YNOT NEWS: First and foremost, thanks for agreeing to give YNOT NEWS this follow up interview to your first interview with us last month. Before we jump into another round of Q & A here, do you have any response to the rebuttal article written by Spike Goldberg from HomeGrownVideo.com to your original interview?.YNOT NEWS: First and foremost, thanks for agreeing to give YNOT NEWS this follow up interview to your first interview with us last month. Before we jump into another round of Q & A here, do you have any response to the rebuttal article written by Spike Goldberg from HomeGrownVideo.com to your original interview?

Rob Berman: Frankly, I don’t pay much attention any more to what Edward Goldberg has to say. He is apparently not a lawyer and has shown that he has no understanding of patent law or patent litigation. In fairness to him, he shouldn’t know anything. I’ve been doing this for many years on a full-time basis. I am sure Goldberg knows more than me about running an adult content business.

If people want information about our patents, the litigation, or licensing terms, they should contact Acacia directly and not get their information through adult Webmaster chat boards. This Goldberg / IMPA thing has turned into a sideshow and is getting old. As far as I am concerned, when it comes to Acacia, Mr. Goldberg’s 15 minutes of fame are up.

YNOT NEWS: In your previous YNOT NEWS interview you said the following: “Our content provider license covers teaser clips on the content provider’s Web site and the one time ftp transfer of content files.”

When you mentioned “one time ftp transfer of content files”, is it infringement of your patent if the video files were compressed into a ZIP file for downloading, rather than just the AVI or MPG file? Is it infringement if a person transferred / downloaded a ZIP file that didn’t have any audio or video files, and why?

Rob Berman: Our patents cover the transmission and receipt of digital content. Digital content is transmitted and received via the Internet by being encoded, compressed into a series of addressable data blocks, and stored. The content is then sent to a remote location, decompressed, and played on a computer or other receiving device. This is the process covered by our DMT patents.

Everything about our technology is outlined in the patents. In exchange for making this information publicly available, the United States Patent Office grants a monopoly to the patent owner for a period of 20 years from the filing date of the patent. That is why Acacia has the legal right to determine who gets licenses, and which companies do not.

Zipping a file is a way of further compressing a file. To determine whether the transmission and receipt of a zipped file is covered by our patents, it is necessary to look at the underlying file that is being zipped. If the file consists of audio/video content, the transmission and receipt of the file is probably covered by our patents. If the underlying file consists of still photographs, it is probably not covered.

YNOT NEWS: How would Acacia deal with a company that has a patent claim on jpeg compression if they sent Acacia an information packet to license their jpeg patent because of the use of jpeg images on the Acacia company websites? Under patent law, if you use something that is covered by a patent, that use is supposed to be disclosed to the patent holder, correct? And consequently, are any adult sites using an Acacia patent disclosing use of it?

Rob Berman: If a company contacted me alleging patent infringement, I would contact the company to find out exactly what I am doing to allegedly infringe the patent. Then I would determine if those acts are important to my business and what it would cost to stop the infringing activity.

Assuming the alleged infringing acts are important to my business, I would next contact a patent lawyer. I would ask the lawyer to contact the company about the coverage and validity of the patent, and to request that the company provide supporting information. I would ask the lawyer to review the information and give me a preliminary indication of whether I was infringing the patents. I would limit the lawyer to a budget of no more than $10,000. Assuming the lawyer concluded that I might be infringing the patent, I would weigh the cost of a license against the cost of additional legal work.

If I couldn’t afford a lawyer, I would look at other companies in my industry that licensed the patent. Are they companies that are successful and make smart business decisions? If possible, I would contact a few of those companies to inquire about what legal advice they received and why they decided to license the patent.

I would evaluate the risks and rewards of entering into a license. Is the royalty reasonable? What are my chances of challenging the patent in court? If I lose, could the patent owner close down my business? I would obviously negotiate the best license deal I could.

The “marking” that you are asking about applies to goods covered by a patent. It does not apply to a patented method or process because there is no physical object to mark.

YNOT NEWS: Is it true you are targeting small time adult Webmasters and not the big mainstream players like Yahoo and AOL, or have you been contacting large companies and they are disregarding your patent? It seems that an AOL victory would replace thousands of mom and pop adult company victories for you. As reported by FightThePatent.com, Acacia had $40M set aside for legal fees, but some people believe that the number is more like $4M (also going off of your publicly disclosed earnings.) With a burn rate of about $1M/year (from financial statements), is it possible that you are avoiding going after the big companies due to lack of funds?

Rob Berman: Microsoft, Real, and Apple make some of the components that are used in the process that is covered by our patents. Others include hardware manufacturers such as server manufacturers, receiving device manufacturers, and other software manufacturers. Our business strategy is not to pursue manufacturers of products that are given away for free or sold at very low margins. The patent law allows us to pursue the users of our patented process, in addition to the manufacturers of components that are a part of the process. In the case of the adult industry, the users of the process include Webmasters, content providers, affiliate programs, and age verification services.

The claim that we are picking only small Webmasters in the adult industry is ridiculous. LodgeNet, one of our licensees, has reported annual revenue of over $240 million. CinemaNow, another licensee, is owned by Lions Gate Entertainment, Microsoft, and Blockbuster, among others. We are also in discussions with many Fortune 500 companies.

Last quarter we reported cash of over $35 million. Our burn rate is approximately $5 million per year, so we could last at least seven years without taking in any revenue. But that is not going to happen. We have already signed 41 license agreements and we are continuing to make progress with companies in all of our targeted markets. The idea that we are going to run out of money or just go away is not reality.

YNOT NEWS: As far as affiliate Webmasters are concerned, what if a free adult site uses video that is hosted by a sponsor company? Does the sponsor company need a patent to cover themselves as well as the free sites that have teaser videos hosted by the sponsors? Is that what you are talking about with your affiliate license?

Rob Berman: Under our current licensing model, free adult entertainment sites that do not have audio / video content and send traffic to affiliate programs do not need a license from Acacia. Even though these sites are potentially liable as indirect infringers (for sending users to sites that stream audio / video content using our patented process), we are licensing the owners of the affiliate programs for these infringing activities.

Free adult entertainment sites that do use our technology to stream audio / video content on their free sites and also send traffic from those sites to affiliate programs do need a license. These licenses are based upon the total revenue received by the free site (advertising revenue, affiliate revenue, etc.). Charging a royalty on the affiliate revenue is not a “double dip” even if the affiliate program has already paid us a royalty because there is a separate infringing act by the free site for which we are collecting an additional royalty (the use of our patented process by the free site to stream content). Under this scenario, the affiliate pays for the use of our patented process on its sites, and the owner of the free site pays for the use of our patented process on its site.

YNOT NEWS: What developments do you see happening in the next few months either in the litigation or otherwise that our readers should expect to see?

Rob Berman: We have now signed up many of the big companies in the online adult entertainment industry and we have several more on the way. After November 30, 2003, we will no longer be offering waivers for past infringement and will be raising our royalty rates. It is not fair to our existing licensees for us to continue to offer early mover advantages on an ongoing basis.

We have also made several changes to our standard Webmaster License Agreement, and Content Provider License Agreement, based on the comments we received from our existing licensees and their attorneys. For example, we no longer require a list of customer names from content providers. Copies of our new agreements are available on our website.

The litigation is entering the discovery phase. We will continue to add additional parties to the litigation, and will continue to seek to close down websites that continue to use our technology without a license, as we have done in the past. Provided that all of the defendants do not settle, the litigation will take many months until there is a resolution.

I recently attended a major licensing conference in San Diego that provided a survey of court-imposed royalty rates in patent infringement cases over the past 12 years. The most frequent royalty rates awarded by the courts were in the 6% to 10% range. These are much higher than the introductory rates currently being offered by Acacia. Companies that choose to wait for a decision in the litigation before taking a license are taking a huge risk. If a company cannot afford to pay the court-imposed royalty, they will get no sympathy from Acacia. That is not a threat, but simply the facts.

* This interview was posed and edited by YNOT NEWS and answered in completion by Acacia.

If people have additional questions on the topics covered above, or any other topic, they are welcome to email Acacia at info@acaciaresearch.com or call us at 949-480-8300. As long as they handle themselves in a professional manner, we will do our best to answer their questions and accommodate their concerns.