VOD lawsuit pits USA Video vs. Movielink
Saturday, 04 December 2004
VOD lawsuit pits USA Video vs. Movielink
by Martin A. Grove

Video views: Video-on-demand, which lets people view movies at home without having to trek to and from video stores and deal with late fees, is an idea that was clearly ahead of its time 10 years ago when USA Video began testing its VOD technology.

At that time, VOD seemed imminent with a six-month field trial set for Rochester, N.Y. where viewers would be able to call up and control movies they wanted to watch. Today, a decade later, VOD is finally here. The point was hammered home recently when I had a call from USA Video Interactive Corp. (USVO) president and CEO Edwin Molina. We'd last spoken in the fall of 1993 when Molina was heading marketing for USA Video and had told me about the company's plans to test its VOD technology in Rochester. Unlike talk at the time about how 500-channel cable TV would enable viewers to see movies when they wanted to through multiple start times on numerous channels, VOD had the advantage of letting people fast-forward, pause and rewind movies on their television sets the same way they could control the videocassettes they rented.

USVO, which is publicly held and based in Old Lyme, Conn., holds the pioneering patent for store-and-forward video, filed in 1990 and issued by the U.S. Patent and Trademark Office July 14, 1992, which has been cited by over 165 later patent applicants. USVO holds similar patents in Germany, Canada, England, France, Spain, Italy and Japan.

Looking back at the last 10 years, Molina and USA Video patent counsel Andrew Huffman focused with me on the twists and turns that VOD has taken to this point. "When we talked in 1993," Molina recalled, "we continued the progress of not only building our deployment and moving the deployment forward, but actually having a successful Video-on-demand deployment in Rochester, New York in 1994 and '95. (With) the first generation of VOD, there were three companies primarily in that race. It was USA Video (and) Bell Atlantic was running their deployment in Reston, Virginia and Time Warner (was active) in Orlando, Florida.

"It was (about) 1995 that we decided that it was too early to move into this market space because of the issue of bandwidth. The other two companies (who were then involved in VOD) shut down the deployment, so to speak, and decided to wait and see where the market was going to go and when there was going to be enough bandwidth to pick it up and start again."

Molina's reference to our conversation back in 1993 sent me digging through my archives of columns -- today's is number 2,804 in the series that started here July 8, 1985, all of which are in my files waiting to be turned into a book someday -- where I found a two-part piece that ran Oct. 29 and Nov. 1, 1993. In the first of those two columns I began my interview with Molina by observing with VOD in mind that, "It may sound like the information superhighway is still years away, but this may be a case where the future turns out to be here now." Well, it certainly sounded at the time like that was about to be the case. As things turned out, it took a bit longer to get there.

Ten years later, Molina reflected on the state of VOD, noting, "This essentially is the third generation. The second generation was around 1998 to 2001. It was a shorter window and it was quicker to close. But in 2004 we're seeing that the third generation is sticking. This is the one that is actually unfolding. The bandwidth is there. The concentration of delivery to homes is a major effort in the industry. Home entertainment is now becoming the big word out there and people are actually building their home theaters to be able to get ready to start not only receiving what's out there today, but to get ready for what's coming, which will be, I think, a big explosion through the bandwidth of more entertainment and more applications to the home."

At the same time, VOD is the subject of litigation between USVO and some of Hollywood's major studios. "The research and development work was going on at USVO in the late '80s and early '90s and it was the platform on which USVO succeeded in its initial rollout of VOD," Huffman told me, "which Ed describes as the first generation of that technology. And, really, USVO was the company to prove it could be done. We were the smallest of the three horses in the race, but we won the race and had the first successful demonstration of an actual live video-on-demand deployment to a home. The two technological factors that were key to that success were the combination of adequate bandwidth and adequate compression technology. Obviously, as one of those improves the demands on the other one are not as strenuous. As you have better and better compression technology, you're able to use your bandwidth more efficiently and that, of course, is what exactly began to happen over time.

"Throughout the 1990s and until this day, the two parallel developments have been that bandwidth has not only become more widely available, but it's become more economical and, at the same time, compression technology has improved by leaps and bounds. So putting those two factors together has really made video-on-demand, which we proved to be technologically feasible back in the early '90s, now to be commercially feasible, as well. If you read the patent that was granted to USVO as the result of all that work back then, one of the key features of it is that it calls for the transmission of video content in faster than real time, which seems like a simple enough requirement, but of course that was the real challenge back then -- to be able to get video into the home quickly enough that you could interact with the video content that was coming in -- that you could fast forward, rewind, pause, whatever -- without having to wait for another 30 minutes for the next chunk of it to download."

That's where things are right now. "What was technologically feasible then," Huffman pointed out, "is now not only commercially feasible, but it's being pursued by a number of different companies at various stages of the supply pipeline -- all the way from the content providers, the studios themselves, down to the software providers, infrastructure companies and a variety of other players filling in the cracks there. Our focus has been to pursue what we feel is the highest profile infringer right now of USVO's pioneering developments in this field and that's Movielink, the consortium of five major Hollywood studios (Warner Bros., Paramount, MGM, Universal and Sony), who have pooled their resources together to provide their content online to subscribers through a video-on-demand infrastructure to their PC or to their home.

"We just saw (news reports) not too long ago that they completed their one millionth download of video through the Movielink Web site, which shows that it is something that's taking off. It is something that we think is the wave of the future. Our efforts to negotiate an arrangement with Movielink under which our patent rights and our pioneering work in this field would be acknowledged did not pan out the way we hoped they would as I would say is commonly the case from my experience in the field of patent litigation in years past. When there's sort of a David and Goliath situation and you've got a large company that has the market clout and the resources behind it, a common tactic is to try to delay or ignore or squash the little guy in hopes that the whole problem will go away. Movielink has been unable to pursue that strategy in this case even though it has tried."

What happened, Huffman continued, "is we filed suit (on April 10, 2003). Steptoe & Johnson, a major international law firm headquartered in Washington, D.C. with a fantastic team of lawyers there (is) working on our behalf. Bill Koegel, a seasoned trial lawyer, is our lead attorney on the team there. The team also includes a number of attorneys with expertise in patent law specifically and in the field of technology relating directly to what we're talking about in this case. We filed suit in the district of Delaware, which is the court where I did a lot of my private legal practice before joining USVO. One of the great things about that court is that unlike in some other courts around the country, the judges here are very familiar with the intricacies of patent cases. In particular, they're very well attuned to the common tactic of a large defendant to try to delay or derail the case through procedural maneuvers that really work to the disadvantage of a small plaintiff.

"Movielink's efforts to do that in this case have failed. They tried to move the case to a different court in a different jurisdiction. That failed. They tried to insert counter-claims against us into the case and that effort failed, as well. They tried to stonewall us in the process of civil discovery, where we were entitled to examine some of their records and aspects of their infringing technology. And those efforts by Movielink failed, as well. We're now at the point in the litigation where a whole lot of the important pre-trial work has been completed now and we are entering the homestretch. The case is slated to go trial before a jury in April of 2005."

In the months remaining before the trial, he added, "a number of important motions in the case are being argued. (U.S. District Judge Kent Jordan heard oral arguments Nov. 30 and will) make appropriate decisions based on the facts and the law that pertain to the case. My guess would be that those decisions will come some time in December or January, perhaps not all at the same time. There may be a flow of decisions that come down. Based on the decisions the judge renders in the case, the lawyers for both sides will put the finishing touches on the preparation of the case for presentation and trial. And then there will be a flurry of last minute pre-trial activity and then the trial, itself, will go forward in April. We're just very pleased with the way the case has gone so far."

It's clearly been a long haul getting there. "We've been at this for now over a year and a half," Huffman said. "A lot of hard work and perseverance is going to pay off, we think, by the time we reach the trial stage. We have high expectations for our day in court."

Focusing on the days when his company was first developing video-on-demand, Molina told me that, "USA Video had wrapped its hands around a company called Digital Equipment at that time for the server technology and then (worked with) Samsung for the set-top box and, of course, Rochester Telephone for the homes that they had under their subscriber base. Video-on-demand has (been a term that's) loosely used. I think now people are starting to understand that video-on-demand really means on-demand. It means, I'm going to order that movie when I want it. I'm going to watch it when I want it. I'm going to be able to control it. I'm going to be able to fast forward, pause and reverse. I'm going to be able to watch the movie again, if I want to, within that 24 hours span. I'm not going to have to worry about the late fee program that happens at the video store. I'm not going to have to worry about whether that movie is available. That movie will be available today. To be able to have what you want when you want it, that's true video-on-demand. And that's the age that we're in and moving into today."

Efforts at fighting video piracy are also in USVO's sights. "USA Video actually focused on video piracy about four years ago as we started to look into the market that delivery of video was coming into now in the second generation (of VOD)," Molina explained. "We really started to take some aggressive actions towards it. We saw that you can't stop somebody from breaking into something, so encryption technology, which is digitalized management (or) what they call DRM, has been a real big technology in the marketplace for the last three, four or five years. And just recently, we started to develop a watermarking technology. I'm going back now about three and a half years ago.

"Watermarking is a technology that we're starting to hear a lot about. You can watermark the master, the actual content itself, at the first stage before it moves through the market chain that's inside Hollywood and outside of Hollywood. That watermark is embedded into every frame of the picture. And that watermark is different in every movie. So, therefore, it's like having a fingerprint. It's imperceptible. You can't see it. But it's robust enough that you can't destroy it. There's a real fine line about that ability to do that. We've developed a technology called Media Sentinel, which leaves a fingerprint. It's like a forensic tracker, like a DNA. As this starts to roll out, we're going to start to hear about watermarking. You'll see a label on there that will say this (product) has been watermarked. It gives the person who's actually holding that (product) the opportunity to know that (he or she) could get caught. So if there's any mass production of any kind of content, you can go back and actually trace it right to its source."

As long as the original content was fingerprinted, the watermarking process, Molina added, could be used to track it "whether it was going to be downloaded or whether it was going to be put onto a DVD or whether it was going to travel from one studio to another studio to a post-production house to another post-production house. That watermark is on there so any time and any place that it travels it (will be) copied and then (if it were) pirated you could go to those locations and track it right back to where the original piracy started."

There are, Huffman clarified, "two distinct technologies. One is the underlying technology to enable video-on-demand, itself. This idea of transmitting video content in less time than it takes to view the content. That's the aspect of the work that was done back in the early '90s. The second aspect is of more recent vintage and is very much a subject of attention in Hollywood and around the industry nowadays, which is, 'Okay, we know now how to (send something across) the Internet or put it on a DVD or whatever else, but how do we keep it from getting ripped off?' The two go hand in glove, but they really are two distinct technologies."

In some cases, piracy starts while films are actually still in production and studios are just beginning to see footage in dailies. "We signed an agreement with a post-production house in Hollywood last month," Molina noted. "They are focusing in that area for dailies and for other areas of work that they do. You can watermark just about anything that's going out the door."

USVO's technology, by the way, could also be applied to watermarking screeners sent to Academy members and others during the awards season. "That's a market that's being looked at," Molina said. "We have been in discussions about screeners and that is an application that we will be focusing on."

2004, The Hollywood Reporter

Last Updated ( Monday, 30 October 2006 )