Warner The '746 Patent relates to a computer-controlled video system that allows playback during recording. During playback, the system reads the video content from a storage component, such as a hard drive. Many personal video recorders and advanced cable boxes use this strategy. The patent expires in 2011.

Michael Noonan, Forgent's senior director of investor relations, said the litigation followed unsuccessful attempts to license the intellectual property, and that other suits may follow.

"We're evaluating all potential claims and defendants, with our attorneys and technical experts," he said.

"Any time there's a new development or new technology, and where the technology is widely used, that's when the chance of a lot of lawsuits increase dramatically," said Steven Szczepanski, a partner at Kelley Drye & Warren, a law firm not involved in the case. "There's a big upside to winning one of these lawsuits."

Forgent is in the midst of other patent infringement suits relating to U.S. Patent No. 4,698,672, which covers the digital still image compression used in the JPEG file format. JPEG is a lossy compression technique for color images that's widely used for displaying photos and graphics on Web sites.

In April 2004, Forgent went after 31 companies making use of the JPEG standard. The targets included 31 accused patent infringers include Adobe Systems , Apple Computer Concord Camera , Gateway , HP , Kyocera Wireless, PalmOne and Xerox .

Forgent took on Microsoft in April 2005, suing for infringement of the JPEG patent after Microsoft asked the U.S. District Court to make a declaratory judgment that the patent was invalid and unenforceable, and that Microsoft did not infringe it. Claim construction for Forgent's suit against Microsoft, the process whereby the court decides how words in the patent should be defined, is set for February 2006.

According to its fiscal third quarter financial statement, JPEG licenses brought in approximately $0.6 million, down from $0.9 million the previous quarter. Total revenue was $1.2 million for the fiscal third quarter, compared to $1.6 million for the 2005 fiscal second quarter; Forgent also makes money from its NetSimplicity software business, which provides applications to schedule conferences, meeting rooms and catering.

Noonan said the revenue dip was partly due to the expense of attorneys' fees, but also to the uncertainties of the licensing business.

"Certainly legal expenses have been fairly high over the last three quarters, probably $1 million higher than normal," Noonan said. "On the reverse side, it's very difficult to predict licensing revenue. It sometimes comes in lower or higher than you expect."

The JPEG patent will expire in 2006, but Forgent still will have the right to go after companies for damages during the years the patent was in force -- unless the patent is invalidated.

Earlier this year, the FTC opened an investigation into whether Compression Labs, the originator of the '672 JPEG IP, held out on the Internet Engineering Task Force during the standards-setting process for JPEG, which took place in the late 1980s and early 1990s. Forgent bought Compression Labs in 1997.

Noonan said Forgent complied with the FTC's subpoena, sending everything the agency requested, and hasn't heard anything more.

He pointed out that the two law firms working on the DVR patent litigation, Godwin Gruber and The Roth Law Firm, are working on a straight contingency basis. "This shows the strength our partners believe the patent has," Noonan said.

Companies on both sides are playing chicken, Szczepanski said. If companies don't respond to license offers, the patentee has no choice to sue. "That increases the stakes, because the patentee now is going to spend extra money preparing. So the deal the potential licensee can get after the suit is filed is not as good as before. But if the potential licensee feels they have a good defense, they may decide to take a chance."

If they lose, Szczepanski said, the damages could end up much higher.



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