Patently Aggressive

It's a gorgeous sun-soaked day in southwest Austin. At a generic glass office building in a random corporate park, the indoor waterfall gushes a merry greeting. In the light-filled boardroom of Forgent Networks, CEO Dick Snyder, a trim, freckled man with a broad smile, puts out a friendly hand.

It sure doesn't seem like the gates of hell. But for a lot of people in the software industry, this is Hades, and the seemingly mild-mannered Snyder is the three-headed dog at its door. That's because Forgent, which used to be an enterprise software company, has a new and quite profitable business strategy: Sue, sue, sue, and when all else fails, sue again. Forgent holds patents, the most significant of which, Patent No. 4,698,672--fondly known as just '672--is allegedly being violated by virtually every company that has ever used JPEG image compression, from camera manufacturers to software designers to cell-phone makers.

In the three years since Forgent decided there was more gold in subpoenas than in software, the company has collected a staggering $105 million in licensing fees from the likes of Sanyo, Sony, and 48 other companies. Many of those that haven't paid up--a panoply of household names including Microsoft, Google, IBM, and Hewlett-Packard--have found themselves part of a massive, 41-company lawsuit that will begin proceedings later this year. Forgent has filed another suit covering a different patent related to the digital video recorder against 15 major companies including Time Warner and Comcast; that will go to court in 2007.

At a time when rampant piracy, the open-source movement, and the spread of technological expertise abroad have led to collective national hand-wringing over the state of American innovation, it's worth thinking about another challenge: the ever-increasing legal battles over who owns an idea. Forgent and its ilk--sometimes snidely referred to as "patent trolls"--have roiled the software industry. (The troll epithet has also been hurled at companies such as Acacia Research and NPT Inc., the latter of which is suing Research in Motion, maker of the BlackBerry [see Squashing the BlackBerry?]). "I always thought 'patent gangster' was more appropriate," says Scott Watkins, a patent attorney at Steptoe & Johnson, speaking generally. "It's the old protection racket."

Some say Forgent's fight-back approach is the only recourse for small innovators against rich companies that try to steal their intellectual property. Others see Forgent as the exploiter, taking advantage of antiquated laws to hold creative enterprises up for ransom. "The Forgent business model has caused people to stop innovating," says an inventor in Forgent's market who didn't want to be identified for fear of legal retaliation. "It has had a chilling effect on anything new."

Back in the bright boardroom, it's hard to believe that this deserted suburban office is ground zero in the war over intellectual property. The place looks like it should have tumbleweeds rolling through it, with just 20 employees working out of an office building that once held 300 (most of the space has been subleased). It doesn't feel like a normal business, and that's because it isn't--a point made crystal clear when the public-relations guy turns on a tape recorder to ensure there's evidence should I accidentally misquote anyone.

"The ones that scream the loudest are also the ones on the other side . . . asking people to pay them for their patent work."

Believe me, I won't. Though Snyder, a 61-year-old former executive at HP and Dell, has a slow, folksy patter, he's also a competitive triathlete who thinks the infamous "Escape From Alcatraz" race, featuring an open-water swim in the 50-degree San Francisco Bay, is a great stress reliever. His big adversaries, he points out, are plenty aggressive when it comes to defending their own intellectual property. "The ones that scream the loudest," he says calmly, "are also the ones on the other side of the fence asking people to pay them for their patent work or asking them not to infringe on their patents." Snyder says he's simply doing his fiduciary duty by capitalizing on his shareholders' assets.

Not that there are so many assets to pick from these days. Forgent's previous incarnation, a videoconferencing company called VTEL, fell on hard times in the late 1990s. In 2001, board member Snyder was brought in to right the company. He dropped videoconferencing and tried to reinvent Forgent as a software business, but that didn't work too well either. The company lost $6.1 million in fiscal 2002.

Cash-crunched, he and his board essentially began rummaging through the company closets--and found a treasure. Inventors working for Compression Labs Inc., a company VTEL bought, had registered for patents on a process that Forgent now claims is used in JPEG compression.