December 2007 Roderick R. Mckelvie Robert A. Long
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No. 06-937 IN THE ___________ QUANTA COMPUTER, INC., ET AL., Petitioners, v. LG ELECTRONICS, INC., Respondent. _____________ ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT _____________ BRIEF FOR IBIQUITY DIGITAL CORPORATION AS AMICUS CURIAE SUPPORTING RESPONDENTS _____________ Roderick R. McKelvie Robert A. Long, Jr. Counsel of Record Richard L. Rainey Theodore P. Metzler, Jr. Covington & Burling LLP 1201 Pennsylvania Ave. N.W. Washington, D.C. 20004 (202) 662-6000 December 2007 Counsel for Amicus Curiae TABLE OF CONTENTS Page TABLE OF AUTHORITIES....................................... ii INTEREST OF AMICUS CURIAE.............................1 STATEMENT ..............................................................3 SUMMARY OF THE ARGUMENT..........................14 ARGUMENT .............................................................15 The Patent Exhaustion Doctrine Should Not Be Expanded To Invalidate Patent Licensing Agreements That Mutually Benefit The Parties And The National Economy..........................................................15 CONCLUSION ..........................................................22 - i - TABLE OF AUTHORITIES Page(s) REGULATORY AUTHORITIES In re Digital Audio Broadcasting Sys. & Their Impact on the Terrestrial Radio Broadcast Serv., 17 F.C.C.R. 19990 (FCC Oct. 11, 2002) (First Report & Order) ............. 9, 10 In re Digital Audio Broadcasting Sys. & Their Impact on the Terrestrial Radio Broadcast Serv., 72 Fed. Reg. 45670, (FCC Aug. 15, 2007) (Final Rule)........ 5, 6, 8, 9, 10 OTHER AUTHORITIES Paul Davidson, Radio Ready to Join Digital Revolution, USA Today, Aug. 24, 2005 .......6, 7, 10 Dina ElBoghdady, The Dawn of HD Radio, Washington Post, Nov. 6, 2004..............................3 Glenn Fleishman, Revolution on the Radio, N.Y. Times, July 28, 2005......................................5 Amy Gilroy, HD Radio: Will More Awareness Translate To Sales?, TWICE, Dec. 3, 2007 .........19 Terence O’Hara, iBiquity Digital’s Make-or- Break Point Approaches, Washington Post, Feb. 28, 2005 ...........................................4, 11 John R. Quain, Tuning in to HD Radio, U.S. News & World Report, June 14, 2004 .................19 HD Radio Roll-out Update, http://www.ibiquity.com/i/october_2006.pdf .........8 - ii - HD Digital Radio Alliance Renews Charter with Marketing Commitment that Takes Total to $680 Million, http://www.hdradio.com/ i/Alliance_Charter.pdf (Oct. 15, 2007) ..................8 WAMU 88.5 American University Radio Demonstrates New Second Channel http://wamu.org/about/press/september_9 _2005.php (Sept. 9, 2005) ......................................7 WAMU 88.5 HD Radio Channels, http://www.wamu.org/hd/ ......................................7 - iii - INTEREST OF AMICUS CURIAE iBiquity Digital Corporation (“iBiquity”) is the developer of HD Radio™ technology for digital AM and FM radio.1 This breakthrough technology allows broadcasters to transmit analog AM and FM radio signals simultaneously with new, higher-quality digital signals. The Federal Communications Commission has adopted iBiquity’s HD Radio In- Band, On-Channel (“IBOC”) system for AM and FM digital radio broadcasting in the United States. Although the development of HD Radio technology took more than fifteen years and cost more then $100 million, commercial use began only four years ago. On January 7, 2003, Detroit station KISS 102.7 FM broadcast the first commercial HD Radio signal. In January 2004, a consumer in Cedar Rapids, Iowa purchased the first commercial HD Radio receiver. As of December 2007, more than 1,500 HD Radio stations were on the air, including stations in every major U.S. city. More than 80 percent of the U.S. population resides within the broadcasting range of one or more HD Radio stations. More than 50 different home and automotive HD Radio products are now available to consumers. Countries throughout the world, including Argentina, 1 Pursuant to Rule 37.6, amicus affirms that no counsel for a party authored this brief in whole or in part and that no person other than amicus and its counsel made a monetary contribution to its preparation or submission. The parties’ letters consenting to the filing of amicus briefs have been filed with the Clerk. - 1 - Australia, Bosnia, Brazil, Canada, Czech Republic, France, Germany, Hong Kong, Indonesia, Mexico, New Zealand, Philippines, Poland, Switzerland, Thailand and Ukraine, have tested or are testing HD Radio broadcasting. The rapid and widespread commercialization of HD Radio technology is directly tied to iBiquity’s business model. iBiquity does not manufacture HD Radio receivers or broadcast equipment. Instead, it licenses its numerous patents, software copyrights, and know-how to others, including experienced manufacturing companies that are in the best position to bring this new technology to market. Each of iBiquity’s licensees – especially those that took early licenses – had to consider the risks of entering a new and unproven market for digital AM and FM, including the possibility that HD Radio technology would not be commercially successful. Through its licensing structure, iBiquity spread this risk across two levels in the manufacturing chain, thus reducing the risk borne by any one party. At one manufacturing level, iBiquity licenses chip makers to manufacture semiconductor devices that are an important component of every HD Radio receiver, and to use the chips solely for testing purposes. Chip makers are not granted rights to make HD Radio receivers or to sell licensed chips. Rather, they are granted a right to sub-license their use rights when transferring physical possession of the chips. iBiquity collects a royalty from the chip makers for each sub-licensed chip. At the next level of the manufacturing chain, iBiquity licenses receiver manufacturers to make, - 2 - use, and sell HD Radio receiver products incorporating chips from licensed chip makers. iBiquity receives a royalty for each HD Radio receiver sold by licensed receiver manufacturers. iBiquity believes that an examination of its patent licensing structure, and the reasons for it, may assist the Court in analyzing the issues in this case by demonstrating that a multi-level licensing structure can generate procompetitive benefits for licensees, consumers, and the general economy. STATEMENT 1. iBiquity and HD Radio Technology. iBiquity is the developer of HD Radio technology, which has been described as “radio’s most dramatic technological leap since FM broadcasting debuted more than 50 years ago.” Dina ElBoghdady, The Dawn of HD Radio, Washington Post, Nov. 6, 2004, at E1. HD Radio broadcasting offers substantial benefits over traditional analog AM and FM radio, including: • Increased signal clarity and fidelity, resulting in FM-quality sound over AM and near-CD-quality sound over FM; • Capacity to broadcast up to 8 digital channels, in addition to the existing analog channel, on one FM frequency; • The ability to provide additional data streams, such as real-time display of program, song title, artist, and album data; and • The ability to provide a variety of enhanced digital services. - 3 - iBiquity and HD Radio technology trace their origins to 1991, when CBS, Gannett, and Westinghouse formed USA Digital Radio Partners, L.P., to explore opportunities for digital AM and FM radio. After several years of testing and development, the company originated In-Band On- Channel (“IBOC”) technology, a method of broadcasting that enables digital signals to travel the airwaves alongside traditional analog signals. In 1998, USADR became a separate company, with investments by fifteen of the nation’s leading broadcast groups. At the same time, Lucent Technologies was exploring digital radio technology through Lucent Digital Radio (“LDR”). LDR became a separate company in 1999, and in 2000 USADR and LDR merged to form iBiquity Digital Corporation. iBiquity and its predecessors have spent more than $100 million on its research and development efforts. iBiquity’s intellectual property portfolio includes over 120 patents related to HD Radio technology, along with copyrighted implementing software, know-how, and trade secrets. More than half of iBiquity’s employees continue to be engaged in research and development. Terence O’Hara, iBiquity Digital’s Make-or-Break Point Approaches, Washington Post, Feb. 28, 2005, at E1. HD Radio broadcasting is a form of digital audio broadcasting (“DAB”). Unlike satellite radio, which is also digital, HD Radio broadcasting is used by terrestrial radio stations and is subscription-free to listeners. The technology offers significant advantages over traditional analog radio broadcasting. “The technology sends multiple - 4 - streams of data over very narrow frequencies to solve the problems of analog AM and FM reception. The streams are separately received, synchronized and assembled by the radio tuner.” Glenn Fleishman, Revolution on the Radio, N.Y. Times, July 28, 2005. “HD Radio is capable of a great range with a small fraction of the power of analog radio.” Id. HD Radio broadcasting employs what is known as “In-Band On-Channel” technology. It “makes use of the existing AM and FM bands (In- Band) by adding digital carriers to a radio station’s analog signal, allowing broadcasters to transmit digitally on their existing channel assignments (On- Channel) while simultaneously maintaining their analog service.” In re Digital Audio Broadcasting Sys. & Their Impact on the Terrestrial Radio Broadcast Serv., 72 Fed. Reg. 45670,