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DVD Patent Lawsuit Targets Retailers

21 Aug, 2003 By: Holly J. Wagner

Attorneys representing two inventors claiming they have the right to collect money from DVD rental and sellthrough dealers have put all of the major retailers, rental chains and player manufacturers on notice that they expect to be paid.

The licensing scheme seeks to collect 3 cents from every sellthrough disc and 2 cents for every DVD rental, as well as $2 per DVD player sold, $3 for each personal computer sold with an onboard DVD-ROM drive and $2 for computers without DVD-ROM drives.

A preliminary estimate from the Video Software Dealers Association (VSDA) is that “at current DVD sales and rental volumes, this would generate $60 million a year to Multi-Format,” said Sean Bersell, VSDA's VP of public affairs.

The Los Angeles firm Hennigan, Bennett & Dorman, representing Multi-Format,Inc., of Dumont, N.J., has sent more than 100 letters to retailers, player and computer manufacturers and studios announcing their intent to go to court if the retailers fail to sign onto licensing agreements by Oct. 15.

Attorney Alan Block, who represents Multi-Format, said the suit targets retailers for contributing to consumers' infringement.

“The way that infringement occurs is when the end user plays their disc. The person or people the end users deal with are the retailers,” Block said. “They probably have indemnification agreements with the studios or distributors. When we are looking to license the patent and we are looking at the end of the stream where the most money is, that's the retailers.”

Named in the patent infringement complaint, which has been filed in U.S. District Court but not legally served, are Amazon.com, Best Buy, Buy.com, Circuit City, Costco, Fry's Electronics, K-Mart, Radio Shack, Sears, Roebuck & Co., Target and Wal-Mart.

“We laid our case out to these people and said, here's our program, here's how we want to license this and here is how we think you infringe,” Block said. “End users are the actual infringers.”

The firm also notified Blockbuster Video, Hollywood Video and Movie Gallery, although they are not parties in the case, Block said.

Letters sent to retailers give an Oct. 15 deadline for agreeing to the terms or facing legal action. Block said the firm is not targeting small retailers, but Bersell said concerned small dealers have contacted VSDA, which has hired its own lawyer to evaluate the case.

"VSDA is aware of several four-store operations that received the mostrecent letter from Multi-Format's attorneys, and these retailers arefamily-owned and -operated small businesses, not major chains," Bersell said.

“We are perplexed why retailers would be targeted,” he continued. “The VSDA has retained patent counsel, a law firm that has expertise in intellectual property law. He is looking at the specific question of whether retailers, by renting and selling DVDs, are liable for contributory patent infringement.”

Spokespersons for the DVD Forum did not respond to requests for comment.

Conspicuously absent from the suit are the studios, replicators and player software creators like Microsoft, which makes Windows Media Player, and Real Networks, which offers the RealPlayer. Both enable video playback on computers whose makers Block said have been notified of the action.

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