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The company that controls the technology that helps channel-surfing couch potatoes find their favorite “X-Files” rerun is getting major static from cable companies and satellite broadcasters. Gemstar-TV Guide International Inc. claims to hold the patents on interactive program guide technology, which is to television what the Internet browser is to the World Wide Web. It’s facing off against four companies that market or manufacture cable and satellite set-top boxes that contain interactive program guide software. They contend that Gemstar’s patents are invalid and, perhaps more importantly, that the company is misusing them in violation of antitrust laws. At stake are billions of dollars in potential licensing and advertising revenues, and some believe this brawl could be as nasty as the antitrust fight that has engulfed Microsoft Corp. “Gemstar claims that no one can make an interactive program guide without infringing one or more of their patents,” said Harold McElhinny, a partner at Morrison & Foerster who represents EchoStar Communications Corp., one of the parties in the dispute. That’s significant, he added, because many people believe interactive program guides are the only feasible way to navigate the screen when more than 50 channels are available. “If Gemstar’s position is correct, they control the portal to the information highway,” McElhinny said. LITIGATION SPANS COUNTRY TV viewers with access to hundreds of channels use the program guide technology to sort, select and record a myriad of programs. The guide software is built into televisions, VCRs and personal computers and is a standard feature of cable and satellite broadcast systems. Demand for the technology is growing, and that has meant a web of suits and countersuits for Gemstar. It has infringement suits pending against EchoStar, Scientific-Atlanta Inc., SCI Systems Inc. and Pioneer Electric Corp. and its subsidiaries. Scientific-Atlanta filed two suits against Gemstar claiming the company infringed its patents and seeking a declaratory judgment that Gemstar’s patents are invalid. The other three companies have filed antitrust suits against Gemstar. In addition to these cases, which are pending in federal courts in California, Georgia and North Carolina, Gemstar filed a complaint with the International Trade Commission in February. Gemstar wants the commission to block the four companies from importing set-top boxes into the United States, claiming they infringe four of Gemstar’s patents. Pioneer and SCI manufacture the boxes, and Scientific-Atlanta and EchoStar sell them. The ITC case is scheduled to go before an administrative law judge Dec. 3. While an ITC ruling is not binding, a decision in Gemstar’s favor would prevent defendants from importing the boxes. A legion of lawyers is involved in the litigation. In addition to MoFo, Atlanta-based King & Spalding, Chicago-based Kirkland & Ellis and the Washington, D.C., firms of Adduci, Mastriani & Schaumberg and Banner & Witcoff are representing the other defendants in the ITC action. Townsend and Townsend and Crew and Washington, D.C.’s Hogan & Hartson are representing Gemstar. Townsend partner George Schwab referred calls about the litigation to Gemstar, which declined to comment on the lawsuits. ECHOES OF MICROSOFT? Pasadena, Calif.-based Gemstar came on the scene in 1989. It launched its first product, a VCR programming aid, the following year and began marketing an interactive program guide in the mid-1990s. Since then, Gemstar has acquired several companies with which it had been involved in legal disputes — including Starsight Telecast Inc., a 1997 acquisition, and TV Guide Inc., which Gemstar purchased last year for $7.9 billion. Gemstar does not break out how much revenue it derives from licensing its IPG patents. But the company said it expects to generate just under $330 million in licensing revenue this year, a figure that includes fees from licensing its VCR programming system and electronic book technology. Gemstar said that more than 13 million households now have access to its interactive program guides. But licensing fees are just one way the guides generate profit. Last year, Gemstar began selling advertising on the guides. Analysts predict this market will be a source of billions of dollars in revenue. Analyst Rob Martin of Arlington, Va.’s Friedman, Billings, Ramsey & Co. Inc. projects that the interactive guide market will reach $10 billion in 10 years, half of which will be derived from advertising and half from new subscription programs. “Whoever controls the interactive program guide definitely has a market opportunity in front of them,” Martin said. Gemstar’s competitors contend the company is moving to monopolize the market with anti-competitive tactics that are similar to Microsoft Corp.’s antitrust violations. Just as Microsoft tied its Internet browser to its operating system, MoFo’s McElhinny said, Gemstar has tied several requirements to the licensing of its patents. Licensees, for example, must use specific advertising content on their interactive program guides and agree to purchase other Gemstar products. EchoStar is particularly irked by the advertising requirement since it doesn’t carry ads on its guides. EchoStar and other defendants in the ITC case also claim Gemstar unfairly bundled its patents, requiring licensees to take licenses for patents they don’t want. They also say Gemstar requires companies to forfeit rights to their own patents on similar technology, demanding that they license their patents to Gemstar and Gemstar’s licensees. But not everyone is sure whether the antitrust claims against Gemstar will stand up. “There are patent antitrust violations with tying arrangements,” said Professor Mark Lemley of University of California, Berkeley’s Boalt Hall School of Law. But they occur when a company uses “power in one market to gain power in others.” With regard to Gemstar’s tying patent licenses to advertising, he said, “it seems unlikely that Gemstar would take over the advertising market.” Though the antitrust case may not be a slam dunk, Gemstar has caught the U.S. Justice Department’s attention. Reuters reported in June that the department’s Antitrust Division was investigating Gemstar, but the company responded in a press release that the government had requested information solely with regard to activities between Gemstar and TV Guide prior to their merger in July 2000. “There have been no allegations of any wrongdoing whatsoever against the company by the Department of Justice,” the release said. “The company has always adopted an open licensing policy, and firmly believes that it has fully complied with all of the antitrust laws and regulations.” That’s a question that Gemstar’s competitors want the courts and ITC to answer.

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