TORONTO -(Dow Jones)- Rembrandt IP Management's motives for entering the cable-modem market are under attack in the latest twist in a closely-watched patent dispute that pits Rembrandt against the largest cable-television operators and cable-modem-equipment makers in the U.S.
In a May 7 court filing, Comcast Corp. (NASDAQ-NMS:CMCSA) (CMCSA) alleged that Rembrandt's decision to enter the cable-modem business was done "for the sole purpose of seeking injunctive relief and/or lost profits in its infringement suits."
Rembrandt denied the allegation in subsequent filings.
Rembrandt, of Bala Cynwyd, Pa., is a patent-license company, meaning it generates revenue solely by licensing or litigating its intellectual property. In 2004, it paid $1 million for nine patents from Paradyne Corp., an AT&T spin- off later acquired by Zhone Technologies Inc. (NASDAQ-NMS:ZHNE) (ZHNE). Eight of the patents relate to cable-modem and modem-system technology and one pertains to digital- television technology.
Rembrandt subsequently sued Comcast Corp. (NASDAQ-NMS:CMCSA) (CMCA), Time Warner Cable Inc. (NYSE:TWC) (TWC) , Cablevision Systems Corp. (NYSE:CVC) (CVC), Charter Communications Inc. (NASDAQ-NMS:CHTR) (CHTR) and Cox Communications, alleging infringement of all nine patents. It also sued network- television operators CBS Corp. (NYSE:CBS) (CBS), (ABC.XX), (NBC.XX) and Fox Broadcasting, alleging infringement of the digital-television patent. Six cable-modem-equipment vendors, including Motorola Inc. (NYSE:MOT) (MOT), Cisco Systems Inc. (NASDAQ-NMS:CSCO) (CSCO) and Netgear Inc. (NASDAQ-NMS:NTGR) (NTGR), joined the fray by suing Rembrandt to invalidate its patents. Rembrandt countersued the six firms, alleging infringement of the cable-modem and modem-system patents.
(Fox Broadcasting is owned by News Corp. (NYSE:NWS) (NWS), which also owns Dow Jones & Co, the publisher of this news service.)
The cases have been consolidated and are pending in U.S. District Court for the District of Delaware. Rembrandt is seeking damages and a permanent injunction banning all allegedly infringing activities.
Remstream Entity Formed In 2007
Last year, Rembrandt created a wholly-owned subsidiary called Remstream to sell cable modems. It was the first time a Rembrandt entity has ever sold a product, and its opponents questioned Rembrandt's intentions, calling the move a "sham" in court filings.
"Nothing about Rembrandt's history or business model suggests it wants to be a bona fide distributor of cable modems..." the six cable-modem-equipment vendors said in an April 11 court filing. Yet Rembrandt wants to exclude competition by obtaining an injunction, the filing said.
Before a landmark Supreme Court ruling in May 2006, virtually every patent holder whose patent had been infringed could obtain an injunction. Indeed, it was the threat of an injunction on its BlackBerry smartphone in the U.S. that compelled Research In Motion Ltd. (NASDAQ-NMS:RIMM) (RIMM) to pay NTP Inc., a Virginia patent- license firm, $612 million to settle their infringement dispute in March 2006.
The high court ruling, which involved a case between eBAY Inc. (NASDAQ-NMS:EBAY) (EBAY) and mercExchange LLC, changed the standard for obtaining injunctions. Under the new standard, patent holders must prove they suffered irreparable injury due to infringing activity and that legal remedies, such as monetary compensation, can't compensate.
For patent-license companies, which don't compete directly with the firms they sue, this standard is difficult to meet. "Under the eBay decision, an NPE (non- practicing entity) like Rembrandt is plainly not entitled to a permanent injunction," the cable-modem vendors said in their April 11 filing.
Rembrandt's Ungar said the decision to enter the cable-modem market is not a " sham," and that he believes the opposing parties in the case "are not happy about having" a new competitor in the market place. He declined to comment on Rembrandt's ligitation strategy.
Remstream, based in Beverly Hills, Calif., is operated separately from Rembrandt. Its modems, called the Remstream 8100, are manufactured by Turbocomm Technology Inc. (Taiwan:2494) (2494.TW), a Taiwan-based communications-equipment maker. Turbocomm has an exclusive license to four Rembrandt patents, Ungar said.
Mark Presser, director of operations at Remstream, said Remstream is a little more than a year old. He said the company has customers, but he declined to identify any of them. "We don't, at this point, disclose our customers or our business relationships, but we have customers that are very happy with our product and we're growing our customer base," he said.
Remstream has "several" employees and plans to build an extensive Web site, Presser said. The firm's current site, which Presser called a "holding page," consists of a single page that offers visitors an opportunity to send an email message.
Company Web Sites: http://www.rembrandtip.com, http://www.remstream.com -Stuart Weinberg, Dow Jones Newswires; 416-306-2026; stuart.weinberg@dowjones.com
(END) Dow Jones Newswires 06-06-08 1247 Copyright (c) 2008 Dow Jones & Company, Inc.
