Samsung Paid No Royalties on 7M Blu-ray Decks Sold With Cinavia, Alleges Verance
Samsung owes Verance more than $1.31 million in unpaid license fees and late charges for embedding Cinavia audio watermarking detectors in the roughly 7 million Blu-ray players it sold July 2017 through September 2019, alleged a Verance complaint (in Pacer) Friday in U.S. District Court in Manhattan. The complaint stands out for its unredacted treatment of sensitive documents, including full disclosure of confidential license agreements, royalty payment schedules and quarterly Samsung product shipment reports.
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Samsung produced more than 40 million Blu-ray players with Cinavia technology and related intellectual property, said the complaint. We deduced from the 109 pages of quarterly reports (in Pacer) that Samsung sold 4.2 million Blu-ray players with Cinavia in 2017 as stand-alone playback decks and in-home theater system bundles. Sales plummeted 40% in 2018, the documents appear to show. Samsung exited the category in 2019.
Cinavia was written into the Advanced Access Content System license for Blu-ray security in mid-2009 (see 0906180101). The watermark has been embedded in movie soundtracks since 2007 to thwart piracy, including preventing home playback of films illegally recorded in theaters. Cinavia watermark detectors were made mandatory in Blu-ray players manufactured after February 2012 (see 1204170095).
Samsung signed several Cinavia license agreements with Verance in summer 2011, including an “integrated product” license (IPL) (in Pacer) in July stipulating the quarterly report requirements and other terms. Under the IPL, Samsung was to pay a $10,680 annual royalty fee for the first 10,000 or fewer Blu-ray players sold in the calendar year, rising to $320,468 annually for more than 5 million units sold. Verance also charged a $10,680 “upfront” fee to initiate the IPL. The license entitled Samsung to four hours a year of phone and email tech support without charge, with additional support billed at $374 an hour. Onsite tech support was $3,205 a day, plus “reasonable travel and out-of-pocket expenses,” said the IPL.
Verance waived the fees under a “preferred partner program” (PPP) agreement (in Pacer) Samsung signed the same day as the IPL. Verance created the PPP before Cinavia became mandatory in the hardware to give licensees “incentives to implement Cinavia in applicable products and platforms,” said the agreement. Samsung enjoyed the no-fee privileges until July 2017, when its IPL and other licenses expired, and Verance declined (in Pacer) to renew them, automatically terminating the PPP agreement.
Verance sent Samsung updated license agreement forms sometime in 2017 and “began an extended negotiation for the updated license agreements on various topics other than fees,” said the complaint. “Meantime, the parties continued to operate under the terms of the expired License Agreements.”
Samsung “continued to produce and ship products” with Cinavia watermark detectors between July 2017 and September 2019, said the complaint. “Samsung continued to report those sales to Verance on a quarterly basis,” as required under the expired and updated license agreements, it said. “Samsung never signed the updated agreements and never paid any licensing fees for the seven million reported products.” Verance invoiced Samsung June 30 (in Pacer) for $1,010,737.65 in unpaid license fees, plus $299,267.08 in late charges, assessed at 1.5% monthly over 33 months of nonpayment.
Samsung “is an important business partner,” emailed Verance in a statement Sunday. “We have a long history of successful collaboration. While we generally do not comment on legal matters, this is a narrow issue that we hope will be resolved quickly and fairly.” Samsung didn’t respond to questions Monday.