New Foe for Webcasters in Royalty Fight

Michael Roe, operator of the Internet radio outlet Radioio, spent the better part of 2002 enmeshed in a bruising battle with royalty-seeking record labels that threatened to turn his station’s surging popularity into a fatal liability.

Now, two months after Roe signed a deal with the labels that preserved Radioio’s ability to play music, a new adversary is demanding royalties for the technology that his site uses to stream those tunes to listeners.

Acacia Research Corp. of Newport Beach has notified Webcasters such as Roe that they’re infringing the broad patents the firm holds over the online transmission of digital music and other media. The company wants 0.75% of the stations’ revenues as a licensing fee.

Acacia, an erstwhile Internet incubator now focused on acquiring and enforcing technology patents, has ambitious plans for collecting royalties from online movie services, porn sites, hotels with in-room entertainment systems and cable operators that offer pay-per-view and video on demand.

But Roe isn’t interested in going along with that plan, which would cost him close to $4,000 this year.

“We feel this is just another example of someone wanting to take old patents and apply them to new technology,” he said from his office in Jacksonville, Fla. “We’re not going to pay them.”

At least one Webcaster has struck a deal with Acacia. Radio Free Virgin, a unit of Virgin Audio Holdings, calculated that it would cost more to fight Acacia’s patent claims in court than to pay a royalty. Robert A. Berman, Acacia’s general counsel, said more deals should be in the offing.

“There are a large number of potential licensees,” he said. “We are systematically beginning to approach them.”

Roe said he was stunned to be drawn into a patent dispute, considering that his station uses off-the-shelf technology from brand-name companies such as Microsoft Corp., RealNetworks Inc., Apple Computer Inc. and Nullsoft, a unit of AOL Time Warner Inc.

But Bruce Lehman, president of the nonprofit International Intellectual Property Institute and former head of the U.S. Patent and Trademark Office, said entertainment companies had better get used to such demands as they shift to “high-tech methods of reaching their public and controlling their products” -- an arena in which patent battles are commonplace.

Acacia claims that its patents cover the transmission and receipt of digital audio and video programming via the Internet, cable and satellite TV, among other systems. Although they may not apply to every online media outlet, Berman said, Acacia believes that the patents cover the streaming technology used by Internet radio broadcasters, as well as on-demand services such as Net jukeboxes.

Roe launched Radioio from his home in March 2000, and for the first two years his eclectic mix of popular-music formats had trouble finding an audience. But after Microsoft started featuring Radioio in its Windows Media Player software last June, the station quickly attracted a huge following.

Within three months, the station cracked the top 10 of Internet radio stations, according to MeasureCast, a ratings service owned by Arbitron Inc. MeasureCast currently ranks Radioio as the most popular individual station online.

The burgeoning audience threatened to saddle Radioio with a crippling royalties bill from record labels and artists until December, when Congress cleared the way for Radioio and other small Webcasters to obtain a deep discount.

Now Radioio’s popularity has made it a target for Acacia. So has its relatively small size, Roe suspects.

“They’re coming to me because they know that I don’t have the resources to engage in any serious legal battle with them,” he said.

Acacia’s Berman denied that Radioio has been singled out.

“We’re currently in negotiations with large companies, small companies, companies of all sizes,” he said. “We’re looking to ask for a very reasonable royalty for the use of our technology.”

Acacia’s patents were initially awarded to a tiny firm called Greenwich Information Technologies, which made its first application in 1991 and received the patent in 1992. That was three years before RealNetworks developed groundbreaking software for live Internet radio broadcasts and six years before Nullsoft developed its technology for streaming a set of standard MP3 files.

Greenwich never developed its patented ideas into products, Berman said. Acacia acquired the company in 2001.

Radio Free Virgin General Manager Zack Zalon said that he frequently hears from patent holders demanding royalties and that Acacia is the first one to merit licensing. He wouldn’t disclose the amount Radio Free Virgin agreed to pay, although he said the royalties were “something we could live very comfortably with.”

But he added: “There’s no technology we’re infringing with Acacia. It’s a process we’re infringing. And that’s unfortunate.”

At least one other company, SightSound Technologies of Mount Lebanon, Pa., is making similarly broad patent claims over audio and video distribution online.

A federal judge in Pittsburgh could rule this year on SightSound’s patent claims, which were filed three years before the ones Acacia owns.

Berman argued that SightSound’s claims weren’t relevant to Acacia’s patents.