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Patented attack Sightsound.com claims it's owed a fee every time music or videos are downloaded from the Web Sunday, February 07, 1999 By Michael Newman, Post-Gazette Staff Writer
Arthur Hair is one of the few people in America who believes the Internet is under-hyped. This is the very same medium that has created perhaps the greatest investment bubble of the 20th century, routinely inflating the value of small, unprofitable companies to levels unsurpassed by several Latin American countries.
Still, Hair is unwavering. "It is so under-hyped," he says, elongating the third word like a teen-ager. Scott Sander agrees. "This is bigger than TV," he says. "It's bigger than the printing press."
Cocky pronouncements are hardly unusual, of course, from founders of small high-tech firms, even ones with only a dozen employees and even fewer pieces of furniture. Hair is chairman and chief technology officer, and Sanders is president and chief executive officer of a Mt. Lebanon startup called Sightsound.com.
Yet its founders' optimism has as much to do with 18th-century law as 21st-century technology.
Their plan, in part at least, is breathtaking in its audacity:
From now until the second decade of the next century, whenever anyone buys and downloads music or video over the Internet, Sightsound.com plans to extract a licensing fee. It can do so, it claims, because it owns the patents that control such transactions.
Suffice to say that the strategy is untested, not to mention controversial.
"This is a sham," says Michael Robertson, president of MP3.com, a San Diego company that operates a Web site featuring downloadable music. "They're nothing but money-grubbers."
Sander not only disagrees, he is unapologetic. Hair applied for the first of Sightsound.com's patents 11 years ago. It was granted in 1993.
"He and I have been working on this for more than a decade," he says. "We've been waiting for this moment for a long time."
Patent history
The dispute between Sightsound.com and MP3.com, while entertaining, is merely one argument in a larger debate.
And it's a very old debate. Patents, and the rights they confer upon those who hold them, are enshrined in the Constitution. More than 200 years ago, the Founding Fathers authorized Congress to pass laws "to promote the progress of science and useful arts, by securing for limited terms to authors and inventors the exclusive right to their respective writings and discoveries."
Thus was born the U.S. Patent and Trademark Office, which is responsible for granting all patents in the United States. It's a busy place; more than 5 million patents have been issued since the founding of the republic, and the office's several thousand examiners issue some 125,000 patents a year, out of some 250,000 applications received.
As those figures indicate, not just anything can get a patent.
Patents are awarded only to new compositions, machines, products or processes. What's more, the thing being patented - for simplicity's sake, it will hereinafter be referred to as "the thing" - must meet three tests: It must be new (that is, nothing like it has existed before); it must be useful (that is, it must work); and it must be "non-obvious" (that is, not just any guy off the street could have thought of it).
The process of getting a patent generally takes between two and four years. (Unbelievable but true: In order to determine whether "the thing" is new, it cannot have been previously described "in a printed publication anywhere in the world," according to the patent office. Patent examiners use huge databases to search for such references.) If the patent office agrees that the thing meets these tests, then they issue a patent, which is good for 17 years.
But wait: The story does not end there. Getting a patent, which can cost up to $10,000 in legal and administrative fees, is merely the first step. Once the thing is patented, it must be protected. In a real sense, a patent is a license to bother people: It does not grant its holder the right to make or sell the thing; it grants its holder the right to prevent others from making, selling or using the thing.
So the inventor may decide to license the patent and let others make or sell the thing. She may think someone else is already making something unacceptably similar to the thing, and demand royalties from that person. Or the inventor can just start making the thing herself.
OK, enough of this legal jargon. How does all this work in the real world? In the real world, unsurprisingly, things get pretty complicated pretty fast.
One complication is that patents are sometimes issued for things that don't deserve them. Gregory Aharonian, the editor of a newsletter called the Internet Patent News Service, notes that a patent was issued last year to a company for its idea of an illustrated book as a primer for janitors. "This claim should never have been written, let alone allowed," he wrote.
In such a case, others can challenge the patent, either to the patent office or in federal court, and ask that it be revoked. But it's a daunting process. "It may take only 10 grand to get a patent," says Thomas Field, a professor at the Franklin Pierce Law Center in New Hampshire and an expert in intellectual-property law. "But it may take a couple hundred grand to blow it away."
Another complication is that inventors claim their patent is much more broad than it actually is. Samuel Morse, for instance, invented the telegraph in the 19th century, and received a patent for it. So far so good: It certainly qualified as a machine, and it was certainly new, useful and non-obvious.
But Morse took a rather expansive view of his own inventiveness. "He claimed his patent covered all methods of telecommunications using electromagnetism," Field says. "By his reasoning, he had a patent on TV, radio, the Internet - just about everything."
Morse's claims, alas, were not upheld in court.
Internet patent history
As it often does, the Internet places an old debate in a new context. In the last year alone, several Internet companies have been granted patents for "business processes" that take place over the Web:
And then there are Sightsound.com's patents, granted in October 1997 and March 1993. One covers a "method for transmitting a desired digital video or audio signal," while the other covers a "system for transmitting desired digital video or audio signals."
The patents mean that "we own digital download," Sander says. "We have won."
Such statements do not endear him to others involved in buying and selling music and video over the Internet, many of whom have posted unflattering comments on the MP3.com site.
But we are getting ahead of ourselves. For there to be a dispute over a patent, there must first be a patent. How did Sightsound.com - and those other Internet companies - get patents in the first place? These aren't inventions, they're ways of doing business. If Sightsound.com can get a patent for selling music over the Internet, the argument goes, why can't Amway get a patent for selling door to door?
One answer, which has the advantage of brevity, is that such patents are simply mistakes. The patent office doesn't quite understand all this new technology.
In one prominent case, the patent office granted a patent to Compton New Media, a division of Compton's encyclopedia, for software that combined text, audio and video. Compton then began attempting to extract licensing fees from the makers of other electronic encyclopedias, and was met with predictable resistance. The patent was later revoked.
Patent examiners are an embattled lot. "They're definitely overworked," says Jonathan Parks, a patent attorney at Kirkpatrick & Lockhart, Downtown. Others, such as Aharonian, are less charitable.
The patent office sees the situation somewhat differently. Most patent examiners are experts in their fields, notes an associate solicitor. The patent process is rigorous and through. And all patents granted are grounded in statute and precedent.
One of those precedents is particularly relevant: Last July, in a case involving a software program a bank used to track and apportion mutual-fund investments, a federal circuit court ruled that the software was, in fact, patentable.
Prior to that, it was generally thought that software was not patentable. That's because all software, in the end, is nothing but mathematical formulas, and math is governed by laws of nature, and laws of nature cannot be patented, at least by humans. Just as you can't patent lightning or thunder, neither can you patent 2 + 2 = 4.
But the court found that software with a specific, practical application essentially rises above its mathematical roots to attain the status of invention. Now, "all but the most abstract mathematical software should contain patentable subject matter," Parks says.
Thus we arrive at Sightsound.com and other such Internet companies. Their business plan is predicated on, and in some cases indistinguishable from, their software. Their software is patentable. Ergo, their business plan is patentable.
Or maybe not.
Out of sight?
Such patents, as Sightsound.com has learned, are controversial. Last month, the company sent letters to several sites that offer music for downloading and sale. Its patents "control, among other things, the sale of audio or video recordings in a download fashion over the Internet," the letter reads. It then "invites" them to join its licensing program, asking for royalties of 1 percent.
Robertson, of MP3, responded by posting the letter on his company's Web site, inviting visitors to criticize it, which they have done with relish, if not intelligence. "This guy is blowing smoke," reads one message. "The more I think about this, the more it sounds like a scam."
Christopher Reese, Sightsound.com's vice president and general counsel, sent a second letter to Robertson, also posted at the MP3 site, in which he defends Sightsound.com's request - and, for good measure, the Constitution, American inventiveness and apple pie.
A patent is "the way our country has succeeded throughout generations in encouraging innovation," he writes. Besides, he adds, it's cheap. "Our current licensing structure includes a very reasonable royalty rate and no up-front payments at all."
But asking for low licensing fees is not necessarily a sign of magnanimity, Field points out. Many companies set fees low in order for their patent to gain acceptance. "If you ask for little enough money, even if the patent is a total piece of crap and should never have been issued, you can do pretty well," he says. He has not seen Sightsound.com's patent, he adds.
Negotiations with other recipients of the letter have been less public, if no more encouraging. "We've received their letter and it is under review," says a spokesman for Platinum Entertainment, which operates the PlatinumCD.com site. A spokesman for the site GoodNoise.com had a similar statement, though he added that "the 1 percent royalty they're looking for is sort of immaterial to us right now" since their sales are so low.
The reaction from online music retailer N2K, which operates the Musicboulevard.com site, was less tentative: Sightsound.com is suing the company for patent infringement. Another retailer, A2B Music, reached an agreement with Sightsound.com last year.
"I have no idea whether their patent is valid," says Howie Singer, A2B's chief technical officer. "I'm not a patent attorney." Regardless of what happens in court, he says, "we're covered either way. That's why we did it."
If Sightsound.com succeeds in its suit against N2K - if its patent is as broad as Sander claims - it could reap billions. For now, however, Sightsound.com is reaping only huge amounts of negative publicity.
The company has hired a Beverly Hills public relations firm in an attempt to burnish its image.
"We have the same firm as Leonardo DiCaprio," Sander says. DiCaprio, of course, starred in "Titanic," the most successful movie of all time. The actual ship did not fare as well. Whether Sightsound.com's story more closely resembles that of the ship or the movie remains to be seen.
Underappreciated
And yet, Sander and Hair, both of whom are 38 and who met at Upper St. Clair High School, profess to be basically unconcerned about the patent dispute. Sightsound.com is more than just the sum of its patents, they say.
Hair, who studied rocket science (literally) at Purdue University and worked for a decade as an engineer at Texas Instruments in Texas, says Sightsound.com is a new kind of company. "We will always be coming up with things and filing for patent protection," he says. "We're a media company that also invents things."
Sander, who graduated from the University of Denver and was formerly head of an office-technology consulting company, compares Sightsound.com to a broadcast network, a television production company and a retail marketing firm all rolled into one.
"We spend every minute of every day thinking of new ways to incorporate sight, sound, print and purchasing over the Internet," he says. Someday, he predicts, people will visit Web sites not only to read the news or to join in chat groups, but also to watch videos and listen to music. When they do, and when they want to download that video or buy that music, Sightsound.com's technology will enable them to.
"I'm not sure Pittsburgh understands the enormity of what we're doing," Sander says. Neither, he could have added, do a lot of people in a lot of other places.
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