Dolby Scores a Patent Victory the Right Way

Earlier this week, Dolby Laboratories (NYSE: DLB  ) and Research In Motion (Nasdaq: RIMM  ) agreed to bury the hatchet and smoke a peace pipe.

Patent infringement lawsuits on two continents were laid to rest, and now the BlackBerry maker is a license-paying Dolby customer with the right to use its patented audio compression technologies. Other electronics mavens licensing the same patents, albeit less begrudgingly, include HTC, Samsung, Nokia (NYSE: NOK  ) , and Apple (Nasdaq: AAPL  ) .

Dolby's legal campaign was waged through a license-handling middleman appropriately known as Via Licensing, and not by Dolby itself.

Classic case of patent trolling, right? Set up an intellectual property trap, preferably by having your inventions elevated to industry standards like Dolby's AAC patents were, then squeeze as much cash as possible out of your ... let's call them “clients.” Start with an unreasonable royalty rate; if they won't pay up, then you call in the lawyers. If nothing else, many targets will settle these lawsuits just to make you go away.

This model has been popularized by Rambus (Nasdaq: RMBS  ) and similar entities, further developed by Nathan Myhrvold's Intellectual Ventures as described in this terrific NPR piece, and now we have VirnetX (AMEX: VHC  ) hoping to make a killing on 4G security patents that may or may not be required for all true next-generation LTE devices. And the list goes on and on.

But you can put the troll repellent away because Dolby is different.

Sure, the vast majority of Dolby's revenue comes from technology licenses and royalties. But the company makes a real effort to offer fair and reasonable rates to its customers before pulling the lawsuit trigger. In the RIM case, most of the smartphone industry had already signed AAC licensing deals, but the Canadians dragged their feet for four years.

The suit was finally filed in June of this year, and resolved very quickly. You won't even find a press release about this legal victory on Dolby's site -- it's just another day at the office. For another example of agreeable patent practices, look no further than OLED researcher Universal Display (Nasdaq: PANL  ) . When Samsung stretched out a license negotiation over several years, Universal didn't call a lawyer in Texas. Instead, the company worked to improve and commercialize its technology, and Samsung eventually saw the need for a long-term deal.

I could go on and on, but let's just say that Dolby runs its business like a business. That's such a Foolish thing to do -- not to mention grown-up.

On the very eve of Obama signing a new patent system into law, one can only hope that the nuisance suits dry up so inventors can go back to inventing. I'm just afraid that the changes aren't going far enough.

Learn a lot more about Dolby and its low-friction business model in this free video report.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. The Motley Fool owns shares of Apple and Research In Motion. Motley Fool newsletter services have recommended buying shares of Universal Display, Apple, and Dolby Laboratories. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio, follow him on Twitter or Google+, or peruse our Foolish disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 16, 2011, at 2:54 PM, DaveGruska wrote:

    Dolby owns Via Licensing.

  • Report this Comment On September 17, 2011, at 12:01 PM, TMFZahrim wrote:

    Hey @elias, would you mind pointing me to any kind of evidence that the ATIS and ETSI have "accepted" VHC's claims? All I can find is repeated press releases from the company stating that they are in fact essential, with no matching statements from the standards bodies themselves. As far as I can tell VHC's patents solve a few very particular security problems, but other solutions may also exist.

    Anders

  • Report this Comment On September 19, 2011, at 9:02 AM, pk22901 wrote:

    Rambus a patent troll? NOT.

    The story under sworn testimony in the CA antitrust trial is quite different.

    Rather than explain it all, the verdict will be out Friday, Monday at the latest.

    Please take the time to read the memo, eh verdict.

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