RealD and MasterImage continue their alleged patent infringement battle over 3D light doublers, to a weary audience. Equally weary is RealD’s tendency to overstate its position, a peculiar habit for a public company. The latest overstep was in December with a press release titled “RealD Prevails Over MasterImage In Patent Infringement Action,” referring to a final preliminary determination made by the US ITC. Apparently the ITC isn’t ready to agree with RealD’s headline, as this month it issued a new determination to carry on with its investigation. But the end could be near.
Over the past two years, three legal actions have taken place between these two market leaders, all of which remain active, regardless of a tendency to state the contrary in RealD press releases: RealD’s claim of infringement against MasterImage, MasterImage’s request of the US Patent Office (USPTO) for inter partes review of RealD’s patents (invalidation), and RealD’s request to the US International Trade Commission (ITC) to block importation of MasterImage light doublers. The ITC’s final determination, however, could significantly change the game.
In its latest action, the ITC is revisiting the December preliminary determination, declaring a review of specific aspects of the case. One such aspect has to do with the validity of RealD patent US 7857455, also known as the ‘455 patent. The new determination puts a spotlight on the term “uniformly modulate,” a key concept in ‘455 introduced to differentiate it from prior art. It appears that a particular meaning for this term was construed in the course of the case, and the ITC is asking how MasterImage infringes in light of that meaning. The ITC also hints that the validity of claims in ‘455 in light of prior art is under examination. Prior art could include patents from Colorlink whose patent filing dates precede those of RealD’s by a few weeks. (RealD since acquired Colorlink.) More questions were also asked by the ITC. While the questions posed are tightly focused, they are significant questions that could alter the outcome of this case.
It should be emphasized that this patent case only applies to the US market, where RealD’s patents are strongest. Notably, its ‘455 patent has not been accepted in its entirety elsewhere in the world. Even an alteration of ‘455 could open the door for competitive 3D light doublers in the US.
Competition in the US market would pose a problem for RealD. RealD’s market valuation is driven by its 3D licensing revenue. In contrast, its competitors prefer to sell 3D product to exhibitors rather than license them. If licensing fees paid over the lifetime of a product are greater than the cost of purchasing an equivalent product, then the market will drive down the cost of the license. Lower license fees would greatly benefit US exhibitors, who are otherwise locked out of alternatives due to RealD’s patents. But lower license fees would also negatively impact RealD’s market valuation.
Fortunately, RealD’s short-term sensitivity to market valuation could soon change. The company agreed in November to be acquired by private-equity firm Rizvi Traverse Management. Privatization is good for RealD, as it’s been apparent for some time that the company’s business model, brilliant at the time of launch 10 years ago, has had its run. However, whether Rizvi is the patient owner that RealD needs as it realigns to the market remains to be seen. An unfavorable result in the ITC case would test the new owners. The Rizvi deal is scheduled to close next month, in March, and the ITC could issue its final determination soon after, as early as April. The next few months could be quite interesting.
