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Bursted Dreams: Why would Burst.com let Apple off the hook for only $10 million?

Status: [CLOSED] comments (68)
By Robert X. Cringely
bob@cringely.com

Sometimes there is as much news in the timing of an announcement as there is in the announcement, itself. That is probably the case with this week's legal settlement between Burst.com and Apple, which was announced late Wednesday night on the eve of the Thanksgiving holiday. The minute I saw the news I sent a message to Burst CEO Richard Lang, but have yet to receive a reply. Reading the announcement on the Burst website (the announcement has since disappeared from Burst's site) only raised more questions about this peculiar deal. What's going on here? I don't know, but I have a few guesses.

On the face of it, this announcement seems to be a big win for Apple. Where the giant computer maker might have been on the hook for up to $1 billion in damages, they settled for $10 million, of which Burst will finally walk away with only $4.6 million after court costs and legal fees. But there has to be more to this. Take the timing, for example. Why would the two companies announce such a settlement right before a major holiday? It could be that they finally came to terms on Wednesday night and felt an obligation to get the word out immediately, but somehow I doubt that's the case. I think the timing was intended to bury the story, which will be five days old by the time the major news organizations are back to work. Representatives of both companies, of course, will be unavailable until then because of the holiday. The press hasn't done a very good job of understanding this story anyway, so it will probably be buried and never fully explained, which I would guess has to be intentional.

That leaves it up to me.

To review the case, Burst spent decades developing streaming media technology covered by more than 30 patents. Microsoft bought a license from Burst two years ago for $60 million. Apple preemptively sued Burst a year ago after months of license negotiations. Burst countersued claiming Apple's QuickTime and iTunes infringed Burst patents and sought damages that could easily have run into hundreds of millions of dollars. The case took a recent downturn for Burst when the judge threw out 14 patent claims, leaving more than 20 claims intact. A trial was scheduled for February but now won't be happening.

I have absolutely no inside knowledge here, but I have been following the case since it began and know many of the principals, so I am going to hazard a few guesses about what is really happening.

You can read a press release from Burst in this week's links. Apple has yet to issue a press release and may not.

Let's first look at the news from the perspective of Burst. Settling for $10 million has to be a huge disappointment to the company. $4.6 million is not a lot of money to return to shareholders who were expecting hundreds of millions. So why did Burst settle? They may well have feared losing at trial. $4.6 million is better than nothing. Burst's lawyers were all working on contingency, so they may well have pushed for a settlement if the trial was starting to look not so good. Apple probably saved $10 million in legal fees by not going to trial, so the settlement would appear to be a wash for them.

I was surprised, though, to see the Burst announcement carried no statement from company officers reacting to the event or giving any idea about what will happen next. Indeed, the Burst announcement clearly says they WON'T be commenting about the company's next moves.

Then there is the peculiar detail of the settlement that Apple's license specifically excludes one issued and three pending Burst patents on digital video recorder (DVR) technology, yet Burst promises not to sue Apple for infringing these patents for which it is specifically NOT giving Cupertino a license. How odd is that? Isn't saying you won't sue someone for infringing the same as giving a license?

This DVR detail has to be coming from Burst, not Apple. Given Burst's promise not to sue Apple for infringing, whether the DVR patents are part of the license or not probably wouldn't matter to Apple, so it must somehow matter to Burst. My guess (and remember it is only a guess) is that Burst wants to keep the DVR patents separate so they can claim that there isn't an implied value that can be derived from Apple's $10 million payment. Burst may well see its DVR patents as now comprising the greatest part of its portfolio value. And it wouldn't surprise me if this position were actually proposed by Apple.

This happens all the time in settlement negotiations. They are, after all, negotiations, with each side trying to convince the other to either accept less or pay more. Apple may well have suggested that Burst pursue others with the DVR patents with some tacit Apple support. Again, this is just a guess.

The elephant in the room here is TiVo. If Burst plans to vigorously pursue licensing these DVR patents and the company continues to follow its tendency to sue the strongest party in each market segment, then TiVo is next and the Apple settlement was adjusted a bit to make that potential litigation easier.

I doubt that Burst wants me speculating like this. When some of their patent claims were denied two weeks ago, Burst CEO Richard Lang called me twice from Hawaii, interrupting his vacation, to discuss the news. Now it looks like he won't return my call, so something has changed.

But Apple has as much reason for not wanting to talk to me as Burst does. That's because the size of the settlement and the "don't ask us" nature of the Burst press release tell me there are aspects of this settlement that may not have been disclosed. I wonder if it might actually be bigger than it looks.

What I would like to know from Apple is whether there is any circumstance under which Apple may owe more money to Burst?

Maybe we should look again at the DVR patents, three of which are yet to be issued. These patents were specifically withheld from the Apple license, yet Burst promises not to sue for infringement. I have speculated above about one reason why that may be. Thinking like Apple, I can come up with another possible explanation. I'm no lawyer, but I think it would be difficult to license an unissued patent. The Burst announcement says Apple will have access to all Burst patents other than the DVR patents without "further consideration" (no royalty stream). But this does not apply to the DVR patents, so perhaps there is some further consideration attached to those.

If I were Burst, the only circumstance under which I would promise not to sue someone for infringing was if there was already a license agreement in place. Perhaps there is a second Apple license for the DVR patents involving additional payments but tied to the three pending patents actually being issued. Until the patents are issued the license would have no material impact on Apple or Burst, yet the existence of such a provisional license could justify Burst's promise not to sue. So Apple may actually be on the hook for more money than it appears here, but structuring the deal this way allows the company to claim victory.

Of course this could all be wishful thinking on my part. But the settlement and Burst's announcement are so odd that I am sure something -- perhaps a great deal -- has been deliberately left unsaid.

The timing of this settlement makes no sense to me, either. Burst seemed still to be in a strong position and pressure for Apple to settle would only have increased as the February trial date approached. Settling now makes no sense to me unless there is a smoking gun of which I am unaware. We all deserve to know a lot more about what's happening here, but I suspect we won't learn anything more until the next license is announced or the next lawsuit is filed.

Comments from the Tribe

Status: [CLOSED] read all comments (68)

I'd bet Apple has prior art and a few patents of its own that were taken into consideration.

In way, if Burst scored a major victory and made mortal enemies of Apple it probably would have ultimately lead to the end of Burst ( even if they did take a load of cash to their grave ).

Randy | Nov 27, 2007 | 12:58PM

EchoStar is going to buyout Burst.com and sue TiVo :D

Eric | Nov 29, 2007 | 8:43PM

so the dust has settled and it seems nothing will rise from the ashes

ed | Dec 05, 2007 | 9:40PM