You Have 60 Days ... Or Else

Author: John Honovich, Published on Mar 22, 2012

Gangster capitalism reigns. Exactly one year after ObjectVideo launched lawsuits against 3 of the biggest global manufacturers, they have now issued an ultimatum to all manufacturers packaged as a magnanimous offer of 'amnesty'.

In this note, we examine this unprecedented threat and what it means for the industry.

Overview

According to OV, here is why companies should license their patents:

"Think of patent licensing as the ability to remain on plan to market and distribute your product as you see fit – free and clear of any potential patent infringement claim by us."

A shockingly direct message that boils down to pay us and we will not sue you. 

The newly announced offer provides a 60 day window to sign a settlement with OV including an undisclosed, "one-time fee and a pay-as-you-go patent licensing agreement." The carrot is that they will "waive past damages"; The stick, a lawsuit.

OV has a new website that prominently displays their patent licensing program. Details, though, are quite light with no explanation of what their patents cover, only that they have 45 awarded and another 40 pending. The implication sems to be that anyone offering analytics falls under their domain.

"Amnesty"

OV employs Owellian messaging, calling the offer "amnesty" as if OV was graciously pardoning companies that have wronged them. Ultimately, though, this appears to be a negotiating tactic to intimidate manufacturers to quickly make a deal.

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Of course, litigation disputing the legitimacy of OV's patent continues. Currently, Bosch has filed motions asking to invalidate OVs patents and that issue is being litigated by the US ITC. However, OV is betting that they have momentum since Sony folded in February. Nonetheless, so long as Bosch continues to fight, the litigation will likely last into 2013.

Finally, OV's offer of waiving past damages are unlikely to motivate many. There are simply too few video analytics deployments for that to be terribly valuable. Even 'big' analytic companies are unlikely to have deployed more than a few tens of thousands of units. Assume that OV wants $10 per channel and that is, at most, a few hundred thousand. Rather than negotiate, most will likely wait to see the resolution of the ongoing court cases before even evaluating what to do.

Reported Terms

We have received an unconfirmed report of the terms offered by OV. Two main licensing options appear to exist:

  • By Rule: Analytic manufacturers can get total protection against all OV patents, licensed by each rule they offer. For instance, the manufacturer pays a license for an object abandoned analytic, a crossline analytic, etc. The advantage is that this ensures OV will not sue. However, the downside is higher cost. We are told by an unconfirmed source that OV is asking $12 for high end analytics and $4 for basic analytics.
  • By Patent: Analytic manufacturers can pick and choose individual patents they want protection from OV litigation. The advantage is that this minimizes cost by allowing manufacturers to only pay for the patents they fear OV might sue them over. The downside is that the manufacturer might still be sued in the future for patents they do not license.

Both licensing options have long term agreements of 10 - 20 years that reflect the long lifespan of patents.

If OV obtains $12 per camera, that will have a significant impact on end user pricing. This cost would be marked up by manufacturers and the channel, likely adding $50 to $100 to end user pricing. This could significantly restrict adoption of analytics.

The risk of accepting OV's 'amnesty' offer, is that they even if OV's patents are invalidated, the rule licensing option likely forces the manufacturer to still pay OV for the next decade or two. Obviously, manufacturers need to carefully consider and review the specific negotiated terms.

Thug Tactics

This move further demonstrates a pattern of thug tactics; Patent trolling at its most brazen. Ironically, OV references the recent Yahoo lawsuit against Facebook in its top IP news section. Unfortunately, Yahoo's desperate attempt represents to many in the tech industry the worst form of abuses of the patent system. As famed VC and tech industry leader Fred Wilson said in response to the Yahoo patent lawsuit:

"Yahoo! thinks they can bully Internet newcomers with their bogus patents. And that's a line they should not have crossed.... I am wrting this in outrage at Yahoo! I used to care about that company for some reason. No more. They are dead to me. Dead and gone."

Alas, Yahoo is perhaps the best the comparison to OV. Terrible for the surveillance industry but amazing that OV also recognizes the connection.

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