News

Suits Target Digital TV, Net

2/15/2008 7:00 PM Eastern

A suburban Philadelphia firm whose sole business is to buy up technology patents is trying to force large cable operators and major broadcasters to pay substantial license fees on the transmission of digital TV signals and Internet services.

If successful, the firm, Rembrandt IP Management, could pull in big money from the enforcement of patents related to the cable industry’s standard for connecting customers to the Internet and potentially throw a financial monkey wrench into the broadcast industry’s mandate to transmit all TV signals in digital form by a year from now.

In the worst-case scenario, Rembrandt’s litigation may undermine the ability of industry bodies to set technical standards whose uses are meant to be widely available for “fair and reasonable” patent-licensing fees.

Wide Net
Rembrandt IP Management has sued cable operators, broadcasters and a TV-set maker:
Target Rembrandt’s Allegations Damages Sought
SOURCES: Court filings, Multichannel News research
Comcast, Time Warner Cable, Cox, Charter, Cablevision Data services infringe on eight patents, purportedly related to DOCSIS. Video services infringe on ATSC digital TV transmission patent. 0.5% of revenues generated from alleged patent infringement
ABC, CBS, NBC, Fox Services infringe on the ATSC patent 0.5% of revenues generated from alleged patent infringement
Sharp Electronics TV sets infringe on the ATSC patent Unspecified

NINE PATENTS CITED

In cases originally spread across federal courts in Delaware, New York and Texas, Comcast, Time Warner Cable, Charter Communications, Cox Communications and Cablevision Systems face claims that their cable-modem services infringe eight patents now held by Rembrandt, and that their video services violate a ninth one related to digital-TV transmission.

Separately, ABC, CBS, NBC Universal and Fox — as well as manufacturer Sharp Electronics — face suits alleging infringement of Rembrandt’s patent on digital TV transmission.

Rembrandt is hoping to win hundreds of millions of dollars from the suits, which have been previously reported by Forbes, EE Times and others.

According to an attorney close to the litigation, the firm has sought to collect half of 1% of all revenue generated from services that allegedly infringe on the data and video patents.

From the broadcasters, that could start at $90 million per year or more. Beginning Feb. 18, 2009, all over-the-air TV programming will be transmitted in digital form. And, in 2006, broadcasters took in $18 billion in advertising on the shows they sent to company-owned and affiliated stations, according to PricewaterhouseCoopers.

The impact could also be huge for cable operators, which provide broadband service to an estimated 36 million customers and retransmit digital TV signals from local TV stations.

For example, a half-percent cut of Comcast’s 2007 data revenue alone would have totaled $32 million, according to Multichannel News calculations.

Patent litigation is nothing new. Claims of infringement are regularly lobbed against big companies by “patent trolls,” a scornful term for companies that do not produce products or services, but acquire intellectual property and make money from other people’s inventions.

Rembrandt, however, has embarked on an especially sweeping assault. It is attacking two key technology standards used by the cable and broadcast industries, CableLabs’ DOCSIS and the Advanced Television Systems Committee’s digital-TV spec.

“If they’re successful, this could affect everything from the cost of cable service to the price of TVs,” said the attorney close to the litigation, who spoke only on condition of anonymity.

WIN IN TEXAS

There’s cause for concern: Rembrandt won its first significant legal victory earlier this month. A federal jury in Marshall, Texas, on Feb. 6 awarded Rembrandt $41 million after finding Novartis’ Ciba Vision eye-care unit had infringed on a patent — bought by Rembrandt — covering a treatment for contact-lens surfaces. Ciba Vision spokeswoman Amanda Cancel noted there has been no court order and declined to comment “on pending litigation.”

Representatives for the cable companies, broadcasters and technology manufacturers involved in the cases, as well as CableLabs, declined to comment for this story.

When Multichannel News requested an interview, Rembrandt executive vice president Barry Ungar replied in an e-mail: “Sorry, but I’m really swamped.”

But Ungar told Forbes magazine, regarding the Ciba judgment: “We are really gratified about the verdict. The jury verdict validates our business model.”

The firm, bankrolled by hedge funds to the tune of $150 million, has bought up more than 200 patents.

Rembrandt was founded in 2004 by CEO Paul Schneck, a former NASA engineer described by his company as “an internationally accomplished scientist.” The firm’s site says it offers “ample funding to pursue exploitation and licensing of intellectual property for companies and inventors that require solid resources.”

VENDORS FIGHT BACK

Since Rembrandt filed its original suits, equipment manufacturers have turned the tables on the patent litigator with legal actions of their own, as the targeted operators and broadcast networks requested indemnification protection from their vendors.

On the cable front, Motorola, Cisco Systems, Arris, Thomson, Ambit Microsystems and Netgear filed a complaint last November for declaratory judgment against Rembrandt, asking a federal court to affirm that their cable-modem products don’t infringe on the patents in question. They also assert that the patents are invalid, anyway.

“Rembrandt did not invent the technology in the patents,” the vendors said in their suit. “Rembrandt also did not invent DOCSIS or contribute to the development of DOCSIS.”

The suit is pending in Delaware’s federal district court, where a federal court panel consolidated the other Rembrandt cable and broadcast cases.

Digital broadcast-equipment vendor Harris, meanwhile, is fighting Rembrandt in Delaware state court in relation to its broadcast customers’ use of its ATSC-based gear.

When Harris approached the firm about licensing the patent, according to court documents, Rembrandt refused to provide fair, reasonable and nondiscriminatory (FRAND) licensing terms.

To Harris, that represents a breach of contract, because AT&T — the previous owner of the ATSC-related patent — in 1995 agreed to license intellectual property on FRAND terms to anyone employing the digital TV spec.

Rembrandt in December 2004 acquired that patent, along with others allegedly pertaining to DOCSIS, for a reported $1 million from communications-equipment maker Paradyne. Paradyne, once owned by AT&T, is now part of Zhone Technologies.

POTENTIAL PENALTIES

A win by Rembrandt in these cases could force manufacturers to pony up hefty fees for any ATSC-based and DOCSIS gear. Or, the firm’s victories could force anyone using the patented technology in the actual transmission of a digital-TV signal (the broadcasters) or redistribution of the signal (cable operators) to pay fees as well.

But, if Rembrandt’s trolling gets court support, the result would inflict serious problems on companies in any industry which relies on technology standards, according to the lawyer involved in the proceedings.

“If Rembrandt is allowed to succeed with their position,” the lawyer said, “the commitments people make to standards bodies become worthless.”

To date, no court has ruled for or against Rembrandt in any of its numerous suits involving the cable-modem and digital TV patents.

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