Patent troll or American dream?
Perhaps you listen to Adam Carolla’s popular comedy podcast while you’re working out at the gym. Or maybe you download the NBC Nightly News video podcast each morning before you jump on the commuter train. There are podcasts for every possible interest and endeavor, and they are one of the best bargains in entertainment — most are free. Some are a digital component of huge media companies, like NBC or ESPN. Others are the brainchild and passion of a single person operating out of his garage.
Earlier this year, many of the most popular podcasters received formal legal notices in the mail, informing them they were violating a patent with their podcast. See, a Texas company called Personal Audio claims that they invented podcasts way back in 1996; and they have a U.S. patent to back them up. If this sounds surprising to you, a podcast listener, imagine how the podcasters themselves felt — confused, frightened, and maybe a little angry. “We’re terrified we might have to stop podcasting,” Marc Maron, who hosts the popular WTF comedy podcast, told NPR’s Planet Money podcast last week. “We might have to go broke trying to protect ourselves from this [extortion racket].”
Extortion racket? That’s actually mild compared to “patent troll,” which is what critics are calling Personal Audio. “A patent troll gets a vague patent and then sits on it and waits for everyone else to do the work, and then jumps out from under the bridge and says, ‘We want our cut,'” says Daniel Nazer, an attorney for the Electronic Frontier Foundation, a San Francisco organization that is challenging the patent. “Personal Audio hasn’t produced podcasts, they haven’t done anything to contribute to podcasts as we know them today. They’re really asking for a cut when they did nothing.”
It’s true that Personal Audio isn’t technically in the podcast business. Co-founder Jim Logan doesn’t have a podcast and never really did. But back in 1996, he invested $1.6 million of his own money into developing an mp3 player that could download customized audio tracks. He even had a prototype that worked on a notebook computer. It didn’t pan out — “We were just a bit too far ahead of our time,” says Logan — and he ultimately backtracked to what he calls “a more granular sort of personalized audio experience”: Magazines on Tape, in which a narrator read selected articles from magazines. “Cassette tapes were the major way of listening to audio back them,” says Logan. “So instead of reinventing a few different wheels — the player, the distribution means, and the listening experience — we decided just to focus trying to revolutionize the listening experience.”
Personal Audio was granted a patent on the idea for downloadable audio casts in 1996 and that was pretty much its only asset when Logan gutted the company a couple years after. But a lot happened in the next decade, beginning with the iPod. In 2009, with the proliferation of podcasts from the Apple Store and other outlets, Personal Audio saw traces of what they had envisioned being used by millions of people. And they moved to protect their idea, updating their patent to more modern uses — per their legal rights — and negotiating a successful settlement with Apple over the use of playlists. Last year, the U.S. Patent Office issued them a stronger patent covering podcasts, and earlier this year, they began to target high-profile podcasts to exercise their patent. “It’s a matter of economics,” says Personal Audio’s attorney Richard Baker. “We’re putting our effort into the larger people because there’s a larger return there. We might be able to get our money back that we’ve spent.”
This is where ugly terms like “extortion racket” originated. The mailed notifications, like the one Maron described, didn’t name a price or demand payment. They simply informed the recipient that they were infringing on a patent and that other lawsuits had been filed in similar cases. Some view this as a threat: “It’s a business model that really relies on creating fear, because people know how expensive it is to defend a patent litigation case,” says Nazer, who estimates any individual case would rack up about $2 million in legal fees. “We think it’s really bad when the patent system reaches the point where individual podcasters are being shaken down. These negotiations are done under the cloud of a threat of very expensive litigation.”
Logan and Baker don’t see it that way. They say that the reason they don’t ask for a precise licensing fee is because the podcast business is still in its infancy and no one seems to know how big or lucrative the business is or by how much it could expand. Is the industry worth $800 million all together? $80 million? $8 million. Pick a number. There’s no reliable data like the Nielsen ratings that exist for radio and TV. Moreover, since podcasters are reluctant to share or in some cases are oblivious of just how many subscribers they have, Personal Audio says they just want to begin a conversation in order to establish a fair licensing fee in each case. “There’s been a lot of talk in the press about how we’re going to put podcasters out of business, and that’s just ridiculous,” says Logan. “Anyone who’s running a licensing business doesn’t want to put their customers out of business obviously.”
In the court of public opinion, Personal Audio is currently losing. After all, they’re threatening to kill The B.S. Report and Freakonomics! There appears to be some momentum for reform, fueled in part by recent influential podcasters who’ve investigated the patent system and held up Personal Audio as one of an examples of what’s wrong. There are currently five bills pending in Congress aiming to fix perceived problems, and the White House has vowed to crack down on the patent trolls that are “stifling innovation and putting a drag on our economy.” EFF recently attempted to raise $30,000 to finance their effort to challenge Personal Audio’s patent at the U.S. Patent Office; they reached that goal in less than 10 hours and currently have more than $69,000.
Logan and Baker are confident their patent will hold up upon review, but they’re frustrated by the current narrative, which demonizes them and diminishes Logan’s contributions. “The company did invest over a million dollars in research and development,” says Baker. “It wasn’t fully everything they hoped for, but they did develop a product. This is what the patent system is created for.”
It’s a classic David versus Goliath story — except that both sides insist that they are David and the other side is the oppressive colossus. “The whole purpose of of the patent system is to get people thinking, to conjure up ideas,” says Logan, who has suits filed against NBC and CBS over patent-infringement. “By disrupting the patent system as it exists today, you’re going to to hurt innovation, and it’s going to help the big companies who can afford all these lawyers. The guys who will get hurt are the people with these new ideas who are trying to get them off the ground.”
Podcasts have yet to be impacted in any tangible way, thought EFF claims they’ve heard stories of podcasters unplugging out of fear of legal action. Most podcasts, though, seem willing to take a wait-and-see approach, with the hope that the laws change and/or Personal Audio and their legal letters just go away. If only there was a Magazine on Tape to help us understand.