Sounding Off : Tiny Firm Accuses Disney, Warner, Other Studios of Patent Infringement on Film Soundtracks

A tiny Bay Area company claims that five major movie studios, including Burbank-based Walt Disney Co. and Warner Bros., are probably infringing on two patents it holds for a digital sound technology used on such motion pictures as “Forrest Gump,” “The Lion King” and “The Fugitive.”

But instead of battling the movie studio Goliaths in court, this David is hoping to sell the rights to the patents and let somebody else shoulder the enormous costs of litigating the dispute with the studios.

Drexler Technology Corp. in Mountain View contends that its method for storing digital data is so similar to cutting-edge technology used by the studios to put sound on film that its patents are probably being infringed. Drexler said the dispute involves about 150 motion pictures made in the past few years by Disney, Warner Bros., Sony Pictures Entertainment, 20th Century-Fox Film Corp., Paramount Pictures Corp. and Savoy Pictures Entertainment Inc.

Jerome Drexler, Drexler Technology’s chairman and president, said the decision to sell the two patents was made after repeated requests to the studios to honor the patents went unresolved. “It turns out that if you’re a small company like we are--we have 40 employees--and you go after a major company with something like patent infringement, they ignore you,” he said.

The studios that Drexler has accused of patent infringement did not return phone calls, or declined to comment.

But Drexler’s company--which had combined losses of more than $10 million on about $4 million in revenues in its past three fiscal years--does not have the financial resources, he said, to battle the studios in court. Drexler said he hasn’t yet formulated an asking price for the patents, but he speculated that a deal could involve a cash payment plus participation in any possible future legal settlement.

So far, Drexler said, he has been approached by three companies that might be interested in buying the patent rights, but he declined to name them.

Drexler said the two patents that form the center of his dispute with the movie studios were obtained by his company in the mid-1980s, and cover a method of putting digital optical data on film. Then in 1993, Sony Pictures announced the release of two films, “The Last Action Hero” and “In the Line of Fire,” using a digital sound technology known as Sony Dynamic Digital Sound (SDDS).

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The Sony technology, which has since been used on films made by many different studios, allows filmmakers to create enhanced sound by putting about four times as much sound data on film as on a conventional film soundtrack. The Sony method sounded strikingly similar to the technology his company developed, Drexler said. After investigating, he concluded that the Sony digital sound technology and a competing sound technology by Dolby both very probably infringed on Drexler Technology patents.

Drexler said his dispute was with the movie studios--and not the providers of the technology--because “it’s their decision what system to use.”

Drexler also said that he wasn’t interested in suing the movie studios because he wants to concentrate on pursuing the company’s main business--producing optical data cards using the same kind of technology at issue with the studios. It’s a business thought to have vast potential in fields ranging from health care to the military.

But like many high-tech concerns with big dreams and huge obstacles, Drexler has spent 15 years trying to develop markets for its products with only meager results. Drexler Technology went public in a 1980 stock offering, and over the next several years worked on developing its optical data card technology.

An optical data card looks like a credit card, but instead of a magnetic strip it has a series of bumps and depressions containing compressed information that can be read by a laser. A laser can also be used to record more information on the card. One optical data card can hold the equivalent of 2,000 typed pages of data--many times more than a card using the commonplace magnetic strip.

The biggest use for the optical data cards so far has been in the medical field. In Britain, for instance, British Telecom is using Drexler Technology optical data cards at two hospitals to record patient information, from medical scans such as magnetic resonance imaging (MRI) to patient histories. Hospital employees insert the cards into a laser “reader-writer” machine, which is hooked up to a personal computer. The patient data is then displayed on the PC screen. The PC can also be used to add new information to the card.

The company has spent $68 million developing its technology and building its Mountain View plant, and now holds about 40 patents related to the optical data technology. Drexler Technology has licensed the technology to 26, mostly foreign, companies, including Canon, Hitachi, Fujitsu and Toshiba of Japan and Italy’s Olivetti.

Drexler said he’s hopeful that the company’s next fiscal year, beginning in April, will be a breakthrough year for the company, as many of its customers are expected to go from testing the product to more widespread use.

But analysts caution investors not to hold their breath. “Clearly, the technology is overwhelmingly superior. If it ever takes off it could be potentially lucrative,” said Ken Peterson, an analyst at Red Chip Review, a securities research firm in Portland, Ore.

The biggest obstacle to market growth for the optical cards, Peterson said, is that the reader-writer machines used to scan and input information on the cards cost $3,000 apiece, compared to just $50 for reader-writers used with magnetic-strip cards.

“From an investment point of view, you can only look at (Drexler) as a really long-term proposition,” he said.