ha.. suck shit.
A Patent On Porn
Seth Lubove, 04.02.03, 9:00 AM ET
NEW YORK - It must have seemed like easy pickings at the time.
Acacia Research says it owns five U.S. and 17 international patents covering the transmission and receipt of digital audio and digital video content, otherwise known as streaming media. But before attempting to enforce its patents with big outfits such as Yahoo! (nasdaq: YHOO - news - people ) and The Walt Disney Co. (nyse: DIS - news - people ), Acacia instead chose to go after the smallish adult Internet sites that peddle videos of women (and men) doffing their clothes--and much more.
Beginning last year, the company sent a series of letters to 700 racy Web sites with offers to arrange royalty deals, typically consisting of 1% to 2% of gross revenue. Do the deal or we'll see you in court, warned Acacia. Eight firms agreed to Acacia's terms. But 40 didn't, and Acacia promptly slapped them with lawsuits. Rather than buckling, though, several of the porno sites joined together and stood their ground. Now Acacia is in the fight of its life and may even face a shareholder revolt as a result.
"This is a travesty to the legal system," complains E. Michael "Spike" Goldberg, chief executive officer of the company that owns HomeGrownVideo.com, a site featuring amateurs performing various sex acts in their homes and other creative locales. "They've made a business model out of a loophole," he says of the broadness of Acacia's patent claim. "It's like they're trying to patent breathing."
Goldberg didn't just get mad. He's getting even. Along with an adult streaming-media outfit called Video Secrets and several other sex sites, Goldberg somehow convinced the prestigious intellectual property law firm of Fish & Richardson to take on their case.
"We feel strongly about this case. It's not about the business or the content, it's about the patents and the merits of the case," says Fish & Richardson attorney Gregory Madera. "We intend to put on a very vigorous defense." The firm will fire its first shot across the bow by April 15, the court's deadline for answers to Acacia's complaints.
After first describing the porn sites as "a billion-dollar industry--that's where the money is," Acacia's chief executive officer, Paul Ryan, now downplays the dispute as a "sideshow." "It's maybe 1% of our potential revenues," he sniffs, preferring instead to talk about "seriously meaningful discussions with major media companies"--which he declines to name. But Ryan, who is also the chairman of Acacia subsidiary Acacia Technologies (nasdaq: ACTG - news - people ), isn't shying away from the fight either. "We have to enforce our patents, and this group is collectively generating a large amount of revenues. We had to initiate this litigation to get a number of these peoples' attention level."
That he has. Acacia has become the talk of the Internet's adult world, which has gleefully flamed the company and its patent claims on various chat boards. "Has Acacia lost their mind?!" hooted a posting on Ynotmasters.com, an industry site. "Acacia is a LEECH that has invented nothing, and now wants us to pay them to use technologies they didn't do anything to promote," wailed another critic on LukeFord.com.
The controversy comes just as the company is trying to right itself after a difficult 2002. Acacia lost a big battle last fall, when a U.S. District Court ruled that the defendants in yet another case didn't infringe on the company's patent for the V-chip, which allows parents to block out objectionable material on their television set. Not that it matters much anyway: The patent expires this July. In another setback, the company's other business of designing "biochip" semiconductors settled a lawsuit last fall with Nanogen (nasdaq: NGEN - news - people ) that requires Acacia's CombiMatrix (nasdaq: CBMX - news - people ) unit to pay Nanogen the equivalent of $10.8 million in stock, cash and future royalties.
Acacia Research reported a net loss last year of $29.6 million on sales that plummeted to $882,000, from $24.6 million the previous year. If nothing else, the stock is a screaming bargain. The market values the entire company at just 43% of the $55 million Acacia has on hand in cash and cash equivalents. "All I know is I've been buying a lot of stock lately," Ryan says gamely.
Noble Trenham is not amused. A tough-talking, 69-year-old former Navy jet pilot who claims he slipped into Moscow's Red Square in 1960 to lecture the Communists about free enterprise, Trenham runs a small investment firm near Pasadena, Calif. He says he and his "friends" collectively own 30% of Acacia's stock. Trenham's firm, First Global Securities, has also helped find investors for a series of private placements in Acacia. But Trenham, who has battled with several companies over the years (and been in and out of court on several occasions) has lost confidence in Ryan and his management team.
"It's time for shareholders to rise up and do something," he says, acknowledging that he even called Spike Goldberg of HomeGrownVideo about attempting a takeover. "I don't believe there is a game plan that is going to build anything, and I believe the strategy is flawed. Am I going to just sit here and let it ground down to nothing? That's not my nature."
Less offended than bemused, Ryan is incredulous at Trenham's claim that he controls almost a third of the company's stock. "I find that inconceivable, unless he has a very broad definition of 'friends,'" Ryan deadpans about Trenham, who has the curious habit of memorizing the birthday of everyone in Acacia's management. "He is an unusual and colorful guy, and occasionally he has introduced the company to some really significant people. Once a year, he has some wild theory that he's going to do something grandiose to our business."
But Trenham and the porn guys aren't backing down "What it really comes down to is they want to partner up with us and take a piece of our money," says Gregory Clayman, president of Calabasas, Calif.-based Video Secrets. Using overseas studios, the company broadcasts interactive strip shows featuring women and men disrobing at a price of $4 to $5 per minute, depending on--never mind, better you don't know. "We don't need a partner for years and years."
A Patent On Porn
Seth Lubove, 04.02.03, 9:00 AM ET
NEW YORK - It must have seemed like easy pickings at the time.
Acacia Research says it owns five U.S. and 17 international patents covering the transmission and receipt of digital audio and digital video content, otherwise known as streaming media. But before attempting to enforce its patents with big outfits such as Yahoo! (nasdaq: YHOO - news - people ) and The Walt Disney Co. (nyse: DIS - news - people ), Acacia instead chose to go after the smallish adult Internet sites that peddle videos of women (and men) doffing their clothes--and much more.
Beginning last year, the company sent a series of letters to 700 racy Web sites with offers to arrange royalty deals, typically consisting of 1% to 2% of gross revenue. Do the deal or we'll see you in court, warned Acacia. Eight firms agreed to Acacia's terms. But 40 didn't, and Acacia promptly slapped them with lawsuits. Rather than buckling, though, several of the porno sites joined together and stood their ground. Now Acacia is in the fight of its life and may even face a shareholder revolt as a result.
"This is a travesty to the legal system," complains E. Michael "Spike" Goldberg, chief executive officer of the company that owns HomeGrownVideo.com, a site featuring amateurs performing various sex acts in their homes and other creative locales. "They've made a business model out of a loophole," he says of the broadness of Acacia's patent claim. "It's like they're trying to patent breathing."
Goldberg didn't just get mad. He's getting even. Along with an adult streaming-media outfit called Video Secrets and several other sex sites, Goldberg somehow convinced the prestigious intellectual property law firm of Fish & Richardson to take on their case.
"We feel strongly about this case. It's not about the business or the content, it's about the patents and the merits of the case," says Fish & Richardson attorney Gregory Madera. "We intend to put on a very vigorous defense." The firm will fire its first shot across the bow by April 15, the court's deadline for answers to Acacia's complaints.
After first describing the porn sites as "a billion-dollar industry--that's where the money is," Acacia's chief executive officer, Paul Ryan, now downplays the dispute as a "sideshow." "It's maybe 1% of our potential revenues," he sniffs, preferring instead to talk about "seriously meaningful discussions with major media companies"--which he declines to name. But Ryan, who is also the chairman of Acacia subsidiary Acacia Technologies (nasdaq: ACTG - news - people ), isn't shying away from the fight either. "We have to enforce our patents, and this group is collectively generating a large amount of revenues. We had to initiate this litigation to get a number of these peoples' attention level."
That he has. Acacia has become the talk of the Internet's adult world, which has gleefully flamed the company and its patent claims on various chat boards. "Has Acacia lost their mind?!" hooted a posting on Ynotmasters.com, an industry site. "Acacia is a LEECH that has invented nothing, and now wants us to pay them to use technologies they didn't do anything to promote," wailed another critic on LukeFord.com.
The controversy comes just as the company is trying to right itself after a difficult 2002. Acacia lost a big battle last fall, when a U.S. District Court ruled that the defendants in yet another case didn't infringe on the company's patent for the V-chip, which allows parents to block out objectionable material on their television set. Not that it matters much anyway: The patent expires this July. In another setback, the company's other business of designing "biochip" semiconductors settled a lawsuit last fall with Nanogen (nasdaq: NGEN - news - people ) that requires Acacia's CombiMatrix (nasdaq: CBMX - news - people ) unit to pay Nanogen the equivalent of $10.8 million in stock, cash and future royalties.
Acacia Research reported a net loss last year of $29.6 million on sales that plummeted to $882,000, from $24.6 million the previous year. If nothing else, the stock is a screaming bargain. The market values the entire company at just 43% of the $55 million Acacia has on hand in cash and cash equivalents. "All I know is I've been buying a lot of stock lately," Ryan says gamely.
Noble Trenham is not amused. A tough-talking, 69-year-old former Navy jet pilot who claims he slipped into Moscow's Red Square in 1960 to lecture the Communists about free enterprise, Trenham runs a small investment firm near Pasadena, Calif. He says he and his "friends" collectively own 30% of Acacia's stock. Trenham's firm, First Global Securities, has also helped find investors for a series of private placements in Acacia. But Trenham, who has battled with several companies over the years (and been in and out of court on several occasions) has lost confidence in Ryan and his management team.
"It's time for shareholders to rise up and do something," he says, acknowledging that he even called Spike Goldberg of HomeGrownVideo about attempting a takeover. "I don't believe there is a game plan that is going to build anything, and I believe the strategy is flawed. Am I going to just sit here and let it ground down to nothing? That's not my nature."
Less offended than bemused, Ryan is incredulous at Trenham's claim that he controls almost a third of the company's stock. "I find that inconceivable, unless he has a very broad definition of 'friends,'" Ryan deadpans about Trenham, who has the curious habit of memorizing the birthday of everyone in Acacia's management. "He is an unusual and colorful guy, and occasionally he has introduced the company to some really significant people. Once a year, he has some wild theory that he's going to do something grandiose to our business."
But Trenham and the porn guys aren't backing down "What it really comes down to is they want to partner up with us and take a piece of our money," says Gregory Clayman, president of Calabasas, Calif.-based Video Secrets. Using overseas studios, the company broadcasts interactive strip shows featuring women and men disrobing at a price of $4 to $5 per minute, depending on--never mind, better you don't know. "We don't need a partner for years and years."
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