Another Patent Troll Attacks Industry
But there is another very important type of intellectual property that is all too often overlooked by adult entertainment companies — patents.
As success in the adult entertainment industry becomes more and more dependent on how well a company exploits technological innovation (the domain of utility patent rights), the more important it is for adult entertainment companies to have at least a fundamental understanding about the intellectual property rights involved in patents.
There are two primary reasons why patents are becoming an increasingly important issue for the adult entertainment industry. First, because very expensive patent infringement lawsuits are increasingly being brought against adult entertainment companies. And second, because more and more adult entertainment companies are securing and exploiting patents pertaining to their own innovations to obtain competitive advantages and generate greater revenues.
There are now a large and growing number of issued patents pertaining to technologies that have become the foundation of the modern adult entertainment industry.
These include patents involving online content distribution technologies, live videoconferencing, online dating, social networks, geomarketing, geotracking, haptics, virtual worlds, and almost every other technology either used by the adult entertainment business today, or likely to be used by it in the future.
The growing number of patents involving technologies commonly used by adult entertainment companies is an important matter with serious ramifications for adult companies because the patent owners possess the broadest and most powerfully enforceable of all the intellectual property rights provided by law. This is because patent owners wield the power of a government enforced monopoly resulting from the patent owner's right to exclude others from making, using, offering for sale, or selling the invention in the U.S. or importing the invention into the U.S.
Neither copyrights, trademark rights nor any other intellectual property rights come close to the scope and depth of patent rights or the amount of liability that can often result from patent infringement.
For example, unlike copyrights, which allow for the use of copyrighted material by non-owners for purposes of parody and other so-called fair-use exploitations, there are no similar exceptions to the patent monopoly. If a party, even innocently, infringes a patent, they are liable for damages, period. And when it comes to damages for patent infringement, the sky is the limit.
For example, not long ago, Sony Corp. was held to be an infringer of patents pertaining to certain tactile sensation simulation technologies owned by Immersion Corp. The amount of damages Sony was required to pay to Immersion Corp. amounted to more than $150 million. Now if you are thinking that a damage award of that size must be unprecedented or that a case like Immersion vs. Sony couldn't possibly involve the adult industry, you'd be wrong on both counts.
Patent damage awards over $10 million are common, and larger awards have ranged as high as the $1.5 billion award to Lucent Technologies in a patent infringement suit against Microsoft (Lucent Technologies, Inc. vs. Gateway Inc. and Microsoft Corp.).
Further, it may surprise you that Immersion Corp.'s victory has a direct connection to the adult industry. This is because the exclusive patent rights exploited by AEBN regarding its revolutionary Real Touch haptic product come from patents owned by none other than Immersion Corp.. In light of Immersion Corp.'s conclusive defense of its patent rights, here is a sidebar word to the wise: don't even think about knocking off the Real Touch or any of AEBN's future haptic products.
Many adult industry participants hold significant patents with adult industry applications, (including many that were awarded as a result of representation before the U.S. Patent and Trademark Office by me or another licensed patent attorney at my firm). But to date, the biggest patent litigation threats to the industry to date have come from outside the industry.
For example, six years ago scores of companies in the industry were forced to deal with lawsuits filed, or threatened to be filed, against them by Acacia Media Technologies claiming that the adult companies infringed Acacia's patents dealing with streamed media. The Acacia lawsuits are now infamous in the industry due to their enormous legal costs to adult companies, running into the millions of dollars over the six years it took for the defendants to prevail at the trial level.
The Acacia case is also famous in the industry, however, as a shining example of multi-company cooperation in which a large group of defendants, organized and financed in large part through the extraordinary efforts of VS Media (owner of Flirt4Free) defeated a wellfinanced company specializing in the business of bringing patent infringement actions.
Companies like Acacia are often pejoratively termed "patent trolls" by many patent attorneys. This is because, in its broadest sense, a patent troll is an entity that generates revenue exclusively from enforcing patent rights rather than developing products that embody the technologies underlying its patents. There has been a marked increase in patent-troll activity against the adult entertainment industry in recent years as more and more patents are issuing that cover technologies used by adult entertainment companies.
As a result, responding to lawsuits or threats of lawsuits by patent trolls has already become an ever-increasing burden and business expense for many companies, particularly in technology-driven industries. And it's easy to see why.
Mounting a defense against a patent troll, even if the defendant is in the right and never infringed the patent in question, can easily cost millions of dollars in legal fees that are not generally recoverable if the defendant prevails.
In fact, even if a defendant is successful in convincing the court to rule that the patent claims asserted by a plaintiff are entirely invalid to begin with, the defendant is still unlikely to get any reimbursement of attorney's fees unless the defendant can show that the patentee committed fraud on the patent office, which is rare and very difficult to prove.
In 2009 alone, two different patent troll plaintiffs independently filed two new patent infringement cases against a number of adult entertainment companies.
One of the cases, filed by Antor Media Corp., claims that the activities of the named adult companies, including Vivid Entertainment and New Frontier Media Inc., infringed Antor Media's U.S. Patent No. 5,734,961 that is directed to the downloading of media, such as video.
The other case, filed more recently by Joao Control & Monitoring Systems of Texas seeks damages from more than a dozen adult entertainment companies for alleged infringement of its U.S. Patent No. 7,277,010 pertaining to a monitoring apparatus and method associated with a web site (more about this particularly troubling action later).
The second principal reason why it is in the best interests of adult entertainment companies to invest the time and money to gain a fundamental knowledge about patent issues pertaining to their business comes from the fact that many adult companies are highly innovative and well-positioned to acquire their own patents.
It is well known that the adult entertainment industry has a long history of creating new technologies and business models, particularly in the area of e-commerce. Additionally, the industry has strong tradition of early adoption of new technologies, as well as the creation of ingenious improvements to new technologies.
As one of the only two licensed patent attorneys I know of practicing in the adult entertainment law area (one of my partners being the other), I have had the privilege of helping many adult entertainment companies exploit their innovations and technology improvements through the acquisition of valuable patent rights for their inventions. One such company, for example, recently sold one of its patent portfolios for more that $10 million.
Unfortunately, however, the kind of wisdom and foresight that motivated that particular client to follow our advice to file patent applications for many of the company's innovations, is not very typical in the industry. Instead, it is more common for even the most innovative adult companies to pass on the opportunity to protect and more broadly exploit their inventions and strengthen their competitive position by obtaining patent rights. And that is a shame.
Many innovative adult entertainment companies have missed great opportunities to monetize their products, services and business methods far beyond boundaries of the adult entertainment industry.
Therefore, in sum, as technology becomes more and more fundamentally intertwined with the business of adult entertainment, patent savvy companies are likely to obtain the dual competitive advantages of knowing how to avoid expensive and potentially devastating patent litigation while profitably monetizing their own innovations.
But if you're still not convinced that its time for your company to increase its patent awareness, consider the latest development in the industry's Troll Wars: Joao Control & Monitoring Systems of Texas LLC vs. Playboy Enterprises Inc., et al.
On Nov. 5 a new patent threat to the industry was commenced by Joao Control & Monitoring Systems of Texas when it filed a patent infringement action against a number of the adult entertainment industry's heavy hitters involved in video chat services, including Playboy, Vivid, LFP (HustlerLive.com), Penthouse, ClubJenna, Gamelink, Anabolic, and a host of others. In its lawsuit, filed in Tyler, Texas, Joao claims that the video conferencing services provided by the named defendants infringe its patent.
Joao is what I would call a classic a patent troll. The company is based in Tyler Texas. Like Acacia, the company does not appear to create or sell any products described in its patents.
For those that recall the battle against Acacia, the Joao case might seem to have a certain déjà vu character about it. There is good reason for that impression.
Joao, like Acacia, has targeted the adult industry. Joao has even sued many of the same adult companies sued by Acacia.
Interestingly, however, unlike the Acacia lawsuit, VS Media, one of the principal champions for the industry in the Acacia case, has not been named as a defendant as of the time of this writing nearly two months after the action was filed by Joao.
In the Joao lawsuit, like the Acacia case, defendants are being forced to face the prospect of paying a huge amount of money to defend themselves against the allegations of infringement made by Joao.
Fortunately, for some of the defendants, however, the burden of payment of huge attorney's fees to defend themselves will not be necessary thanks to a generous offer by VS Media to pay for the defense of its clients who were named defendants in the original complaint.
According to Gregory Clayman, President of VS Media, "Like the Acacia case, the Joao lawsuit against many major adult industry companies is extremely troubling, not because they have strong claims, quite the contrary we believe their claims will suffer the same fate we dealt to Acacia's claims. It is troubling, and frankly frustrating, because so much money is required to be spent on attorneys just to dispense with a lawsuit that should have never been filed in the first place. We are hopeful that by providing assistance to our clients, both monetarily, by paying for their legal fees, and by our providing them with the fruits of our experience in the Acacia matter, we will bring this matter to a swift conclusion. Also, maybe, just maybe, the next patent troll might think twice about targeting the online adult entertainment industry."
I must disclose that I am somewhat biased about VS Media as the company has been a client of my firm for many years. But bias aside, I cannot express how rare and extraordinary it is for a company, in any industry, let alone the adult entertainment industry, to voluntarily assume the hugely expensive obligations associated with a multiparty, and potentially multi-year, patent infringement defense, in Tyler, Texas.
I've been a lawyer for the adult entertainment business for almost 20 years and I thought I'd seen it all. But a willingness for an adult company to spend millions to defend its clients in what in the end may amount to a vile nuisance lawsuit, and do so when it has no obligation to do so, is simply unprecedented.
"We know what we are doing is unusual, especially in today's economy. But we have always believed in excellence in everything we do. We have always felt that if we went above and beyond our obligations, that we would be rewarded beyond the intrinsic satisfaction that comes from doing things better than you have to. That has certainly turned out to be the case. We have been truly blessed and we are looking forward to a bright future for our company as a major player in the interactive live video era of the Internet."
Once I asked Greg what the "VS" in VS Media Inc. stood for. He told me, Video Secrets. Well, maybe so. After all, he should know. But in my opinion the VS might as well stand for "Virtuous Solidarity" for their unparalleled history of defense of their clients and of the adult industry as a whole, or maybe just simply "Very Special." Indeed, VS Media is a very special company, to be sure.
But regardless of the outcome of the Joao and Antor Media matters, I can confidently predict more trolls are coming. Consequently, if adult entertainment industry does not show more proactivity and savvy in the area of patents than it did in the area of protecting its content against pirates, sooner or later there is likely to be one or more cases that will be much more difficult to defend than the Acacia, Antor or Joao matters.
There is, unfortunately, a relatively good probability that a case might well be brought by a patent owner someday that results in significant, or even crushing liability exposure for the industry companies concerned. And if that happens, I fear, the loss of profits to the patent trolls will likely make the industry's current copyright losses of profits to pirates look like the good 'ol days.
Gregory A. Piccionelli is an intellectual property and adult entertainment attorney experienced in Internet matters and Federal Trade Commission matters. He can be reached at Piccionelli & Sarno at (805) 497-5886 or greg@ piccionellisarno.com.