Digital Patents Go to Court

A high-stakes battle over a key technology for managing the distribution of digital content has been launched, and the first volley is InterTrust Technologies' lawsuit against Microsoft for patent infringement.

A high-stakes battle over a key technology for managing the distribution of digital content has been launched, and the first volley is InterTrust Technologies lawsuit against Microsoft for patent infringement.

InterTrust, founded in 1990, holds extensive patents in digital rights management, a technology that enables companies to encrypt documents or media files and attach rules for their use. DRM is just beginning to fulfill its promise as an essential building block for commerce of digital goods.

Companies developing DRM worry that if InterTrusts patents hold up, they will be forced to pay costly licensing fees or awkwardly engineer their products to work around the patents. The outcome is unclear for corporate customers that are just beginning to use DRM to manage such assets as photos, logos, legal documents and corporate training videos. For example, using DRM, a training video could be encrypted so that a company could track how many times it is watched.

Even if the patents are eventually struck down, the legal morass could prove costly for DRM providers and their customers. And InterTrusts lawsuit is likely to be one of many technology patent battles ahead.

"Now that the dot-com boom is crashing, one of the things thats left to milk is the patents," said Greg Aharonian, publisher at the Internet Patent News Service, a newsletter covering technology patent issues. "Youll see a lot more of this."

The lawsuit, which asks for damages and an injunction against the distribution and sale of Windows Media Player and other products, focuses only on Microsoft -- for now. But in the April 26 lawsuit filed in San Jose, InterTrust reserves the right to add other companies. Some observers think the small, struggling firm is trying to make a business out of such legal fights -- or position itself to be acquired.

Suitor Sought?

Aram Sinnreich, a senior analyst at Jupiter Research, believes in the latter theory. "DRM is finally going to become very important in the very near term, and it sounds like their patents are very far-reaching," Sinnreich said. "If I had to pick one reason to explain the lawsuit, I think InterTrust is trying to goad Microsoft or someone else into buying them."

Other leading providers of DRM are ContentGuard and IBM; both declined to comment on the lawsuit.

DRM technology was first marketed for business-to-consumer applications, such as sales of digital music and electronic books. But since the systems can be awkward to use and often require downloads of client software, they havent been popular.

Recently, however, DRM started steadily gaining traction in the enterprise market in the form of digital asset management. Systems to help corporations efficiently manage use of their digital property are offered by companies such as Artesia Technologies, eMotion and MediaBin.

InterTrusts enormous patent portfolio has long frustrated rival companies developing DRM technology, which charge that the patents are overly broad.

For example, the patent that is at the heart of the Microsoft suit was filed in 1998 as a continuation of patents going back to 1994. The patent was issued in February. It governs basic aspects of DRM such as content rights management procedures; "superdistribution," which is the distribution of protected content from peer-to-peer; and subscription services for content governed by usage rules.

"If they get an adequate settlement out of Microsoft, that certainly wouldnt hurt their position with the other companies doing digital rights management," Aharonian said. "If they get a jury verdict, that really strengthens their hand."

A researcher at a large company that has developed DRM technology, who asked not to be named, complained that InterTrust has 5,000 to 10,000 pages of claims in its 18 existing patents, and more than 40 patents pending.

"Until they are invalidated, people will have to worry about it, because you have these huge, huge patents with zillions of different claims," the researcher said. "If you go to a patent attorney and give them 10,000 pages to read and the meter clicks at $300 an hour, expenses start mounting up very quickly."

Asked whether he believes the patents to be frivolous, the researcher responded: "No one can really be sure because they are so voluminous. . . . Some people are willing to give them the benefit of the doubt because they have very smart people on their payroll and theyve been around for quite a while, but most of our people are very skeptical of InterTrust patents."

Ed Fish, president of the MetaTrust Utility division at InterTrust, acknowledged that the patent that provoked the lawsuit covers very fundamental aspects of DRM systems. "They are fundamental aspects of technical components that we think are necessary for efficient digital rights management," Fish said. But, he added, "I dont want to make the point that this covers every functional means. The patent claims are technical and specific."

Jim Cullinan, a Microsoft spokesman, said Microsoft has been developing DRM technology for many years, but declined to comment on the specifics of the lawsuit. "We have just received this complaint and we continue to evaluate it," Cullinan said, reading from a prepared statement.

Fish said the complaint focused solely on Microsoft because the company spelled out the details of its system clearly enough in public documents that InterTrust felt sure Microsoft was infringing.

"Its possible that there are other infringers, but theres less information available," Fish said. "Were continuing to investigate."

Given the stakes involved, Aharonian said, the courts will probably act quickly on the injunction. If InterTrust can get an injunction, he added, Microsoft may well choose to settle rather than hold up the distribution of Windows XP, the latest version of its consumer operating system which is scheduled for release this fall. Microsofts Media Player and DRM technology, the subject of the lawsuit, are built right into the new OS.

A settlement in the current case would be a boon to InterTrust, which is struggling financially. The company reported a net loss of $21.6 million for the first quarter, and during its earnings call last week, it announced it would lay off 15 percent of its staff.

InterTrust has been peddling its patents to its rivals for the last several years. So far, none of these companies license the InterTrust technology -- primarily because the licensing fees InterTrust has asked seemed unreasonably high, several companies said privately.

Still, this lawsuit is "not going to be a slam dunk" for either Microsoft or InterTrust, Aharonian said. "InterTrust comes in with a good hand, but Microsoft has a ton of money -- and if it fights off the injunction, maybe it just bleeds InterTrust to death."