Verance Renews Patent Battle With Digimarc On Digital Watermarking

Digital watermark developers Verance and Digimarc, whose technologies are at the heart of the AACS copy protection for Blu-ray, have renewed their legal battle: Verance seeks to have 22 Digimarc patents found invalid.

Verance, which licensed Digimarc patents in 2002 under a settlement of an earlier legal battle, sued Digimarc in U.S. District Court in Wilmington, Del., seeking an order that its technology doesn’t infringe 22 patents granted during a 13-year period. Verance specializes in audio watermarking technology that embeds digital codes in audio recording or the audio portion of video content.

The patents at issue in Verance’s suit were granted Digimarc founder Geoffrey Rhoads between 1997 and 2010. Among these was a patent issued in January and covering a method for controlling audio or image content and accessing a database or electronic memory to get the permitted use rights.

Verance argued that Digimarc’s patents are invalid and unenforceable. Verance got its start in 1999 when its VCMS/A audio watermarking technology was selected as the copy protection system for DVD-Audio and later for portable music players. Using its patents, Digimarc wrote the Secure Digital Music Initiative (SDMI), which set standards for portable music players, that its members, including Verance, needed to license its IP portfolio. Verance paid Digimarc “every dollar demanded over the years” for royalties, even “in excess of” 100 percent of revenue, Verance said.

Verance later extended VCMS/A to include video playback control, which Digimarc didn’t include in Verance’s original license. To insure that Digimarc wouldn’t sue its customers again, Verance was “forced” to amend the original license at an “unconscionably” high royalty based on Verance’s revenue. While Verance continuing paying royalties to Digimarc, it also discovered prior art and its products have “evolved and changed."

"Both factors only reinforced Verance’s long-held position that its products” don’t infringe Digimarc’s patents, Verance said. “Most importantly, unlike before, Verance’s business has grown to a point that it now has the resources to challenge Digimarc patents,” the company said in the suit.

Digimarc CEO Bruce Davis declined to comment on the suit on an earnings call Wednesday. But he called the final AACS spec something Digimarc and Verance “were waiting for for 10 years” and will provide a “nice income stream for both of us for many years."

Digimarc’s Q3 net loss widened to $1.5 million from $700,000 a year earlier despite an increase in revenue to $5.2 million from $4.8 million. The downturn in net income was tied to a doubling of Digimarc’s $600,000 share of a loss posted by its joint venture with Nielsen Co. The companies forged a partnership last year that covers TV viewing measurement and how users make purchases over cellphones. The agreement was an extension of a 2007 pact that resulted in the Nielsen Digital Media Manager for monitoring copyrights. Digimarc also developed a Media Sync platform with Nielsen that debuted in September as an application for Apple’s iPad tied to ABC-TV’s short-lived My Generation series. My Generation was canceled after a short run. Media Sync is designed to synchronize a TV program with Internet-based content and social media tied to it. The joint venture with Nielsen is “taking longer for us to figure out how to position these technologies within the media transformation space than I hoped for,” Davis said. But the companies are “still optimistic” that they are “on the right track to provide good value and growth opportunities,” Davis said.

Digimarc also reached agreement to license 600 issued patents and 300 related applications to Intellectual Ventures, which will market them to potential customers. Intellectual Ventures is guaranteeing a minimum $36 million return on the investment during the first three years of the agreement, Davis said. Digimarc will get 20 percent of any profit that the licensing program generates, Davis said. Intellectual Ventures also is required to pay Digimarc at least $4 million over five years for help in developing and maintaining licensed assets. The move will cut Digimarc’s annual costs $1 million, the company said. Intellectual Venture is licensing Digimarc’s “more mature” patents. Digimarc keeps control of four recently issued patents, Davis said. Digimarc increased R&D spending on bringing its digital watermarking technology to mobile products, Davis said.