Mp3 – Audio MPEG Inc. interesting development in the US

An interesting development in the US courts. Audio MPEG (Sisvel’s US affiliate) sued Creative Labs earlier this year, over the same patents we’ve been threatened with. Last week, the District Court found that Audio MPEG lacked standing by itself to sue, i.e. the patent owners are “essential parties” to the suit.

Therefore, unless Philips, France Telecom, IRT, and Telediffusion de France are added to the case as plaintiffs within 15 days (of Nov. 18), the case will be dismissed.

The reason for this holding is that the judge examined the agreement between the patent owners and Audio MPEG, and found that the patent owners retained “substantial” interests in the patents. The opinion reveals some interesting facts about the relationship between the patent owners (i.e. Philips) and Audio MPEG/Sisvel.

Some highlights:

  • although Audio MPEG is a subsidiary of Sisvel, the master agreement is between the patent holders and Audio MPEG. Audio MPEG has granted a sublicense to Sisvel for the European patents.

  • The agreement requires that Audio MPEG “consult” with the patent owners prior to beginning any “legal proceeding.” While this doesn’t say whether Philips can stop any action, it belies Philips’ repeated contentions that it has no influence over Sisvel.

  • The agreement gives Sisvel almost no discretion over royalty rates, to whom it may license, etc. It appears that Sisvel simply cannot refuse a license to anyone, nor can it make changes to the agreement unless they are “nonsubstantial.” However, the patent owners apparently can “renounce” their claims with respect to certain third parties, in which case Sisvel must reduce the royalty rates by some formula. Presumably all 4 patent owners could renounce, but we don’t know the details.

It will be interesting to see whether the patent owners actually join the lawsuit. While to some degree this is merely a formality, this forces Philips to formally be in a position where they are likely suing customers, if they want to proceed in the United States.

On a related note, the case between Audio MPEG and Thomson was dismissed last week, by stipulation of the parties. Thus something has been settled. However, the case was dismissed without prejudice, allowing for a future lawsuit, which leads me to wonder whether there was really a cash settlement. It’s hard to draw any conclusions; Thomson SA, the parent company, was dismissed earlier for lack of personal jurisdiction – there might have been other problems with the case against its US affiliates.

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