It’s been a busy year for iBiquity Digital Corporation in court, as it fends off attacks on its HD Radio patents and licensing structure. In both cases, iBiquity seems to have dodged a few bullets and may even have the upper hand. However, they also illustrate the tenuous nature of HD’s adoptive trajectory.
In March, Continental Automotive Systems filed suit against iBiquity in federal District Court in Illinois, claiming that iBiquity was violating its own licensing agreements. Continental is the third largest global supplier of parts to the automotive industry, and its Automotive Systems division makes infotainment components. Continental has been an HD Radio technology licensee since 2007.
The dispute began in 2012, when Continental’s initial licensing agreement with iBiquity came up for renewal. It centers around how the HD receiver royalty fee is calculated: iBiquity claims it is due a percentage of the sale-price for each infotainment system sold, while Continental argues its royalty payments should be based on the value of iBiquity’s proprietary components alone.
Continental accuses iBiquity of "improperly attempting to expand the scope of its patent monopoly to include unpatented articles through its demands that Continental pay royalties on the value of non-patented features," and alleges it has overpaid iBiquity more than $1 million over the years they’ve been doing business. According to Continental’s lawyers, "iBiquity’s royalty demand rivals the cost of the underlying HD Radio circuit itself," which they consider a commercially-unreasonable price.
According to the terms of the iBiquity/Continental agreement, iBiquity is paid at least $1 for every HD receiver Continental sells, though dependent on volume it can make as much as $6 per receiver; Continental claims it has been paying the higher rate all along.
iBiquity formally revoked Continental’s license to manufacture HD Radio-compatible infotainment systems last November, when Continental suspended royalty payments, though the agreement between the two companies would have technically expired on June 28th of this year.
In a May 19th response to Continental’s complaint, iBiquity came out swinging. It revealed that, "[m]ore than a month before Continental filed its federal complaint, iBiquity filed a breach of contract lawsuit against Continental in Maryland state court over the same license interpretation issue." Having sued first in the venue dictated in the terms of its license agreements (and where its headquarters is based), iBiquity moved for dismissal of Continental’s federal case.
It also savaged Continental’s patent arguments, declaring that HD Radio’s business model has no "anticompetitive effect in a properly defined market," and asserted that legal precedent exists to base royalty payments for proprietary technology on an entire product and not just its parts. On June 12th, Continental replied, seeming most concerned about its potential liability for patent infringement should it keep manufacturing HD Radio receivers; iBiquity has called such a threat hypothetical.
Then last week, Continental filed a motion to withdraw elements of its lawsuit, which was granted on the first of July. Press coverage is surprisingly sparse, but the move suggests that both companies are focusing on iBiquity’s lawsuit in Maryland. That case is in the discovery phase, with pretrial maneuverings scheduled to continue until the end of the year. Meanwhile, iBiquity still lists Continental on its web site as a licensed manufacturer "on the Receive Side of HD Radio Technology."
Continental Automotive Systems, a multi-billion dollar subsidiary of a German conglomerate, apparently thought it might be able to squeeze iBiquity, a corporate pipsqueak, on the licensing-payments for manufacturing HD Radio receivers. It’s not an unusual gambit in the corporate obsession with cost minimization, and it might have saved Continental millions of dollars in future costs.
But the fine print is a bitch, and iBiquity needs those millions to survive. HD Radio’s only real play is in the automotive realm, and had it been intimidated into accepting lower payments from a major receiver manufacturer, it sets a precedent that jeopardizes iBiquity’s entire business model. More than anything, this case illustrates the continued reticence there is among receiver manufacturers to fully embrace HD Radio, while they rush headlong into the arms of those that compete with it in the glass dashboard.
The second federal court action involves a patent troll on the prowl. Late last year, this troll targeted broadcast and automotive licensees of HD Radio, claiming that the technology infringed on its intellectual property. Most notably, the troll did not sue iBiquity itself. The defendants in these suits managed to postpone action on the troll’s claim three times—until July second.
One day before the deadline, iBiquity swooped into Delaware District Court and countersued for dismissal. The claim is simple: patent trolls are parasites with no meaningful claims to intellectual property. Most importantly, iBiquity claims to have ample evidence of the ambiguity and invalidity of the troll’s patents (legally called "prior art"). Should iBiquity prevail, it will cut this particular patent troll off at the knees. Not surprisingly, the broadcaster-defendants, which now reads like a Who’s Who of radio conglomerates, have emphatically endorsed iBiquity’s play.
But truth be told, it’s a surprise it took iBiquity so long to set up this smackdown. Its countersuit notes that "iBiquity has a contractual obligation" through its licensing agreements "to indemnify the Broadcasters and suppliers to the Car Manufacturers against any losses incurred as a result of being sued over their use of HD technology." This makes iBiquity an intervenor in 32 HD Radio-related cases filed so far by this particular patent troll.
In hindsight, it’s easy to see how iBiquity might have been preoccupied by the Continental dispute. But now, it’s willing to take this particular patent fight all the way to a jury if necessary.
These are not the first legal skirmishes for iBiquity when it comes to defending its business model. In 2007, iBiquity filed an amicus curiae brief with the U.S. Supreme Court in a case involving the structure of patent and licensing agreements. iBiquity’s multi-level licensing process means everyone (broadcasters, receiver chip manufacturers, and receiver-makers) pays a licensing fee to sell or use the technology; iBiquity claimed then that its business model was successful because it allows the risk inherent in developing and adopting a new technology to be spread around to various players. Ultimately, iBiquity was on the losing side of that case, but its business model has remained intact.
HD Radio’s enclosure has already stifled both innovation and uptake of the technology, and these legal maneuverings suggest that iBiquity’s business model remains a significant drag on HD Radio’s evolution. Money spent fending off patent-infringement claims and royalty disputes means fewer funds to invest in research, development, or promotion. Can the system afford such distractions?
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