THE AMERICAN WAY TO INNOVATION

June 8, 2006

What do you do when your tech company’s revenues start to go south? Call in
the patent lawyers. Five years ago, Vtel was on the wrong end of a dwindling
market for videoconferencing hardware. Then a review of the company’s
patents unearthed a way to claim one of the core algorithms in JPEG, the
ubiquitous digital photo format. So in 2001, Vtel sold its videoconferencing
unit, bought out its employees, changed its name to Forgent, and got into
developing underexploited intellectual property – a practice known as patent
trolling. The JPEG claim and others have reaped more than $100 million in
licensing agreements, with millions more in sight if the company wins its
current lawsuits against heavyweights like IBM and Apple. Next, Forgent’s
legal hounds plan to mine the DVR market by going after TiVo for patent
infringement. Which ones? We asked Jay Peterson, Forgent’s CFO, to specify
and to explain why he’s let lawyering take precedence over innovation.

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