A battle being fought by porn producers this week in a California Court could end up costing billions to media giants like AOL-Time Warner.
Acacia Research is suing New Destiny Internet Group, which operates X-rated site HomeGrownVideo.com, for patent infringement.
A U.S. District Court for the Central District of California Tuesday issued injunctions, resulting from Default Judgments, against five other adult entertainment companies for violating Acacia’s patents.
Newport Beach, Calif.-based Acacia, which has biotech and media technology divisions, is on a licensing rampage, sending letters warning companies that they are infringing on Acacia patents covering audio on demand, video on demand
If Acacia prevails, it could go on to demand licensing fees from any company that transmits digital media over Internet, cable television, and wireless systems.
Its first target was the adult entertainment industry. In July 2002, it began sending out two rounds of letters to webmasters and operators of sites offering X-rated audio and video. The first was a simple letter saying it believed the company was infringing on Acacia patents. The second mailing contained a glossy packet about the company, substantial information about the company’s patents, a licensing agreement — and a copy of a lawsuit Acacia had filed but not served against the recipient company.
Acacia senior vice president of business development and general counsel Rob Berman said money was the motive for targeting the adult industry first.
“Before we launched [our licensing campaign],” he said, “we studied all the markets that might be potential infringers and came up with a variety of groups. One of first was the adult entertainment industry. They’ve been making money at it. The movie and music sites just started and haven’t been doing very well. But adult entertainment is a $3 billion industry.”
Berman said that soon after mass mailing porn companies, Acacia began letter writing campaigns to other sectors, including music sites, movie sites, cable companies, in-room entertainment providers and e-learning companies.
“Unlike the other industries, the adult entertainment industry basically ignored us,” Berman said. ” So we filed and initiated litigation.” Berman said it’s not his company’s preferred strategy to sue, “But they gave us no choice.”
Executives at the X-rated companies were at first bemused, then bewildered by Acacia’s complaint. Then they got mad. The first letter to Destiny was dated August 13, but Spike Goldberg, Destiny’s CEO, said it was mailed to a seldom-used PO box and he didn’t receive it until late October, a couple weeks before the second, more threatening letter arrived. A third letter, dated December 16, one day after Acacia’s deadline, offered an extension and a face-to-face meeting at a January trade show.
Goldberg told internetnews.com he had his engineers review Acacia’s material, then lawyered up.
“We had already come to the conclusion these were not patents we were violating, and we didn’t think they were valid,” Goldberg said. “[Acacia] didn’t invent streaming.” By the end of January, Destiny had retained patent experts Fischer Richardson. “The realization hit us that these were guys who would spend $40 million to destroy us,” Goldberg said. “The only chance we had was to find a law firm at top of the game.”
Meanwhile, on December 4, a group of about 50 members of the adult entertainment industry gathered to plan for war. They soon formed the Internet Media Protective Association (IMPA), a paid membership association of firms allied to fight Acacia and any future such wrangles.
On July 16, Acacia announced that it had received default judgments against five adult entertainment companies: Extreme Productions, Go Entertainment, Lace Productions, WebZotic LLC, and Wild Ventures, LLC. The press release claims, “The injunctions prohibit these companies from infringing Acacia’s DMT patents by transmitting compressed digital video information from any of their websites.” The court ruled in Acacia’s favor because these companies never responded or defended the suits.
Goldberg says that could be because these companies are out of business. “None of us have ever heard of them,” he said.
Despite the civility of its letters, Acacia created bad blood in a highly entrepreneurial and independent industry. Farrell Timlake, the president of Homegrown Video, posted on an industry message board site, “A company called ACACIA is threatening our entire community, from content companies to amateur webmasters, with a lawsuit aimed at requiring anyone using online video, streams, server push, or downloads, to pay an exorbitant license fee.”
The pornmasters also objected to language in the lawsuit complaining that the defendant &. “derives substantial revenue from sales of adult-oriented, sexually explicit digital video audio and/or audio-visual content&” On May 12, 2003, New Destiny asked the court to strike the four-word content descriptor, saying it was immaterial, impertinent, scandalous, and highly prejudicial.” But Acacia responded that the fact that New Destiny offered sexually explicit content was central to the case because vendors in the adult industry made higher than average profit margins from their content.
Berman has his own objections to some of the language used by the X-rated entertainment companies he’s threatened to sue. One e-mail response to his missive began, “Hey, Mr. Douche Bag (sic), go f*** yourself.” Berman says, “In many instances, [these companies] are their own worst enemy.”
Going after the little fish first is a common strategy, according to Joe Swan, a partner in the Los Angeles law firm Mitchell Silberberg & Knupp.
“They sometimes want to go after the smaller players because you can score wins easier than going up against someone who has lots of money, which can make for a bigger drawn out battle.” Once a company has won cases or settled, it’s easier to win others, Swan said. “Those victories or settlements give you added credibility and indicate that your patents are enforceable. That makes other companies more willing to sign license agreements.”
The two parties will next square off in court on July 28. Meanwhile, Goldberg is beating on the doors of the major media companies, trying to get their attention long enough to warn them that they might be next.
“I want to point out to AOL, ‘This is a situation that will affect you,'” Goldberg said. “We’re just their appetizer.”
