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Monday, May 23, 2022

Courting Royalties

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Irvine’s Uniloc USA Inc. is on the legal warpath.

In the past two months, the maker of security, anti-piracy and fraud prevention software has named nearly 80 other software makers in lawsuits alleging infringement on one of its patents.

“This is probably the most extensive case of patent infringement that I know of,” Chief Executive Brad Davis said.

Uniloc is suing over the same patent that won it a $388 million jury award last year after a protracted courtroom battle with software kingpin Microsoft Corp. The case, which is on appeal, brought the small company out of anonymity.

With yearly sales of about $100 million, Uniloc got billed as the victor in a David and Goliath drama.

The Microsoft case and other litigation stems from a patent Uniloc’s Australian founder secured in the 1990s for a process that’s become the standard for preventing software piracy.

Uniloc pioneered the idea of using a 25-character product key or serial number embedded into each copy of a disk loaded with software. The key seeks to ensure there’s only one registered user per copy of the software and limit it to being loaded on a select number of devices.

Uniloc’s patent only has about three years left before it comes to the end of its life. After that, Uniloc can’t sue to enforce the patent or collect royalties.

“We thought the timing was right to say, ‘Well, it’s not just Microsoft,’” Davis said. “Some of the biggest companies in the world began to use it.”

The most recent round of lawsuits—six at the latest count—are a way of further asserting Uniloc’s belief that it should be paid by others for using the patent.

“The software activation market is still a battle,” Davis said. “Just because Microsoft is doing it doesn’t mean it’s free. That’s been a difficult market for us, to be sure.”

Companies Sued

Companies named in the latest suits include Sony Corp., Activision Blizzard Inc., McAfee Inc., Adobe Systems Inc., Symantec Corp., as well as many other smaller software names.

Uniloc is seeking damages and injunctions on selling products that contain allegedly infringing software, according to the lawsuits.

Most important to Davis is that Uniloc’s “intellectual property is seen as valid and is respected,” he said.

“Uniloc has now spent seven years and tens of millions of dollars on this market where all this infringement is happening,” Davis said. “Until we prevail over Microsoft or in one of these other high-profile cases, people still don’t believe that our intellectual property is necessary to pay for. So we’ve been really beating our heads against the wall with that.”

Since the suits were filed, Uniloc has had a degree of success. About 30 of the companies named in the suits have settled and struck licensing pacts with Uniloc.

“We are not about litigation,” Davis said. “We aim to settle.”

Davis declined to disclose the value of the licensing deals. The revenue they will bring “isn’t a non-trivial amount,” he said.

Davis estimated that under licensing deals Uniloc sees around $2.50 in royalties from each copy of software that’s sold.

“They are not small numbers,” he said.

Uniloc USA is part of Australia’s Uniloc Corp., which is little more than a holding company.

There’s a board in Australia, but most of Uniloc’s operations are in Irvine, near John Wayne Airport.

The company’s Australian roots trace back to founder Ric Richardson, who in the early 1990s filed a patent for the technology behind the company’s anti-piracy software. He hit it big when IBM Corp. licensed it in 1994.

According to Davis, Microsoft approached Uniloc in the late 1990s and looked at its software for a potential licensing deal.

“They kicked the tires and said, ‘No thanks,’” he said. “And then a few years later it showed up in the market.”

These days, Uniloc sees itself as a sort of incubator for new software based on the products and patents it develops.

“We bring these businesses to the point where they are standing on their own two feet, can exit Uniloc and go focus on their markets,” Davis said. “Uniloc is not just an IP holding company.”

The company counts some 55 software-related patents issued or pending, according to Davis.

Offshoot

Earlier this year, Uniloc split off a unit that puts a twist on its device identification software.

The new company, BlueCava Inc., is marketing Uniloc’s technology as a software development kit to online retailers and other website operators looking to protect against fraud and improve targeted online advertising.

Uniloc has a majority stake in BlueCava, which is seeking its own office space locally.

The split of BlueCava “has paid dividends,” Davis said.

At a minimum, it helped to sweep away some of the baggage associated with Uniloc’s name since the initial Microsoft win.

“If you Google Uniloc today, much to our chagrin, you get a lot of litigation stuff,” he said. “For a company out there trying to license cool software, it can be a hindrance.”

Eventually, Davis said he could see BlueCava or Uniloc going public.

“Both of those are legit options for us,” he said.

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