The US International Trade Commission (USITC) ruled this month in favor of RealD to block importation into the US of MasterImage products that infringe RealD’s light doubling patent.
The USITC decision can be read here.
This has been a lengthy battle for both companies. If willing, the battle could drag on over the validity of the remaining RealD patent. I’m told that lawyers are lining up to take it on. But this decision will likely mark the end of MasterImage’s fight. The USITC order will block importation into the US of MasterImage’s Horizon family of polarized light doublers for 3D. It’s possible that RealD’s win in the US could play out in Europe, too.
RealD’s success is to be admired. It is the only company in US cinema, if not world cinema, to execute a successful licensing program with exhibitors. The RealD model collects a small fee from every 3D ticket sold in licensed cinemas. It was the right risk model when 3D was first introduced. The upside for exhibitors in the RealD model is the relief from capital investment. RealD manufacturers and provides its own 3D system in return for a stream of licensing revenue. The downside for exhibitors is that there is no incentive for RealD to improve its product. Instead, the incentive to maximize profit tends to dilute the drive to improve quality.
It’s now been 10 years since RealD product was first installed, and reports from the field tend to confirm disappointment with product quality in recent years. Perhaps expectations are now higher, and the product quality has stayed the same. But higher expectations would result from the availability of competitive product. Competition is always good for exhibition. The USITC decision, however, removes competition from the market.
The RealD case raises an old argument about whether patents promote or impede innovation. It’s a question for which one answer isn’t right in all cases. In the 3D case, though, one can be sure that the incentive to compete in the polarized 3D market is now very small, if not zero. Masterimage invested significant R&D in its Horizon 3D light doubler, a second generation technology which exhibitors on several continents prefer over the first generation 3D light doubler products of RealD. Had sales of the Masterimage product continued, there would have been incentive for RealD to also improve, conceivably outperforming Horizon. But if RealD can make more money with older designs, then small chance of this ever happening.
As Lawrence Lessig once put it: “The argument favoring patents is as old as the hills. If an inventor can‘t get a patent, then he will have less incentive to invent.” That’s the well known argument. There are numerous studies on the impact of patents on innovation. But where all improvements to a technology necessarily infringe on the original technology, the motivation to improve comes into question. If the inventor chooses to curtail competition rather than license it, there’s not much to be done unless a replacement technology evolves. In the case of polarized 3D, a cost-effective replacement may be difficult to achieve. The beauty of polarized 3D is the low cost of glasses. Other 3D technologies exist that are as effective at 3D, if not more. But their glasses are more expensive.
Short of a miracle new technology, or a wealthy Hungarian real estate magnate driven to be in the movie business and not afraid of fighting a patent, RealD will be the winner in 3D for the next 10 years. If only it felt like a win for exhibition.