Porn Valley- A federal court in California on Friday began the onerous task of determining whether a small high-tech firm owns the patents on how most video and audio is sent over the Internet.
Acacia Research is suing a small group of online pornographers for patent infringement. But thousands of Web site operators are watching the case, which has potentially broad implications.
“Every Web site with video, especially adult sites, could be forced to pay a nominal royalty,” says Frederick Lane III, author of Obscene Profits: The Entrepreneurs of Pornography in the Cyber Age.
The online porn industry in the USA relies heavily on video to generate a large portion of its $2 billion in annual revenue.
U.S. District Court Judge James Ware on Friday held the first of what could be several hearings to determine if Acacia owns broad video- and audio-streaming patents. A decision could take months, legal experts say.
Last year, Acacia began targeting dozens of companies to pay license fees. It secured royalties of 1% to 4% from adult Web sites, music sites and cable operators. Hustler, General Dynamics and Virgin Radio are among its more than 100 licensees.
But some businesses refuse to pay. “Acacia is the corporate equivalent of a leech,” says E. Michael “Spike” Goldberg, CEO of New Destiny Internet Group. The company, which provides video streaming and other technology to adult Web sites, is leading the legal battle against Acacia. Acacia sued New Destiny for patent infringement in February 2003.
If Acacia is successful, Goldberg warns, non-porn industries would also be affected – from cable and satellite providers to companies with streaming media such as America Online and RealNetworks. “It’s online taxation without representation,” Goldberg says. “It would have a chilling effect.”
Acacia, with patents several years old, says it merely is generating revenue from licensing fees rather than developing products from its ideas. “We provide a service for companies that don’t have the resources” to invent technology, says Rob Berman, Acacia executive vice president.
Acacia’s case not only could shake up sites that stream video and audio, but it underscores flaws in the U.S. patent system, say government officials and business executives.
The U.S. Patent and Trademark Office awarded about 180,000 patents in 2002, nearly twice what it did in 1990. Another 500,000 patent applications await approval.
The rapid proliferation of patent awards can sometimes lead to broad, murky patents – especially for software and Internet technology, which account for 15% of all patents, patent lawyers say.
Consequently, the Federal Trade Commission last year recommended stricter patent-approval standards.