Netflix faces lawsuit from owner of OpenTV over patent violations

Netflix will face Christmas with a new lawsuit for allegedly infringing patents owned by OpenTV, an interactive television pioneer. The video-streaming company has reportedly violated the patents for a technology critical in today’s video sector.

Kudelski SA, a Swiss company that owns OpenTV, disclosed in its lawsuit that Netflix violated 7 patents related to over-the-top TV technology (OTT). According to the lawsuit, such the violation of technology includes the digital rights management, use of viewer information to make recommendations, and video playback.

Kedelski said that it tried for about a year to reach an agreement with Netflix over licensing deals related to the patents involved, but the American video-streaming company ignored Kudelski’s proposals. The lawsuit was filed in the U.S. District Court for the District of Delaware.

“Companies like Netflix have, in essence, stood on the shoulders of giants, largely focusing their R&D efforts on aggregating these previously patented technologies and using them to provide a rich customer experience,” said Kudelski in its complaint.

Netflix  did  not provide any comment so far.

The lawsuit couldn’t come any better as there is a fast-growing increase in movies and TV shows  being delivered over the Internet directly to smartphones, tablets, and smart TVs. Netflix, a company that started as a DVD delivery service, pioneered video streaming in 2007, and has quickly grew into a leader in this sector.

However, Netflix had already seen better days as the market has grown crowded at the moment with the introduction of similar services being offered by Wal-Mart Store, Inc, Walt Disney Co, News Corp, and Comcast Corp.

The Cupertino-based Apple Inc, the largest computer maker in the world considering its market value, is also planning to enter the smart TV market.

The smartphone business and the Internet TV sector share common attributes that were once produced by companies for the past decade that are no longer significant player makers.

The lawsuit filed by Kudelski, according to Grant Moss, CEO of advisory firm Adapt IP Ventures, would be repeat of smartphone patent wars in a smaller scale. He believes that similar cases can be expected as new ways in making money are being discovered and new players are joining the fray.

“But I don’t see the financial value of the individual cases being as significant as those in the smartphone market,” Moss added.

Kudelski has been in movie and digital TV technologies sector for several decades and has since then acquired and developed a wide range of patents. It currently employs more than 3,000 employees around the world and is generating an annual revenue of more than $700 million. Its acquisition of the San Francisco-based OpenTV made it a streaming video company in the United States.

Founded in 2006, OpenTV was a joint venture between Sun Microsystems and Thomson Multimedia. OpenTV developed a technology that enhances more than 200 million TV set-top boxes. The company is directly in competition with the Cisco Systems-acquired NDS.

Kudelski hired Joe Chernesky from a patent investment company Intellectual Ventures last May to manage a portfolio of the company’s 3,000 patents. OpenTV owns about 800 of such patents.

“We have been developing technologies for over 20 years to enable the delivery of video content and have an early and broad patent portfolio in the field,” Chernesky said. “We intend to aggressively defend our patents.”

On the other hand, Netflix owns 14 patents on technology that supports its DVD delivery service, including assembling an online movie queue and online ordering. It also owns one U.S. patent related to video streaming. Inc has 22 U.S. patents for multimedia streaming based on an early November review done by Envision IP, a patent advisory and research firm.

Maulin Shah, the founder of Envision IP, said that it usually takes several years to win ownership of a certain patent, which explains why Netflix has more patents related to its older business in contrast to its video streaming business. Shah said that Netflix is awaiting approval of 32 pending patent applications that should cover a wide range of technologies in improving on-demand streaming video delivery.

Patent applications are normally  useless in patent litigations and there is no certainty yet whether they’ll be approved or not, said Shah.

“It doesn’t really help them in lawsuits because they can’t use pending patents to counter-sue and fight back,” Shah added.

The recent lawsuit is another hit for the already reeling video streaming company, that since next year, had been dealing with failed subscriber growth targets, declining stock price, and poor management of splitting its streaming operations and DVD delivery service.

source: reuters

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