Acacia Research Corp., the California-based company that claims it owns a patent covering all streaming video and audio technology, says it has reached an agreement with university attorneys that opens the door for schools to begin paying royalties on their distance-education programs and other applications where these technologies are used on campus networks. The Oct. 12 announcement represents a change in stance for the university community, which had shown little interest in two previous licensing agreements proposed by the company.

The accord is the first sign that the contentious two-year battle between higher-education institutions, which argued that royalty payments could bankrupt fledging distance-education programs, and Acacia, which claims it has a right to profits reaped as a result of its patented technology, is nearing an amicable resolution.

Schools that already have received letters from Acacia seeking royalties for streaming audio and video across campus networks now must decide whether to accept the company’s latest offer, which is good until Dec. 1, or wait to see if the company’s patents hold up in court.

If the patents–which are currently under review in a Northern California district court–are upheld, Acacia stands to make several millions of dollars a year off schools and universities. If they are ruled invalid, schools won’t owe the company a dime.

So, why should schools even consider purchasing a license from Acacia before the judge issues a ruling?

If the patents are upheld, Acacia then reserves the option to seek higher payments, explained Karlton Butts, vice president of licensing for Acacia’s Technology Group.

By signing a license now, he said, schools can lock themselves in at the reduced rate for the life of the patent–meaning that, no matter what happens, Acacia will never be able to charge license-holders more than what was originally agreed upon. If the judge rules against Acacia, schools would simply stop making payments, Butts said. Acacia, however, would not reimburse schools for any fees already paid.

Under the latest agreement, schools and universities would pay an annual licensing fee to Acacia based on their full-time enrollment, or FTE. For example, schools with enrollments of 1,000 to 5,000 students would pay $1,500 a year. Schools with as many as 10,000 students would pay $3,000 a year; for up to 15,000 students, the cost would be $4,000 annually; and for up to 20,000 students, the cost would be $5,000 a year. Schools with more than 20,000 FTEs would pay $5,000, plus an additional $1,000 for every 10,000 full-time students, according to the contract. Schools with less than 1,000 full-time students would be exempt.

According to official documents reviewed by eSchool News, the annual fee would cover all streaming and downloading of video and audio content on campus, whether for distance learning activities, library services, or personal use. The only exception would be virtual streaming of athletic events, which Acacia considers separate from educational use and, thus, a separate revenue stream for the school.

Butts said Acacia has been working to come up with a more attractive deal for schools. Realizing how difficult it is for universities to monitor accurately the flow of video and audio clips streamed across their networks, he said, the goal was to draft an agreement that both sides could support.

“When we first approached the schools, there was a lot a resistance,” Butts said. “We worked with schools as best we could to figure out a model that was both acceptable for them and acceptable for us.”

Butts says the new model is favorable for two reasons: (a) It engages a flat rate based solely on full-time enrollment, which means colleges and universities needn’t worry about tracking the streaming habits of individual users; and (b) the simpler measurement will enable participating schools to calculate how much they owe up front, without the hassle of audits and other time-intensive procedures.

“The revised license addresses many of the problems that schools had with the terms of the earlier Acacia proposals,” said Wesley Blakeslee, associate general counsel of The Johns Hopkins University (JHU) in Baltimore. A leader in the opposition to Acacia’s earlier proposals, Blakeslee worked with the company for “several months” to hash out the compromise, which he called “suitable for the non-profit educational community.”

Though he complimented the company for its willingness to restructure the deal, Blakeslee stopped short of endorsing it, saying, “It is up to each school to make its own decision on whether it needs or desires a license.”

Steve Worona, director of policy and networking programs at EDUCAUSE, an association of campus IT centers, said Acacia’s new offer of royalty-free licensing to campuses with enrollments under 1,000 “will be a very tough offer to turn down, especially for campuses with no on-staff legal counsel.”

“On the other hand,” Worona added, “the new offer does nothing to address the fundamental validity of the Acacia patent claims and whether those claims will ultimately be upheld. Many of the campuses who were motivated to resist or challenge the Acacia claims under the previous licensing terms will undoubtedly continue to resist or challenge.”

He noted, “A year or so ago, someone described Acacia in the press as ‘a bunch of predatory scum who are asserting a patent right of a dubious nature,’ and I doubt that the new licensing terms will change such viewpoints.”

Worona concluded: “It’s also important to note the increasing recognition in both the public and private sector that so-called ‘patent trolls’–whether or not Acacia is one–are a problem that needs to be addressed either legislatively or otherwise. Someone following these developments might feel even less motivated than previously to sign the Acacia license.”

Acacia’s Butts refused to say how many schools so far have responded to the accord. He also declined to say how many schools and universities Acacia already has entered into licensing contracts with.

But if the lackluster response Acacia received from schools following its first two licensing agreements is any indication of how schools will respond this time around, the outlook isn’t good.

Last year, eSchool News reported that a handful of universities and eLearning service providers, including Capella Education Company, Chapman University, Oral Roberts University, Park University, and the online 24/7 University, had inked agreements with the company (see “Acacia revises royalty demands“). But more than 40 universities and several digital-rights groups banded together to fight Acacia’s patent claims.

Once a relatively obscure technology research firm, Acacia began making waves in 2003 when hundreds of colleges and universities–including JHU, the University of Virginia, the University of Wyoming, and a number of schools in the Oregon State University system–received letters from the company demanding royalties for every video streamed across the internet.

In August 2004, the company sent a second wave of letters to all 4,000 colleges and universities demanding that they pay royalty fees or risk getting sued (see “Acacia to schools: Pay now or we sue“).

The letters came on the heels of a federal district court ruling that challenged the strength of several of Acacia’s patents. But that ruling, issued as part of an ongoing legal dispute between Acacia and a consortium of internet pornography providers, did little to dampen Acacia’s pursuit of royalty payments from schools.

In an interview with eSchool News last year, Acacia’s general counsel, Rob Berman, said the ruling merely called into question some of the terms used in select patents and did not actually invalidate the patents themselves.

“The whole thing was really sort of blown out or proportion by people who don’t really understand what the law is all about,” he contended.

At press time, Acacia still awaited a ruling on several royalty disputes with other media outlets, including various adult-entertainment, cable, and satellite providers. The cases, which originally were spread out in several courts across the country, were recently consolidated under one judge in the Northern California district court system, said Butts, who could not say when a ruling on the joint cases is expected.

Originally, Acacia had wanted schools to pay $5,000 and up to a 2-percent royalty for every audio and video clip streamed by students and professors. But Acacia scaled back those plans in 2004, reducing the minimum fee to $1,000 and giving schools a choice of two payment options.

Even this revised agreement met with steep opposition from several schools. Critics called the company’s patents “bogus” and recommended that schools let the situation play out in court before opening up their checkbooks to the little-known company from Newport Beach, Calif.

Before approaching schools, Acacia first took its claims to providers of streaming media in the business world, reaching more than a dozen such settlements with online entertainment companies–from small-time purveyors of digital pornography to the giant Walt Disney Co.

But none of the previous disputes garnered nearly as much attention as Acacia’s bid for royalty payments from schools.

“We are pleased that we have reached an accord with attorneys from the university community,” said Acacia Chairman and CEO Paul Ryan. “We look forward to eligible schools signing on by the deadline.”

By last count, more than 304 companies, media providers, and other institutions had signed licensing agreements with Acacia.

While the new agreement is likely to entice more schools to sign on, Butts said, Acacia doesn’t expect it will be enough to win over the most adamant holdouts.

“Not all schools are going to like it, not all schools are going to sign up for it,” he said. “It’s really up to schools to make that decision.”


Acacia Research Corp.