Tuesday, Oct 28, 2003    Text size: 

Acacia is generally known throughout the adult entertainment industry as the licensor of its DMT technology patents – five in the U.S. and 17 internationally -- that cover the transmission and receipt of digital audio and digital video content, more commonly known as audio-on-demand, video-on-demand, and audio/video streaming.

In recent days and weeks, many adult entertainment sponsor and affiliate sites have been the recipients of letters from Acacia stating that they must fork up royalty payments or risk being dragged into litigation with the patent holder.

The issue, according to Robert Berman, senior vice president of business development for Acacia, is whether those sponsors and affiliates provide streaming audio or video feeds and whether those feeds are relayed onto other sites. If so, states Berman, then those affiliates and sponsors are liable for patent infringement.

"In most cases, if the sponsor licenses from Acacia, the affiliate will be covered," Berman told XBiz. "In order to avoid liability for patent infringement, it is in the best interest of affiliates to send traffic to sponsors that have licenses with Acacia."

Many members of the adult industry are beginning to realize the cost of long-term litigation with Acacia versus just paying the fees required to utilize DMT technology with Acacia's blessings.

"I've only seen a handful of sponsors sign licenses, and I don't think any of them 'caved,' they made a business decision to spend a few grand and protect their affiliates instead of fighting and possibly losing millions of dollars," stated a community board member.

However many members of the industry still feel that Acacia's patent claims are far too broad to be valid and many webmasters are holding out until either time runs out or someone proves that Acacia's patents are not what they seem.

"I don't think this is a valid patent at all, and I hope it's proven so in court," stated another community board member. "From what I've read, the U.S. Patent Office was deluged with phone calls about this yesterday and one patent attorney there felt the patent did not cover webmasters…We're all backed up against a wall without a lot of choices here. You can pay. You can fight it in court if you have $100k in cash available. You can ignore it and have your sites shut down."

According to Berman, sponsors and affiliates are currently being looked at in terms of their affiliation with each other and with sites that have either licensed Acacia's DMT streaming media technology, or are using that technology illegally.

Berman dismissed the suggestion that this recent letter-writing campaign is a new tactic on Acacia's part to either increase licensing profits or partake in what many industry insiders are calling "double-dipping."

The idea of double-dipping is if the sponsor has paid Acacia and the affiliate has also paid Acacia. But according to Berman, Acacia only requires both the affiliate and the sponsor to pay for licenses if there is a separate infringing act in the use of Acacia's technology by one of the affiliate's sites that is streaming audio/video.

The breakdown for sponsors and affiliates who are unclear about whether or not they need to license from Acacia is confusing, but deals only with sites that are transmitting or receiving audio/video content.

According to Berman, if a webmaster has their own audio/video content that is accessed from their site, then plain and simply they need a license, whether they are a free site or a paysite and regardless of whether they send traffic to other Acacia licensees or not.

If that site doesn't have audio/video but sends traffic to a sponsor site that does have streaming media, but no license, then that site needs a license from Acacia. If that sponsor signs up with Acacia later on, then the affiliate does not have to pay royalties on the revenues received from the Acacia-licensed sponsor.

"We are not licensing content providers to stream to the webmaster, we are licensing the webmasters for that activity," said Berman. "In a regular situation where a content provider hosts content for the webmaster, that activity is covered under the webmaster agreement, not the content provider."

According to Acacia, the webmasters that don't need a license are the ones that don't have any audio or video access from their site and that send traffic only to a sponsor that is licensed by Acacia.

"Our patents are a real issue that is not going to go away," Berman told XBiz. "The best thing is for people to deal with it. We are honest business people and if adult sites are going to fool us by being dishonest, the truth will eventually reveal itself."

In late September, Acacia announced a Nov. 30 deadline for companies accused of infringement, after which fees and liability will go up substantially. Berman told XBiz that many webmasters have since stepped forward to reconcile with the patent holder.

"If these sites are dealing in audio/video then no matter what, they need a license from Acacia," Berman said.

According to Berman, of the 39 original adult entertainment industry defendants that Acacia has been in pursuit of since July, only thirteen defendants remain and many of them are in serious talks with Acacia regarding settlements.

"They are finally getting a sense of the strength of our patents and what it will take to try and prevail in court," Berman told XBiz.

Last week during Acacia's third quarter earnings report, the company reported annual revenue of between $1.1 million and $1.5 million from licensing agreements executed to date.

For the three months of the quarter ending on Sept. 30, Acacia's 16 newly acquired licensing agreements brought in revenue of $186,000, although a significant portion of Acacia's revenue will not reflect until the fourth quarter of this year.