Schools offered new video royalty deal

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.


San Diego teachers making tech a priority

The San Diego Union-Tribune reports on local elementary school teachers who are really embracing technology. More teachers are recognizing their students are so tech-savvy that teachers must have technology in the classroom or risk boring them. “Technology is what happens in real life. We need to teach them,” says one local parent, who expresses concern that his children will be left behind if their school doesn’t change with the times.


Va. students debate value of laptop initiative

In a column for her high school newspaper, the Cave Spring Edge, senior editor Emma Berry criticizes a laptop initiative in Roanoke County, Va., for being misguided. She argues that giving laptops to wealthy students who have computers at home is a waste of money, and she also points out that the district is forcing students to use technology for the sake of technology and not for real learning goals. Although Berry comes down hard against the laptops, fellow student Nilam Pate argues in favor of the program, pointing out that it has made backpacks lighter and studying easier.


‘Submarine patents’ menace innovation

Amid the waves of high-tech progress, an ominous new phenomenon has emerged: the “submarine patent.” As the name implies, critics say, such patent claims sneak in undetected and could effectively torpedo technological innovation.

The pattern is ominous: A technology such as streaming video or voice over the internet becomes popular and is widely adopted by schools, colleges, businesses, and consumers. Shortly after this technology becomes widespread and firmly entrenched, an obscure company fires off a letter from its attorneys claiming to own the rights to the underlying technology. Usually, the ownership claims are challenged. Lawsuits are filed and lead to lengthy litigation. As the legal machinations drag on, the company claiming ownership makes a seductive demand: Pay now, before the lawsuits are settled, or face a much steeper fee if the legitimacy of the patent is upheld.

As the accompanying report explains, a firm called Acacia claims it holds a patent covering the technique for streaming audio and video over the internet, and its demands of royalty payments from schools using internet streaming services, illustrate fundamental problems with the U.S. patent system that won’t improve until the system is revised, patent experts say.

Critics of the U.S. patent system–including the Electronic Frontier Foundation (EFF), a nonprofit group of volunteers and legal experts working to defend consumers’ digital rights–say the system is ill equipped to deal with today’s rapid pace of technology innovation.

The problem is particularly acute in the software and internet fields, EFF says, where the history of prior inventions is so widely scattered and often is poorly documented. As a result, the group says, the U.S. Patent and Trademark Office has issued many excessively broad patents that threaten innovation and ultimately hurt consumers.

Consider these other examples:

  • C2 Global Technologies (formerly Acceris Communications) claims to hold a patent covering the foundation of any voice-over-IP (VoIP) system using analog telephones as endpoints. The company reportedly has threatened at least 14 VoIP companies with expensive legal disputes if they don’t pay it licensing fees. According to EFF, C2’s “overbroad” patents cover nearly all current implementations of VoIP technology, thus crippling the progress of small VoIP developers and undermining the ease of communication online.

  • Mankato, Minn.-based Firepond Inc. holds a patent for an automatic message interpretation and routing system that uses natural language processing to respond to customers’ online inquiries by eMail. Firepond’s patented technology “uses basic natural language processing techniques taught in introductory computer science courses,” according to EFF. Yet the company is using its patent to threaten or sue other companies in the natural language processing software market, “thus making it difficult for developers in the field to create new products that are related to customer service or eMail,” the group says.

  • In March, Research in Motion–maker of the Blackberry wireless eMail device–agreed to pay NTP $450 million to resolve an ongoing patent dispute, according to the New York Times. NTP claims to own a patent covering the wireless transmission of eMail, and the firm’s only business is extracting licensing fees for this concept from other companies, the Times reported.

    Acacia, C2, and Firepond are among 10 companies or individuals targeted by EFF in a campaign called Patent Busting, which aims to challenge overly broad technology patents by petitioning the U.S. Patent Office to reexamine them. And the group isn’t alone in its criticism of the patent process.

    “There’s a very broad consensus that something needs to be done about patents, especially when it comes to software,” said Will Rodger, director of public policy for the Open Source and Industry Alliance, a group committed to the use, development, and sustainability of open-source software. “Large corporations feel that patents, instead of helping them, are harming them.”

    Between 50 and 100 major patent lawsuits are launched each year, Rodger said, and this figure doesn’t include cross licensing, out-of-court settlements, or companies whose software development might be held up by a looming patent.

    “Patents, like copyrights, are supposed to give incentives to invent,” Rodger said. Instead, the system has created a “patent thicket” and a “disincentive to invent.”

    He added, “Now we have a situation where patents are being sought for mutual assured destruction.” Time and again, he said, companies–armed with large patent portfolios and the threat of fining each other millions of dollars for patent infringement–forcefully negotiate agreements with each other.

    The result? The cost of litigation is passed on to the consumer–including schools. Plus, this flawed patent system harms innovation, creates fewer choices for consumers, and shuts down collaborative invention, especially among smaller companies, Rodger said.

    Much of the problem stems from the quality of patents issued by the federal patent office–some of which preclude users and developers from freely using basic computer and internet functionality.

    Companies are reaping huge profits from their patent claims. For example, Intergraph Corp. CEO and President Halsey Wise said on Jan. 21, after announcing a $141 million settlement with Hewlett-Packard Co., that his company has made $860 million in pre-tax income since 2002 by enforcing its intellectual property rights. Because of its patents, the company has received $10 million from Gateway, $225 million from Intel, and $18 million from Texas Instruments.

    “Every single day, I see a new technology that is having trouble getting to market because of patent claims,” said Gary L. Reback, an attorney with the Carr and Ferrell LLP Litigation Practice Group in California. It costs at least $1 million to try a patent case, not to mention the additional costs incurred by settling out of court, Reback said.

    Reback wrote an article called “Patently Absurd” for Forbes magazine in 2002, in which he described a situation where IBM lawyers reportedly approached Sun Microsystems and demanded that it pay IBM $20 million for infringing on seven patents. When Sun’s lawyers said they would fight these demands in court, IBM’s lawyers reportedly said, “Maybe you don’t infringe these seven patents. But we have 10,000 U.S. patents. Do you really want us to go back to Armonk [IBM headquarters in New York] and find seven patents you do infringe? Or do you want to make this easy and just pay us $20 million?” Sun decided to pay up.

    But now, “it’s gotten so bad that IBM–a company that may be seen as a bad guy in this, because they keep stoking the U.S. Patent Office for patents–now IBM’s Linux implementation is being impeded by SCO Group,” Reback said in a telephone interview. Essentially, the monster is being eaten by its own spawn, he explained. (See “Suit threatens open-source movement.”)

    SCO’s lawsuit appears to have prompted a change of heart for Big Blue. Earlier this year, IBM promised access to 500 of its software patents to open-source software developers. Opening up its patents, IBM said, will help foster innovation and encourage broader software interoperability.

    Less than a week later, Sun Microsystems said it would give open-source software developers free access to 1,600 OpenSolaris-related patents from its own intellectual property portfolio.

    “Addressing the patent system that is under siege, Sun’s pledge of open access reduces the quagmire for developers who previously had to walk through a minefield to avoid infringement and enables them to confidently produce derivative works without fear of reprisal or patent claims,” Sun said in a press release.

    The Open Source and Industry Alliance says the goodwill of companies alone won’t fix the “quagmire” created by the U.S. patent system. Policy changes are needed.

    Two reports have been published calling for patent reform–one by the U.S. Federal Trade Commission in October 2003, called “To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy,” and another by the U.S. National Academy of Sciences in April 2004, called “A Patent System for the 21st Century.”

    In June, U.S. Rep. Lamar Smith, R-Texas, introduced a bill called the Patent Reform Act of 2005 (H.R. 2795), which would implement many of the changes suggested in these reports. Though subcommittee hearings were held to discuss the bill’s merits, no further action had been taken as of press time.

    Despite proposals to fix the patent system, some experts are doubtful that the necessary changes will be made.

    “They may come out with tweaks and critiques of the patent system, but there won’t be any true reform,” said Dan Ravicher, executive director and founder of the Public Patent Foundation, which represents the public’s interest in patents.

    He says patent office’s incentive to process applications needs to change. The office currently grants patents valid for 20 years to companies that apply for them and pass a three-pronged test: the idea has to be original and never done before (in the patent world, this is called having “no prior art”); the idea has to be non-obvious; and the applicant has to have done it and perfected it.

    The office, Ravicher said, is paid through yearly appropriations based on the number of patents it issues–and therefore it has an incentive to process as many applications as possible. Also, there are no repercussions for errors made by patent examiners.

    As result, the office has a reputation for issuing patents for whatever companies want, and the demand from companies is growing every year, Ravicher said. “Of course they are going to have people beating down their door to get patents,” he said. “It’s a huge business.”

    Reback echoed this thought, saying: “The whole notion of the more patents, the better, is what got us into this mess in the first place.” He added, “The whole purpose of the patent is to promote invention. The purpose of patents is not to reward the inventor and shareholders.”

    Others say the quality of patents is low owing to insufficient staff to accommodate the number of applications, as well as high turnover and a lack of training and knowledge of business practices.

    The U.S. Patent Office “has been deluged with patent-filing applications,” said Mike Kirk, executive director of the American Intellectual Property Law Association, which organized a series of patent-reform town hall meetings last spring.

    “It’s taking longer and longer to get patents through the office. It can take 100 months to get a patent,” Kirk said. That’s long time, he said, especially when you consider that the shelf life of most software is 18 months.

    Experts say there are a number of changes to patent laws that would make it easier to challenge and overturn a overly broad patent.

    Lowering the burden of proof required to challenge a patent from “clear and convincing evidence” to “a preponderance of the evidence” would be a big help, because clear and convincing evidence is much harder to prove. “There’s a presumption in patent law that once a patent has been issued, it is valid,” Ravicher said.

    Software vendors are reluctant to research for existing patents because of the threat of willful infringement, Rodger said. “Lawyers are encouraging people not to do searches for patents, because you are triply liable if you knew about a patent but released the invention anyway,” he said. “The whole thing has just gone topsy-turvy.”

    He concluded: “None of this was supposed to happen. Patents originally were only supposed to be awarded to really original thinkers.”

    Cara Branigan, former associate editor for eSchool News, and Managing Editor Dennis Pierce contributed to this report.


    United States Patent and Trademark Office

    “To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy”

    “A Patent System for the 21st Century”

    Electronic Frontier Foundation

    Open Source and Industry Alliance

    Public Patent Foundation

    American Intellectual Property Law Association

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