March 4th, 2005
DRM patent holder seeks 12 percent of iTunes/iPod gross from Apple
Earlier today, I received an e-mail from Peter C.W. Chung who is associated with a Hong Kong-based company called Pat-rights that claims to hold a patent on the digital rights management (DRM) techniques that Apple uses in its iTunes software and iPod portable digital audio players. The e-mail, which was a reproduction of a posting on Pat-right’s Web site, says:
The posting goes on to identify Damascus-based patent litigator Joseph J. Zito as the attorney that will be representing Pat-rights in its dispute with Apple. According to the United States Patent and Trademark Office’s records, the patent was granted to Tse Ho Keung in December 2003. Though I’m not a patent attorney, the filing details a process that unquestionably resembles the process used by Apple’s iTunes to enforce the DRM policies that Apple applies to music that’s sold for download by its iTunes music store. The filing never mentions digital audio usage but instead discusses the process in the context of software usage. This morning, during a telephone interview, Zito said that "In the instance of licensing through subscription, digitized music and software are the same thing."
Here’s a transcription of the interview:
Q. Is Pat-rights going to sue Apple?
A. My client developed a software method for verifying subscription on-line prior to allowing download. We expect to be successful in licensing negotiations with Apple. They’re a good company that understands intellectual property rights and we think they’ll be reasonable.
Q. Your client is demanding 12 percent of Apple’s gross on the gross proceeds from iTunes and iPods. Is that negotiable?
A. I can’t comment on negotiability. I need to negotiate that with Apple.
Q. What has been the timing of the events so far?
A. My client was first in touch with Apple during the months of December and January so Apple has been aware of the issue for a couple of months. I didn’t get involved until February when the client contacted me for the first time. I sent a letter to Apple last wednesday and they received it this past Monday (Feb 28, 2005).
Q. Your client’s posting says that Apple is being given 21 days. Does that mean that if things aren’t worked out by then that you’ll file a lawsuit on March 21st?
A. That’s our intent.
Q. The posting mentions treble damages. What are those.
A. If the court finds that Apple willfully infringed on my clients patent, it can enhance the damages up to 3x.
Q. When I read the patent, it looks like it can be broadly applied to other DRM schemes. Do you and your client share that view?
A. It’s fair to say that there are appplications to
other DRM schemes.
Q. So, your client could go after others after Apple?
A. Yes, there could be others after but that goes into the area of what my client is intends to do with his patent rights and I’m not aware of any plans. You’ll have to talk to him.
Q. Have you identified which other DRM schemes could be infringing?
A. My client knows of them but I would rather not say before he has made decision on what he’s going to do.
Q. Does your client have a working implementation of the patent or is just a design?
A. You’re asking if it’s a paper patent. That’s going to be an important issue in this case as it is in all such cases. This case will hinge on a lot of things so I’d rather not comment on what our plan is.
Q. The name "Pat-rights" suggests that the company is a holding company for patent portfolios. Is it?
A. One could take that from the name, but as far as I know, he’s enforcing his own rights
Q. But if he wins or Apple settles, theoretically, he’d have enough money to buy other patents up.
A. Yes, he would have enough cash to form a company like [Nathan Myhrvold's Intellectual Ventures].
Q. Why did your client pick you?
A. He did some research on this, talked to a lot of people, found out that we do a lot of patent lititgation, and cold called us. He did his homework and called the right firm. We’re feared. I don’t know if we’re well respected. But we’re feared.
This is the world that that those who abhor patents on software fear most — patent holding outfits whose purpose in life is to extract royalties from others. In the case of DRM, I haven’t even scratched the surface of the mess that patents on DRM techniques is inviting. Today for example, it’s a royal pain for end users to have to deal with different DRM techniques for each of their digital activities. If you have to go to two different online destination to get the downloads you want, chances are that one DRM technology on your device won’t do. Right now, it’s largely a one-to-one relationship. This is the sort of situation that end-users may not put up with for very long — which could mean an eventual defacto standard.
Like what almost happened in the Eolas case where one patent holder controls the rights to a technology that’s used by virtually everyone on the Internet, a DRM monopoly could give a patent holder control over a significant portion of the Internet if not the entire Net altogether (since digital rights applies to virtually every activity we engage in on the Net). This why the world is watching and waiting to see how the European Union will resolve its deliberations over software patents (the vote is Monday and things are looking good for patent holders).
What’s the solution to the problem at hand? It’s hard to say. If all DRM software patents were invalidated, then it’s likely the Net would gravitate to a single open standard and everybody would be able to breath a sigh of relief. Software and content developers including musicians could give up on the idea of DRM being applied to their content and then the technology would end up being useless. But that’s not about to happen as, in the course of protecting their business models, both the software and entertainment industries are looking to keep piracy at bay. There’s simply too much too lose. There’s also too much to gain for the company that ends up with the intellectual property rights to a defacto DRM standard should one emerge and Pat-rights isn’t the only company looking to rule the DRM landscape with its patents. More to come.
