Interactive Channel Sues WorldGate

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Just weeks after settling a patent dispute with
interactive-TV provider ICTV Inc., WorldGate Communications Inc. is in someone's
crosshairs again -- this time those of Source Media Inc.'s Interactive Channel.

In a suit filed last Tuesday in the U.S. District Court of
Delaware, the two subsidiary companies of Source Media -- Interactive Channel Technologies
Inc. and SMI Holdings Inc. -- filed a patent-infringement suit, claiming that WorldGate is
stepping on four of its patents.

Tom Oliver, president of Interactive Channel, said Source
Media initially sent documents to WorldGate in November, citing the possibility of patent
infringement. Because there is a specific process that must be followed in patent
disputes, Oliver said, Interactive Channel waited until WorldGate's first commercial
launch before taking the next step.

"When you bring software products to the market, you
have to provide [cable] operators with assurances that the system that you're selling
them is patent-protected," Oliver said.

"The only way to do that is to make sure that your
intellectual property is protected, and the only way to do that in contract law is to go
after any and all alleged infringers."

Charter Communications Inc. was the first MSO to launch
WorldGate's "TVOnline" service, in its St. Louis system last month. An
executive who works there, who asked not to be identified, said there was "little
reason for unnecessary concern at this point" about how the suit will affect Charter.

Interactive Channel is seeking an enjoinment that prevents
WorldGate from infringing on its four patents and that asks for unspecified damages.

Hal Krisbergh, WorldGate's president, shrugged off the
suit, saying that it's one of many and that Interactive Channel's patents are
outdated remnants of the former J.C. Penney Co. "TeleChoice" project from the
mid-1980s.

Krisbergh -- who was discovered by The New York Times
last fall, and who, shortly thereafter, experienced a flurry of fame, with TV and
national-newsmagazine coverage -- said that what's puzzling to him is why Interactive
Channel opted to put the thumbs on him, and not on more well-heeled Internet-TV services,
such as Microsoft Corp.'s WebTV Networks.

"The TV set is a very broad platform ... we get people
that think that they have patents all of the time," Krisbergh said. "Why
they're coming after me, I'm not sure, but I'm certainly flattered."

He also said that he was surprised to learn of the lawsuit
via Interactive Channel's issuance of a press release, and not from a phone call from
one of Interactive Channel's attorneys.

Krisbergh added that WorldGate will "vigorously
defend" itself against the patent-infringement claims. He said he has reviewed the
patents in question, and nowhere in them is the word "Internet" used -- the
pivotal point of WorldGate's service, which aims to "connect the
unconnected" by delivering Internet content to TVs, rather than to personal
computers.

At the center of Interactive Channel's suit is what it
calls "frame-grabbing" technology, which Krisbergh said he does not use in
WorldGate's technique.

Notably, Interactive Channel won a similar suit against GTE
Corp.'s mainStreet interactive service three years ago, Oliver said.

When asked if Interactive Channel is attempting to buttress
its sagging revenues through lawsuit-induced licensing fees -- Century Communications
Corp. recently removed the service from its Colorado Springs, Colo., system, and it has no
other takers yet -- Oliver emphatically said no.

"We do not have a long-term business goal to sue
everybody, willy-nilly," Oliver said. "We like to think of ourselves as shrewd
businessmen. We think that we have a really hot technology, and we're going to defend
it with our lives."

Bruce Leichtman, an analyst with The Yankee Group, included
Interactive Channel's suit in a wave of similar moves in what is whipping up to be a
frothy litigious environment as interactive and digital services start to take off.

He pointed to cable-modem pioneer Hybrid Networks Inc.,
which is suing Com21 Inc. and which plans to go after other modem vendors for patent
infringement; as well as to Stanford Telecom's suit against Broadcom Corp. Leichtman
and other analysts said patent-violation claims are the norm in a period of emerging
technologies.

"When new things are rolled out, everybody wants to
lay claim," Leichtman said. "There was the whole Scientific-Atlanta
[Inc.]/StarSight [Telecast Inc.] thing, and this is the late-'90s equivalent of
that."

In its out-of-court dealings with Los Gatos, Calif.-based
ICTV, another interactive-TV rival, WorldGate agreed to license some of ICTV's
intellectual-property patents "concerning distribution of services from cable
headends -- putting the system at the cable headend, then allocating a session-by-session
arrangement," said Wes Hoffman, president of ICTV, in a recent interview.

ICTV will also license WorldGate's technique for
putting an out-of-band e-mail service on its platform, Hoffman said.

Krisbergh declined to comment on the ICTV situation, saying
that he was unsure what he was allowed to publicly discuss.

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