SecurityWorldMarket

03/05/2012

The story behind why Object Video sued Bosch and Samsung

Raul Fernandez, CEO, Object Video

This summer marks an important event for the video analytics industry as the lawsuit by Object Video against Bosch and Samsung for patent infringement will potentially be settled in court. As a result of the lawsuit being filed, Object Video has entered into several license agreements with other video analytics solution suppliers in the surveillance industry. Others fear to be sued. The security magazine Detektor met up for an interview with Raul Fernandez, chairman and CEO of Object Video, one of the two partners who recapitalised the company in 2010.

Object Video (OV), a pioneering developer and supplier of intelligent video software products, was founded in 1998. In early 2011, OV filed a complaint in the US District Court of Virginia against Bosch, Samsung and Sony for selling products that contain software features and functions which infringe certain OV patents.

In order to speed up the process, OV also filed a complaint with the United States International Trade Commission (ITC) in June 2011. Since then, Sony has settled all claims and entered into a global patent license agreement with OV, but Bosch and Samsung await the ITC trial that starts in July and should be completed in August.

The ITC process enables small companies like OV to have patent infringement cases investigated within a relatively short period. The ITC investigates to discover if there is any patent infringement, if OV has the proper patents and also if potentially infringing products are being manufactured outside the USA. If the ITC finds in favour of OV, the ITC can stop the importation of these products from other countries into the United States.

Raul Fernandez is not only the chairman and CEO of OV, but also a major stakeholder.

So far, what has OV accomplished by this lawsuit?
"Sony and Tyco recently entered into global portfolio wide patent licenses with Object Video. We have altogether four companies signed with us and another six pending. And we have many more conversations to go as we recently launched our IP Amnesty Program."

Are all patent license agreements on a global basis?
"Yes."

What is the IP Amnesty Program?
"The IP Amnesty Program is intended to give qualified video analytic providers a 60-day window to enter into a global, portfolio-wide patent licensing agreement with Object Video. Participation in the program entails a one-time fee and a pay-as-you-go patent license agreement. Object Video will waive past damages for Amnesty Program participants."

How has the market reacted since you launched this IP Amnesty Program?
"With over 45 domestic and international patents awarded and more than 40 pending, this is an opportunity for industry players to license our patent portfolio without the risk and cost of litigation. We have an established rate card and a proven process that facilitates a streamlined transaction. We previewed this program with several companies, received good feedback and are currently working towards finalising those agreements."

What happens after this program for companies that have not signed an agreement?
"The IP Amnesty Program will be offered to industry partners until June 1, 2012. Then we expect to win the trial in the ITC; after that we will have another conversation with companies not under license, but the tone will be different from how we approach them with today's generous Amnesty Program."

What kind of companies are in the risk zone for infringing your patents?
"If a company is generating metadata for use with analytics, whether it is for tripwire, people counter, 'object taken', 'left behind' or license plate recognition - yes they probably should have a conversation with us."

Is it easy to determine whether a product infringes your patents or not?
"In most cases yes, but sometimes it is more difficult to know if our patents are being violated. When the features are in the code - like calibration and image segmentation, for example - then it is much harder to identify. Those features are below the hood and we have found that there are a lot more below the hood than we ever thought."

Can you understand the negative reactions and that the word 'blackmail' is used to describe your Amnesty Program offer?
"No. Look, for example, at the pharmaceuticals and consumer electronics industries. If a company gets caught infringing patents then they understand they must pay. It is the norm. In the security industry our claims come as a shock, but we just simply want our economic share if a company borrows out IP without paying for it. We have made tens of millions of dollars worth of investment in R&D, so we must protect that."

What is the story behind OV's work to assert its patents? Was it all planned to do this from the very beginning?
"Well, no. Our patents go back to the late 1990s when Object Video was founded. An interesting side story is from the early days - 1998 and 1999 - when we were recruiting PHDs from major universities, we were obliged to pay them better, make their work more demanding and give them more intellectually challenging working conditions. But part of the deal with them was also to replicate some of the non-financial rewards the university system previously provided, part of that being to celebrate their innovations by entering them into the patent process. So we got a lot of stuff done early.

In 1999, it was not necessarily because management thought these patents were going to be a valuable resource for the future, it was simply an HR vehicle to help recruit these bright people from the universities. So, it was not part of a grand plan at the time, because you don't go into business thinking other companies will infringe your patents."

Together with your partner - York Capital - you recapitalised and paid more than $27 million to get a 65 percent share of OV. Was this investment based on the opportunities that these patents offered?
"Yes it was; we made intellectual property assertion an important part of Object Video's business."

So the lawsuit and the IP amnesty program ARE part of a strategic move that was undertaken in order to get return on investments?
"Absolutely. And I can't see the controversial aspect of that. If we have spent millions of dollars on developing and protecting innovations, why should we let others make money using them without receiving our fair share? In any other industry that is a normal practice. Musicians get their part of royalties when people download their work. Nobody questions that. This is just the same."

Does this patent issue harm the video analytics market, as many critics say?
"In my view, there is a need to raise awareness of intellectual property rights in the security industry. That is what we are doing and it is hard to see how it can have any negative impact on the video surveillance market. Using video analytics in video surveillance systems is already established. The benefits to the user are so strong that we are not trying to shut down anybody from being in this business, we are just trying to get a fair piece of the economics of the business. Through the lawsuits we have brought this reality to the security technology industry."

You could have sued a high number of suppliers for infringing your patents. Why did you choose to sue Samsung, Bosch and Sony?
"Because those three are non-US companies, they fit in with the activities of the U.S. International Trade Commission. If the ITC rules that we are right about these patents, they can take action to stop the importation of infringing products to America by those companies. Choosing the ITC is the fastest way to get resolution by suing non-US companies that export to the USA. Sony has already signed a patent license agreement but Samsung and Bosch have not. The ITC will stop their products when we have won in court, and this will make it much easier to enter into more friendly agreements with other companies, whether they are American or foreign companies."

What impact has this patent issue brought to OV in general so far?
"Well, a spinoff effect is that some companies have now become more interested in our software when they realise that they have to pay for the patents anyway, especially after we launched our new software OV6 on to the market. So yes, the patent issue is driving additional software business to Object Video, but also to our other core business areas - R&D Services and intellectual property."

OV was financially struggling hard at the time you and York Capital came onboard. How does OV look today?
"When we closed the investment and got in to the company, it was at a break-even level, more or less. The profit was roughly $900,000 - far too low. We decided that the business should not just lean on software sales but also on revenues from R&D and intellectual property. In order to be able to monetise our intellectual property rights we spent a lot of the investment on new talent and to create IP teams. This strategy has paid off and we estimate the profit in 2012 to be well over 25 times the profit in 2010."


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