Acacia Media Technologies is part of a larger corporation called Acacia Research, which holds intellectual property in several areas. One of its subsidiaries owns critical technology used in the television content-blocking V-Chip and last year alone earned close to $25m in royalties from that side of the business. The company's digital media strategy began in earnest several years ago. It had determined that it owned about a third of the patents it needed to mount a licensing strategy for Web streaming, and its attorneys spent considerable time researching the rights held by another set of companies that Acacia ultimately purchased in 2001. By the time Acacia finished, it owned five US patents and 17 international patents dating back to 1991. "We spent an enormous amount of time doing prior art searches in the US, Europe and Japan," said Robert Berman, Acacia's general counsel. Prior art is a patent term that means someone else has already invented the process, barring another party from winning or enforcing a patent. "We did a tremendous amount of research on these patents' enforceability." Once the company felt certain it had its legal ducks in a row, it started writing letters. According to Berman, the patents could affect virtually anyone involved in the business of providing on-demand digital audio or video, from software companies to network service providers to the actual content companies. However, Acacia initially decided to contact solely content providers, reasoning that they were the ones with end-customer billing relationships, and would provide recurring revenue streams. Its first targets, beginning late last year, were adult Web sites. It sent letters similar to the one RadioIO received this week to 27 pornography-related sites, asking companies to take out licences worth 1 percent to 2 percent of the streaming-related revenue. The adult companies were shocked and banded together to find strategies to combat Acacia's claims. Berman said a few of the companies have signed licences, but others are holding out. The company is about to initiate patent infringement suits against several of these holdouts, he said. The next step was Web companies. Radio Free Virgin was one of the first. That company signed a licence on 20 December. RadioIO got its letter this week. Berman said other letters have gone out to companies large and small, although he would neither confirm nor deny whether Acacia has tried to tap larger players such as America Online, RealNetworks or Microsoft. Berman said the company is about to approach cable companies that provide digital or digitised pay-per-view services. RealNetworks, one of the earliest companies associated with streaming, declined to comment specifically on Acacia's claims. From this point on, much will depend on the courts. A patent lawsuit could cost millions of dollars in litigation fees, and many companies -- like Virgin -- may find it simpler to pay Acacia than to challenge its claims. Acacia says it provides all the information it can to ensure that people can make that choice rationally. "This it what it is, and we're willing to tell people what we have, so they can make a decision," Berman said. "This is not a scam. We're not holding people up." Outside observers say Acacia's strategy of taking adult sites to court first is deliberate. Those sites are likely to fight the claim, but don't have the resources of Microsoft or RealNetworks to pour into patent litigation. Should Acacia win, a court judgment will make it easier for it to persuade the larger, more profitable companies to sign their own licences. An attorney for Helio.net, a company helping to organise the adult sites, did not return calls for comment. Nevertheless, a court strategy is always risky. Judges and juries have been known to throw out overbroad patents before, and legal teams on the defense often spend considerably more time than the overworked United States Patent and Trademark Office in researching possible previous inventions that would invalidate a patent. "All patents can be challenged," Belgard said. "I think there are many Internet patents that can and should be challenged and invalidated."
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