Keys to the Media Kingdom
Not too many years ago, one of the major buzz hives spanning Silicon and Silicone Valleys emanated around a small company called InterTrust Technologies. InterTrust was said to have, in its vast patent portfolio, the keys to the kingdom when it came to the critical issue of controlling, securing and merchandising digital content across cyberspace. In time, InterTrust, which did an IPO and reached a market value of $6 billion came to be in sequence one of the shiniest and most tarnished poster children of the Tech Boom and Bust cycle.
InterTrust had literally invented, in depth, the concept of digital rights management or DRM. Long before Hollywood ever imagined it would be worrying about networks like Kazaa, Victor Shear, the inventor-founder of InterTrust, was burning the midnight oil anticipating what might happen in a world equipped with an ubiquitous digital distribution system (that came to be known as the Internet) and digital technologies that would make massive reproduction of published media, music and movies as easy as clicking a mouse.
The first patent applications were filed back in the late 80's, a tad before other entrepreneurs like Peter Sprague, the founder of Wave Technologies, also began to pursue the issue. But whereas Sprague concentrated on a hardware solution and the security side --his background was National Semiconductor-- after all, Shear and colleagues pursued another vision that inevitably led them to envision a hybrid network in which servers and clients and other clients and other servers all became critical nodes in the wholesale and retail distribution chain and consumers in the digital world might begin to behave more or less like consumers in the molecular world always had.
In that world, consumers might rent, borrow, buy, trade or just carry with them the things they paid for and assumed they had rights to. Traditional copyright law and customs regarding plagiarizing were the controlling factors and different communities worked about different usages for the various stakeholders, such as the hallowed concept of "fair rights" in the US.
InterTrust would go on to painstakingly patent, from a number of angles, the concept that different devices, in a peer to peer or server based environment would, for any real efficiency, need to handle and negotiate rights on an automated basis. In other words, as the owner of a piece of music, you wouldn't have to ask anyone permission to bring it into your car and play it there or even trade it with a friend for another piece. Fluid rights, embedded in various places within the network would be checked, updated and negotiated machine to machine.
InterTrust, the company founded by Shear, and the holder of the patent portfolio, quite naturally engaged in serious conversations with all the great players in the media and technology world and many of them were ready to pay it close attention. But there were also many problems involved in the implementation of a network to support trusted digital commerce as proposed by InterTrust. For one thing, on the business side, there was the concept of a toll or tax that would have to be paid by everyone to InterTrust each time a commercial event took place on the system. Most companies, and unfortunately, all too successfully, resist paying the Feds a tax and certainly the idea of cutting one company into their take was perceived by the moguls, the way they might perceive a virus designed to feast on their very DNA.
The technical problems were just as daunting, if not greater by several magnitudes. In a network and operating system world as riddled as the state of Nebraska with swinging barn doors, only wide open gaps of a technical nature, how in the world was InterTrust going to succeed in its quest to build a truly trusted system?.....trusted like the dial tone, as the folks from Santa Clara were wont to say.
So in the end, while there were many who listened and more than a few, like Nokia, Bertelsmann and Price-Waterhouse-Cooper that dabbled, only one company really, truly paid attention and that was Microsoft. It is also widely said that InterTrust and Microsoft came within a hair of closing a deal that would have greatly enriched the major stockholders of the company. That deal, much to the chagrin of the negotiators and knowledgable stakeholders, fell through and Microsoft went home to begin seriously architecting their .Net Framework to match what they might have learned during the due diligence phase of the negotiations.
They knew that technology adoption occurs over a gradual path and that the courts represent a very slow avenue when it comes to patent infringements and, further, from experience, that litigation can be extremely expensive and daunting business strategy for any company to follow, especially when it's against Microsoft. And so, a fair interpretation might be, that they just plain left InterTrust out to hang and dry.
And turn to near dust it did. The world was nowhere near ready for DRM and the major media companies knew they were better off waiting for the technology wars to show winners and losers before placing their bets. And so the InterTrust braintrust, with no real way to generate cash flow and who had placed all their bets on the notion that the great media companies would actively resist letting Microsoft into their business, were forced to eat their own dog food.
By the time the tailspin had taken its own toll, InterTrust, its stock now trading for a hundredth of its peak price, had got rid of its original people and shrunk itself to a core group of patent sitters. Eventually, the company was picked up in a bargain by a company primarily owned by Sony and Philips and brought private, leaving most stock and option holders high and dry.
This brings us to a little over a week ago when InterTrust and Microsoft announced that the patent suit had been settled and that Microsoft would pay InterTrust $440 million dollars for unlimited rights to its patents.
Even though the deal went nearly unnoticed by even the most knowledgeable media outlets, this was, without any exaggeration a cyberspace-shattering deal for the media world and the first repercussions came almost immediately as Real Media and Apple announced their own plans to work more closely together.
The deal, in sum, probably does more to open up a major source of new revenues for Microsoft than anything the company has been able to accomplish in the last 10 years and may rank in importance with Ms's browser and media player coups.