Forgent Proves Once Again That Patents and Software Need to Get a Divorce

Saturday, April 24 2004 @ 11:24 PM EDT

Contributed by: PJ

"Forgent is committed to developing all of its assets and technologies to maximize shareholder value," said Richard Snyder, chairman and CEO of the company.

Don't those words just chill you to the bone? Maximizing shareholder value. As if that excuses everything. Maximizing shareholder value, no matter who gets hurt. That's the proprietary way. The problem is, software is too vital to the public interest for it to be held hostage by every greedy patent-holding pig on the planet. The same goes for his shareholder piglets, too. True to the piggy template, Forgent announced it has sued everybody and his cousin for "infringing" its patent on JPEGs, a standard format that everyone used in good faith for ages. The patent is almost two decades old, and now they want their money. Gotcha. The Proprietary IP Business Model.

Snort! says the pig. We find we own the patent on JPEGs and now that you are all accustomed to what you thought was an open standard format, ha ha, everybody has to pay us:

"Forgent Networks announced today that its subsidiary, Compression Labs, has initiated litigation against 31 companies for infringement of U.S. Patent No. 4,698,672 -- the so-called '672 compression patent -- in the U.S. District Court for the Eastern District of Texas, Marshall Division.

"Forgent has engaged in aggressive pursuit of royalties related to JPEG image compression since first publicizing its claim to the patents in July 2002. In February 2003, for example, the software maker won a US$16 million licensing agreement from Sony based on the '672 patent. Over the last two years, its intellectual-property business reportedly has generated approximately $90 million from licensing the '672 patent to 30 different companies in Asia, Europe and the United States."

Could somebody please fix the patent system? Software and patents should never have even started to date, let alone get married. The relationship isn't working out. And it's time for these two to get a divorce.

If you would like to read the complaints, here and here you go. There are two complaints, with 31 defendants, a veritable Who's Who in software. Maybe this will convince one and all that patents and software don't belong together.

I asked Dan Ravicher, Executive Director of PubPat Foundation if he'd care to comment on this news. He took a look at the complaints, and here are his initial thoughts, which he gave me permission to share with you:

"These cases will be only about money, as although Compression Labs (i.e. Forgent Networks) has asked for a permanent injunction, the asserted patent expires October 6 this year, which is well before any decision from the court, even the relatively speedy Eastern District of Texas,†will be made.† Therefore, no injunction could issue because practicing the technology disclosed in an expired patent is not unlawful.† Of course, this fact will likely not stop Forgent from seeking an injunction†as an attempt to gain leverage†in negotiating a settlement, something which I'm sure these defendants are sophisticated enough to see through.

"Further, this case will be about only a relatively small amount of money, as it is highly unlikely Forgent will be able to receive lost profits, since, to do so, it must prove that it could've made all the sales of the accused infringing devices that each of the Defendant's made.††This leaves Forgent with only the possibility of receiving a reasonable royalty.† Since they've granted so many licenses already, and since they've already offered licenses to these defendants, whatever the royalty is in those agreements will likely be the same as or similar to what the court will eventually find is 'reasonable.'

† "For this reason, there is really no downside for these defendants, absent the cost of litigation ($2 - 4M), for having not signed a license with Forgent.† Worst case, they'll pay what they would've paid plus the cost of litigation.† Best case, they will end up paying nothing other than the cost of litigation.† For example, if we assume a defendant with an exposure equivalent to what Sony paid, $16M, it makes perfect sense for that defendant to litigate, at a cost of $2 - 4M, for a 2/3 chance of paying nothing.† The calculus would be that $16M (or whatever they think their exposure is) is greater than $2 - 4M (the cost of going to court) plus a 1/3rd chance of paying $16M (or whatever they think their exposure is).† Taking this a step further means that any defendant with exposure greater than about $5M has economic incentive to litigate rather than settle.

† "It is possible that Forgent will seek enhanced damages (a judge can treble the actual damages awarded if she finds that the defendant acted with willful disregard for the patent), but that attempt will most likely be futile since these defendants will undoubtedly have an opinion letter from counsel stating that Forgent's patent is invalid and / or not infringed.† Such letters per se defeat a charge of willfulness, which eliminates any potential for enhanced damages.

† "Thus, in the end, Forgent will, even if entirely successful on its claims, get at most a†reasonably royalty roughly equivalent to the amount it has already been willing to accept from others.† It won't get any kind of†injunction for this patent against these defendants, or any other potential defendant.† For these reasons, individuals and small businesses will most likely not be pursued by Forgent, as they don't have pockets deep enough to make such pursuit worthwhile."

Not as awful as you thought, huh? Still, Forgent's CEO is talking like Genghis Khan: "We believe we will prevail in this litigation, as the '672 Patent is valid, enforceable and infringed."

How simple it all is, if you don't care who gets hurt. Money is so peculiar. What it can do to people. Of course, the idea is: you need what we own, so we get piles and piles of money from you poor suckers. However, what will really happen is folks will have another clear reason to despise proprietary software and will all switch to PNG, as the article points out:

"Such image-compression lawsuits are not without precedent. Several years ago, there was a broad move to use the PNG graphics format to avoid any ties to proprietary compression standards. Today's lawsuit filing likely will reinvigorate attempts to push Web designers and graphic artists to rely more heavily on open standards and royalty-free compression formats."

It does seem to be the only real solution. Otherwise, we are all just walking along through the software forest, singing a happy song, when, fwewp, we walk into a trap some meanie has set for us, hidden under the leaves and branches, and suddenly, there we are, hanging by one leg upside down from a tree.

It's time to quit this patent nonsense. You proprietary dudes need to find an honest way to make some money and leave software alone, if you can't play nice with others. Of course, since the proprietary software world enjoys playing war games so much, maybe the defendants can dig around in their patent war chests and find some ammo, like some prior art or something, to throw back at Forgent. I know I'd be happy to try to find some. If you know of any, this would be a good time to speak up. ZDNet back in 2002 indicated that at least some believe prior art exists:

"Other companies have resorted to a controversial tactic of applying for patents while pushing the technology in question in standards committees.

"In 1995, Dell Computer agreed not to enforce its patent rights for the technology included in the VL-bus graphics standards, as part of an agreement with the Federal Trade Commission. The FTC had charged Dell with pushing for the adoption of a technology in the standards committee, without disclosing when asked, that the company held a patent. Sun Microsystems and Rambus have both been investigated for similar actions.

"Who was first?

Forgent didn't do any of the original work of the patent that they now own; that was done by Compression Labs' Wen-Hsiung Chen and Daniel Klenke. Chen, who joined Cisco after selling Compression Labs to Forgent and a second firm to the networking giant, published several papers in the 1970s and 1980s on image compression and transformation. Some experts credit him with the creation of a specific kind of image manipulation--the discrete cosine transform--used in the JPEG format.

"Yet he or others may have published all the components of the 672 patent more than a year before the application date for the patent. Known as prior art, such publications can undermine a patent.

"'There is a lot of work around that can predate the Forgent patent,' said the JPEG's Clark. 'Most of the JPEG standard was pretty well formulated by the time this patent came out.'"

Meanwhile, the free and open source world watches with jaw-dropping horror at the hordes of proprietary warriors ruining the world for the rest of us with their license battles. "Maximizing shareholder value" just doesn't outweigh the public's interest in being able to use open standards in peace. As PubPat says on its website, unsound patent policy harms the public interest. Personally, I gave up GIFs when it counted, and I'm perfectly happy to give up JPEGs too. If Forgent wins, I will. If we all do the same, every time such patent piggydom occurs, it won't be long before that particular IP Business will have to hang up a Going-Out-of-Business sign.

Even the FTC is looking to fix the patent system, by the way. Here is a paper they put out in 2003 and recently there was a conference on patents by chaired by the Federal Trade Commission, the National Academy of Sciences and the Berkeley Center for Law and Technology. In digging around the FTC site, I found some remarks by Susan DeSanti, Director, Policy Planning, Federal Trade Commission, before the Conference: Antitrust for High-Tech Companies Business Development Associates in San Francisco, CA back in 1996. She explained quite clearly what isn't right about patents and particularly what is unique about software and patents. Media coverage on the conference here ("The U.S. patent process is deeply broken, according to the IT companies. As the number of patent applications has exploded, the quality has gone down. The result is boom times for lawyers and a lifetime of litigation for corporate counsel.") and here. Here is part of what Ms. DeSanti said:

"To set the framework for my discussion of hearings testimony, let me begin by setting out two dichotomies that are probably familiar to all of you. The first dichotomy is that both intellectual property protection and competition are necessary in order to spur innovation efforts,(1) but they each achieve that result through different means. Intellectual property law focuses on providing inventors and creators with a return on their work that is intended to remedy various ďpublic goodĒ problems that may arise in connection with intellectual property. Antitrust law focuses on maintaining competitive markets in which competition among inventors and creators provides the spur to innovation.

"The second dichotomy is between first-generation and second- (or successive-) generation innovators. On one hand, the first-generation innovators emphasize their need for broad and strong intellectual property protection in order to reward their innovation efforts appropriately. On the other hand, follow-on innovators emphasize their need for access to the intellectual property of the first-generation innovators, so that follow-on innovators can develop the improvements to and next generation of the first-generationís invention or creation.

"For public policy purposes, these two dichotomies require a difficult and delicate balancing of the value to innovation incentives that intellectual property protection and competition each provide. The tensions in this balancing exercise were addressed by the very first speaker at the hearings, Joseph Stiglitz, Chairman of the Council of Economic Advisors. Among other things, his opening remarks pointed out that firms may impede innovation by making overbroad assertions of intellectual property rights, and he explained this point as follows:

'We often talk about how important patents are to promote innovation, because without patents, people donít appropriate the returns to their innovation activity, and I certainly very strongly subscribe to that. . . . It was so important that it was included in the Constitution, so it gives you a sense of how important it was. On the other hand, some people jump from that to the conclusion that the broader the patent rights are, the better it is for innovation, and that isnít always correct, because we have an innovation system in which one innovation builds on another. If you get monopoly rights down at the bottom, you may stifle competition that uses those patents later on, and so . . . the breadth and utilization of patent rights can be used not only to stifle competition, but also have adverse effects in the long run on innovation. We have to strike a balance.'

"Professor Carey Heckman of Stanford Law School highlighted the problems that high-technology industries encounter in trying to achieve a balance between initial and follow-on innovation. In high-technology industries, many of the products and services are combinations of more than one companyís technology. According to Professor Heckman, 'Technology is multi-faceted, multi-dimensional; it doesnít come in neat sequences. Itís difficult to characterize whatís going on. Overall, people just arenít sure what is owned by someone else. We have all stood on the top of the shoulders of our predecessors. Early developers donít want their technology ripped off, but new developers would say that itís ridiculous to start from scratch.'

"Some participants expressed concern that the creation of the United States Court of Appeals for the Federal Circuit has led to stronger and broader patent enforcement, which may have important implications for incremental and follow-on innovation. The Federal Circuit has exclusive jurisdiction of appeals from the U.S. Patent and Trademark Office with respect to patent applications and interferences and of appeals from judgments in civil actions for patent infringement. The Federal Circuit was formed partly in response to concerns about lack of uniformity in patent law decisions.

"According to several participants, the trend of the Federal Circuitís patent decisions has been to uphold patents against attack and thereby effectively to strengthen the value of patents. Professor Barton suggested that the creation of the Federal Circuit has 'invigorated a nearly moribund patent law,' because the Federal Circuit is enforcing patents more than other courts in the past. In patent infringements suits, the Federal Circuit has been more likely to find that the patent is valid and thus infringed, according to Cecil Quillen, Jr. He writes that, as of three years ago, 'something like two thirds or more of patents which are litigated now are found to be valid and infringed' in contrast to ten years before when 'something like two thirds . . . were found invalid.'

"Professor Scherer agreed that the creation of the Federal Circuit has led to important, substantive changes in the law--changes, he argued, that were not intended by Congress. As a result, he reported, patents have been strengthened greatly, and firms are recognizing that a good patent is a powerful instrument to have. The impact of this change in the legal environment is that smaller firms, and even some rather large firms trying to develop a new product, are essentially finding themselves in a mine field, according to Professor Scherer. He suggested that 'there are lots of unexploded patents out there, and you might step on one and have your corporate leg blown off.' . . .

"In the opinion of some participants, copyright protection for software generally does not produce value on its own. Esther Dyson, president of EDventure Holdings, testified that copyright protection, especially in the software industry, in and of itself does not produce value, because the protected product is so rapidly overtaken by the next generation of products. Instead, companies derive value from their brand name, the support services around their software, and their ability to continue to develop new versions of the software.

"Ms. Dyson explained that in the software industry, venture capitalists do ask whether the software is copyrighted or patented; therefore, the existence of intellectual property does help a small company to raise money. She reported, however, that this is now changing, because funders are beginning to understand that simply having something tangible to invest in will not get you very far. Rather, in her view, it is more crucial to invest in the software programmers who know how to produce the next product. Although Ms. Dyson stated that she did not object to strong patent and copyright protection for software, she viewed firms that enforced such protections as likely to be market bottlenecks to be 'routed around.' Moreover, she cautioned that, if copyright protection is too broadly applied, then progress and development would be stifled, because 'software, more than anything, is a series of inventions piled on top of each other.'

"Robert Kohn, General Counsel for Borland International, expressed concern that overbroad copyright protection could stunt subsequent innovation in the software industry. He observed that originality for purposes of copyright requires just a trivial level of creativity and characterized copyright protection as 'uncritical and virtually automatic.' If copyright protection is extended to interface standards, he warned, then the consequent risk is that copyright owners will be overcompensated. . . .

"Professor Scherer agreed that, for bottlenecks that block any possible progress in software, ďthere ought to be some way of making those interfaces public domain, subject at most to a modest royalty.'"

That was in 1996, but it takes a while for ideas to gel and a consensus to build. And you can't make a change in a system until you know what to change it to. That is what the most recent FTC conference was about. FTC Commissioner Mozelle Thompson announced a new tech industry working group that will try to reform the patent process. Guess who is on the team? Microsoft.