Analysis: Case of the Compressed Image- I

By SAM VAKNIN, UPI Senior Business Correspondent

The Internet and other new technologies may have revolutionized the world, but it has caused intense confusion in one particular area -- that of intellectual property and copyright.

Forgent Networks from Texas wants to collect a royalty every time someone compresses an image using the "JPEG" algorithm. It urges third parties to negotiate with it separate licensing agreements. It bases its claim on a 17 year old patent it acquired in 1997 when VTel, from which Forgent was spun-off, purchased the San-Jose based Compression Labs.


The patent pertains to a crucial element in the popular compression method. The JPEG committee of ISO -- the International Standards Organization -- threatens to withdraw the standard altogether. This would impact thousands of software and hardware products.

This is only the latest in a serious of spats. Unisys has spent the better part of the last 15 years trying to enforce a patent it owns for a compression technique used in two other popular imaging standards, GIF and TIFF. BT Group sued Prodigy, a unit of SBC Communications, in a U.S. federal court, for infringement of its patent of the hypertext link, or hyperlink -- a ubiquitous and critical element of the Web. Dell Computer has agreed with the FTC to refrain from enforcing a graphics patent having failed to disclose it to the standards committee in its deliberations of the VL-bus graphics standard.


"Wired" reported Thursday that the Munich Upper Court declared "deep linking" -- posting links to specific pages within a Web site -- in violation the European Union "Database Directive". The directive copyrights the "selection and arrangement" of a database, even if the content itself is not owned by the database creator. It explicitly prohibits hyperlinking to the database contents as "unfair extraction". If upheld, this would cripple most search engines. Similar rulings, based on national laws, were handed down in other countries, the latest being Denmark.

Amazon sued Barnes and Noble -- and has since settled out of court in March -- for emulating its patented "one click purchasing" business process. A Web browser command to purchase an item generates a "cookie" -- a text file replete with the buyer's essential details which is then lodged in Amazon's server. This allows the transaction to be completed without a further confirmation step.

A clever trick, no doubt. But even Jeff Bezos, Amazon's legendary founder, expressed doubts regarding the wisdom of the U.S. Patent Office in granting his company the patent. In an open letter to Amazon's customers, he called for a rethinking of the whole system of protection of intellectual property in the Internet age.


In a recently published discourse of innovation and property rights, titled "The Free-Market Innovation Machine", William Baumol of Princeton University claims that only capitalism guarantees growth through a steady flow of innovation. According to popular lore, capitalism makes sure that innovators are rewarded for their time and skills since property rights are enshrined in enforceable contracts.

Reality is different, as Baumol himself notes. Innovators tend to maximize their returns by sharing their technology and licensing it to more efficient and profitable manufacturers. This rational division of labor is hampered by the increasingly more stringent and expansive intellectual property laws that afflict many rich countries nowadays. These statutes tend to protect the interests of middlemen -- manufacturers, distributors, marketers -- rather than the claims of inventors and innovators.

Moreover, the very nature of "intellectual property" is in flux. Business processes and methods, plants, genetic material, strains of animals, minor changes to existing technologies -- are all patentable. Trademarks and copyright now cover contents, brand names, and modes of expression and presentation. Nothing is safe from these encroaching juridical initiatives. Intellectual property rights have been transformed into a myriad pernicious monopolies which threaten to stifle innovation and competition.

Intellectual property -- patents, content libraries, copyrighted material, trademarks, rights of all kinds -- are sometimes the sole assets, and the only hope for survival, of cash-strapped and otherwise dysfunctional or bankrupt firms. Both managers and court-appointed receivers strive to monetize these properties and patent-portfolios by either selling them or enforcing the rights against infringing third parties.


Fighting a patent battle in court is prohibitively expensive and the outcome uncertain. Potential defendants succumb to extortionate demands rather than endure the Kafkaesque process. The costs are passed on to the consumer. Sony, for instance already paid Forgent an undisclosed amount in May. According to Forgent's 10-Q form, filed on June 17, 2002, yet another, unidentified "prestigious international" company, parted with $15 million in April.

Part 2 of this Analysis will move Monday.

(Send your comments to: [email protected])

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