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Patent Holder Warns Retailers, VSDA of Possible DVD Infringement

12 Jun, 2003 By: Joan Villa

With the DVD format now in its sixth year in the consumer market, few would have anticipated a patent dispute on such a well-established technology.

Yet hundreds of retailers and the Video Software Dealers Association trade group were caught off guard this week by a letter arriving by Fedex claiming that Multi-Format Inc. of Dumont, N.J., holds a patent purportedly covering a system and process used in playing DVD discs.

This claim is suddenly an issue to virtually the entire video industry because the U.S. Patent and Trademark Office reissued the patent — No. 38,079 — April 15, and in the process broadened the scope of Multi-Format's original patent to include a particular system of DVD playback. According to attorney Alan P. Block of Los Angeles firm Hennigan, Bennett & Dorman LLP, who is representing Multi-Format, the patent also covers a method of replaying stored information that is used when consumers watch a DVD movie.

“In our view, it's describing how a DVD is made and how it's played back,” Block explained.That interpretation means that retailers selling or renting DVDs are covered for “contributory infringement” of the patent, he said.

However, placing responsibility on retailers for patent infringement “would be an odd obligation for our patent laws to create,” responded VSDA president Bo Andersen, who is investigating the claims. “Our system works because retailers can buy goods and have confidence that the goods are merchantable when they have a substantial company supplying them.”

Multi-Format presented its 18-page patent along with a one-page letter sent so far to 200 retailers, suppliers, duplicators and manufacturers.

“As you undoubtedly know, the end-user purchasers of DVD discs view the video programs stored on those discs,” stated the letter signed by Block. “We believe that the activities of these purchasers, when they view the video program stored on the discs, are covered by at least claims 14 and 20 of the 38,079 patent. Because your company is in the business of selling such DVD discs, your activities contribute to and induce these purchasers' activities.”

The company is formulating a license fee that Block says is not finalized but “we do intend to be reasonable at first for early adopters,” he added.

Scott Whitmer, VP of nine-store Video Depot in Palm Desert, Calif., said he couldn't make sense of the letter and planned to ignore it.

But Andersen advises taking the charges seriously. “To not investigate [the patent claim] at all puts them at risk of being found by the federal circuit as ‘willful infringers,’ he said.

The VSDA has teamed with the Motion Picture Association of America (MPAA) and other groups to investigate the claims, which could be a lengthy process lasting a year or more, he said. For their part, retailers may respond to the letter individually but under antitrust law may not make agreements with other retailers to take action as a group, he added.

In an e-mail letter to members, Andersen promised the VSDA would “take a lead role in responding to these claims on behalf of member retailers,” and urged all members to contact him immediately.

Hennigan is a “substantial” law firm that has sued Wal-Mart, K-Mart, Sears, Federated and JC Penney in another patent infringement action and filed one of the largest class action cases in history against State Farm on behalf of 50 million automobile policy holders, Andersen added.

“The claims of infringement require technical analysis of the patent issued to Multi-Format on April 15 of this year and the functioning of various DVD systems as well as who is affected by such claims,” he stated. “That process is underway.”

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