Acacia Media Technologies claims to own 5 US and 17 international patents for its DMT technology which, it says, covers:
"... the transmission and receipt of digital audio and digital video content, commonly known as audio-on-demand, video-on-demand, and audio and video streaming."
The company started a process for licensing its streaming patents in summer 2002, by approaching adult entertainment companies that transmit, or provide access to, digital content on-line.
Acacia has also approached a number of mainstream webcasters, demanding royalties of up to 2% of the companies' annual revenue.
In February last year Acacia sued 39 adult entertainment companies which "were previously notified of their infringing activity" but which refused to enter into licensing arrangements. By the end of September 23 of these companies had obtained licenses, but the case was continuing against the remainder.
The hearing on Friday represents the first in a series of technical sessions, known as Markman hearings after the decision in the case of Markman v Westview in 1996. At such hearings, the judge will determine the extent and definition of the patent claims with a view to determining whether there may have been an infringement.
According to adult news site Xbiz, Spike Goldbert, CEO of New Destiny/Homegrown Video, one of the defendants, said after the hearing:
"It was the first step in a very long process, but it was a good step. There is still no question in my mind that when the patent was made it was never intended for the internet."
Robert Berman, Acacia's Executive Vice President of Business Development, told Xbiz:
"The judge asked some good questions, and as long as he follows the law, we will prevail."
He added:
"We have said all along that it's going to be a long process and we look forward to continuing to present our case in court."
The Markman hearings alone are expected to take months.
Acacia is one of an increasing number of companies that has acquired a reputation for enforcing a patent portfolio. The most dramatic of these has been the recent success of the tiny company Eolas Technologies, which sued Microsoft for patent infringement in its Internet Explorer browser. Not only was it awarded damages of $520.6 million, but it has frightened the entire browser industry. Although Microsoft is appealing, the verdict could have major implications for the way web pages are designed.
The significance of Acacia's patents transcends adult web sites. If their validity stands, they potentially cover almost all transmissions of compressed digital content, not only over the internet, but also over satellite and wireless services and pay-per-view cable TV.
Consequently, any business involved in providing on-demand digital content, from content companies to software companies and network service providers, will be affected.