Vizio in a showdown with Funai over an HDTV patent

With the switch to digital TV (at least until a few weeks ago) having been scheduled for this month, and with more families having scrambled last Christmas to make an affordable upgrade to high-definition, the bad economic season ended up being a windfall for US-based Vizio. Its strategy of selling low-priced HDTVs mainly through Wal-Mart helped it improve its market share to clinch a strong second place in the US (with 14.3%) against Samsung, according to figures released just last week by hardware analysis firm iSuppli.

But that victory may have only managed to paint a red target on Vizio, with its competition now aiming for the heart of the company. Last year, an administrative law judge (ALJ) with the US International Trade Commission issued an initial finding in favor of Japan-based Funai, the long-standing also-ran in the electronics business which late last year acquired the right to use the Philips brand name for CE components in the US -- including for Blu-ray drives. Funai holds a key patent, issued in 2000, for a mapping system used by cable TV and satellite service providers -- essentially a way for set-top boxes and digital-ready HDTVs to tell which incoming video stream belongs to what program. And Funai has been charging TV manufacturers for the right to use that stream, even though -- as Vizio now contends -- the concept of the stream itself is critical to an ATSC standard that every manufacturer must follow.

Last November's USITC initial ruling appeared to pave the way for Funai to be able to collect damages for alleged patent infringement by Vizio and several smaller manufacturers worldwide. Last week, Funai issued an announcement stating that the USITC had decided not to review that initial decision, in an apparent victory for Funai.

Except that's not what the USITC ruled at all. According to the USITC's own announcement (PDF available here), "Having examined the record of this investigation, including the ALJ's final ID, the petitions for review, and the responses thereto, the Commission has determined to review the final ID in part." Which part, specifically? The part that pertains to the sole patent that Funai is now claiming.

That was the last straw for Vizio, which on Friday the 13th sued Funai in US District Court. Vizio's claim is that Funai deliberately acquired patents from businesses that created the original ATSC standards, in an effort to unjustly claim sole authority over standards that the entire industry agreed in advance to adhere to and respect.

Vizio's suit tells the story of Thomson Consumer Electronics, the brand which acquired not only the rights to the RCA brand but also Sarnoff Labs, RCA's one-time research braintrust. Thomson was one of three groups, along with one led by Zenith and another by MIT, that jointly developed standards for the Advanced Television Systems Committee.

"To prevent any one company from being able to monopolize or otherwise control a standard that was intended to be open and available to all," the Vizio suit reads, "the ATSC required at that time, and continues to require today, that owners of patents covering technologies that are included in ATSC standards license all 'Essential Claims' to implementers of the standards on fair, reasonable, and nondiscriminatory ('FRAND') terms.

Thomson helped develop the streaming map system for MPEG-2 encoded TV channels, and declared its patent in 1997. It then promised only to license that patent under FRAND terms, as required by the Federal Communications Commission. But with Thomson in troubled waters in recent years, it ended up selling that patent to Funai in September 2007 -- which was not Thomson's only ATSC-related patent, but certainly a key technology. Thomson retained the rights to a very similar patent, however, and as a result, Vizio claims, it's possible for a company like Vizio to now follow Thomson's standard -- and thus owe Thomson, with which Vizio has no squabble -- rather than Funai.

So Vizio's claim includes the assertion that it still pays Thomson royalties as well as Funai for the same technologies, for reasons it believes are suspect. What's more, Vizio believes that while Funai may be charging some manufacturers just $1 per unit manufactured in royalty fees, it arbitrarily charges Vizio and others "substantially higher rates."

What Funai is seeking from the USITC is an injunction against the importation into the US of any digital televisions made by companies not paying Funai what it thinks they owe -- this according to Funai and the USITC. But Vizio is taking a gamble by suggesting that by asserting claim to this patent -- one which it admits is similar to another held by Thomson -- Funai is seeking to use monopoly leverage to control prices for competitors' sets, and thus exclude competition. To that end, Vizio is arguing that all roads leading to the adoption of a key ATSC standard going forward -- one which all manufacturers must adhere to -- will lead to Funai's single patent.

"The result of Funai's conduct and the scheme between Thomson and Funai is directly contrary to these purposes of the ATSC patent policy and the Thomson FRAND commitment made to the ATSC," reads Vizio's suit. "Funai's scheme to seize, and the plot concocted by Thomson and Funai to confer on Funai, the power to collect additional royalties, above and beyond those already collected by Thomson and unlimited by a FRAND commitment, and to exclude companies from the market altogether, has 'subverted' both the terms and the purpose of the ATSC Patent Policy. Funai, both individually and in conspiracy with Thomson, has completed an end-run around the ATSC procedures intended to prevent hold-up or exclusion of competitors, and each shares in the anticompetitive amounts collected as a result of their scheme."

Neither Funai nor Thomson have issued responses to Vizio's legal challenge.