IP Stability of MP3 Unravels as Texas Firm Sues Apple, Others

by Scott M. Fulton, III

Just days prior to a tremendous loss by Microsoft in a jury trial over the MP3 format sent warning signs about the uncertain structural integrity of MP3's intellectual property, a previously unknown Texas-based firm filed suit ten days ago in federal court in Marshall, in defense of patents it claims it acquired from one-time MP3 chip powerhouse SigmaTel. The suit charges SigmaTel's former competitors and some former customers, including Apple, Samsung and SanDisk, with infringement.

While the patent in question protects a methodology that's enacted in hardware, not software as in the MP3 format patent case which Microsoft lost, the new company may be rushing to file the proper paperwork before a potential landmark decision by the US Supreme Court - which could come any time - redefines the boundaries of American technological patents.

As IDG News Service reported this morning, Texas MP3 claims to be the assignee of rights for patent 7,065,417 - the same patent whose legitimate owner was determined to be SigmaTel, and whose rights were found to have been infringed upon, in a decision last September 15 by the US International Trade Commission.

Just two years ago, SigmaTel was one of the world's principal providers of MP3 "system-on-a-chip" (SoC) processors, with designs that appeared in the early Apple iPod Shuffle, Dell's DJ Ditty, and other small devices.

In January 2005, SigmaTel sued a Chinese semiconductor production firm, Actions Semiconductor, for mass-producing low-cost knockoffs of SigmaTel designs and flooding the market with them. Actions' designs led to an explosion in the Asian MP3 market, with ridiculously low-priced devices that kept foreign competitors from regaining a foothold. After the US ITC found in favor of SigmaTel, the long-term damage to its business had already been done. Dell exited the MP3 business, then Apple -- in an effort to keep flash memory prices low -- extended its existing SoC contract with Samsung to include the iPod Shuffle.

Actions' battle with SigmaTel continues, having filed complaints last November against SigmaTel in a court in Shenzhen seeking the invalidation of two SigmaTel patents on digital-to-analog signal converter technology. But weary from the battle already, SigmaTel spun off its MP3 chip manufacturing arm to Integrated Device Technology, Inc., and sold its MP3 device patent in July, IDG learned, to someone the company would only describe as "a Dallas-based patent licensing agency."

That's probably Texas MP3 Technologies, though a few details make that fact difficult to pin down. On February 15, Texas MP3 filed an application with the US Patent and Trademark Office for the American patent rights for a specific methodology for MP3 player technology, first patented in South Korea in 1997. The patent holders there are the same as for the SigmaTel patents. And to make matters even muddier, in September 2003, a Korean firm named MP3Man.com Inc. was granted US patent rights for what appears to be the same device, credited to the same inventors.

Back in January 2006, SigmaTel announced a rigorous strategy for defending its MP3 device IP rights. It would not seek any legal action toward companies that purchase SigmaTel SoCs from it or one of its distributors, the company announced then. But it would focus is licensing efforts on attempting to seek royalties from companies who purchase SoCs from competitors, presumably including Samsung.

"SigmaTel intends to attempt in all cases to first employ its licensing strategy," said a company presentation, "but will not hesitate to resort to legal action if MP3 player and silicon manufacturers decline to participate in the program."

If Texas MP3 is indeed SigmaTel’s assignee for this patent, then it would appear that it doesn’t have the same strategy toward licensing first. Furthermore, Marshall, Texas has a reputation of its own, as the seat of a federal courthouse where plaintiffs tend to win a disproportionate amount of patent suits tried by jury.

Yet in a case that seems ripe for irony, one possible huge twist could lurk on the horizon: SigmaTel didn’t own rights to the MP3 format, just a patent for a design of a chip that uses that format. SigmaTel was licensed rights to the format by the same Thomson / Fraunhofer group that licensed the format to Microsoft, and whose licensed was declared illegitimate by a Washington state jury last week.

If Alcatel-Lucent has designs on capitalizing on the patent portfolio it acquired from the descendant of Bell Laboratories, Texas MP3 -– if it is the recipient of the SigmaTel patent –- could find itself a defendant as well.