Rivals File Lawsuits to Beat Gemstar at Its Own Game.

What goes around, comes around.

That's the fervent hope of two competitors of Gemstar-TV Guide International Inc., which filed antitrust lawsuits in the past month to allege that Gemstar illegally uses its patents to dominate the market for interactive electronic program guides.

Usually, it's Gemstar playing the part of plaintiff. It has pending cases alleging patent infringement against TiVo Inc., Pioneer Corp., Scientific-Atlanta Inc. and EchoStar Communications Corp.

Now Pioneer and EchoStar are attempting to turn the tables by using Gemstar's pattern of litigation to bolster their contention, in separate lawsuits, that Gemstar has illegally restrained trade for interactive electronic programming guides and related products.

Is Gemstar really a bully? Is its conduct unlawful? "A patent is a legalized monopoly," said Josh Bernoff, a television analyst with Forrester Research Inc. in Cambridge, Mass., in an interview last month before the antitrust suits were filed.

Gemstar, based in Pasadena, asserts its innocence. "All we really want to do is to function as we are, as a licensing company," said Stephen A. Weiswasser, Gemstar's executive vice president and general counsel. He noted that the U.S. Justice Department didn't block its merger with TV Guide, its fiercest competitor, in July.

Still, the outcome of the antitrust suits could matter tremendously to companies jockeying to deliver new services to cable and satellite TV viewers, who increasingly rely on electronic program guides to surf hundreds of channels or pre-set their video recorders to tape a show. Who controls the guide? And who reaps the profit of any advertising or electronic commerce presented on that guide?

Any setback for Gemstar would deliver a blow to Rupert Murdoch's News Corp., which recently agreed to double its 21 percent holding in Gemstar by acquiring a similar stake held by AT&T's Liberty Media Corp.

Gemstar has gained market clout, in part, by acquiring several competitors it once fought in court. One such company was StarSight Telecast Inc., acquired in 1997, and most recently, TV Guide.

Pioneer Digital Technologies Inc., a San Diego-based unit of Pioneer Corp., the giant Japanese electronics firm, filed its lawsuit Nov. 17 in Los Angeles Superior Court. Pioneer Digital, which develops and licenses electronic programming guide technology, contends that Gemstar has cowed the market with its lawsuits or threats of litigation. "Pioneer Digital is losing revenues from customers and would-be customers who are concerned" about the impact of litigation, the suit claims.

Coercion alleged

EchoStar, the No. 2 provider of satellite TV programming, filed a complaint Dec. 5 in federal court in Denver. In its suit, the Colorado company gives a blow-by-blow account-of its negotiations with TV Guide and Gemstar to support its contention that "Gemstar wields its patent portfolio, which it claims covers any IPG product on the market, to coerce companies into license agreements containing numerous anticompetitive terms."

According to the Denver lawsuit, TV Guide and Gemstar had struck a complex deal to work together even before their merger was announced last year. TV Guide offered to indemnify EchoStar from possible patent infringement claims by Gemstar if the Colorado company accepted a far-ranging deal, the EchoStar lawsuit states. Among the alleged requirements: EchoStar would have to buy a number of TV Guide products it didn't want in order to obtain the interactive programming guide.

The lawsuit claims that both TV Guide and Gemstar told EchoStar in August 1999 that carrying their advertising content on the program guide would be a prerequisite for a license for Gemstar's patents, even though EchoStar said it didn't want to display ads.

Negotiations resumed last August, but EchoStar says it canceled a September meeting for unrelated reasons. EchoStar was subsequently sued Oct. 23 for patent infringement by Gemstar's StarSight Telecast Inc. subsidiary.

That lawsuit was filed in federal court in Asheville, N.C., which has just one judge and one magistrate.

Why would a California company sue a Colorado company in Asheville? Some industry executives have speculated that Gemstar looks for courts that move cases slowly to prolong the suspense surrounding Gemstar's patent claims. According to the EchoStar complaint, none of Gemstar's lawsuits have proceeded to a final determination at trial.

"The litigation strategy of Gemstar is not to obtain a court determination of patent infringement, but rather to acquire the competitor or force it to agree to illegal license terms," the EchoStar lawsuit says.

'Massive problem'

In a Nov. 16 conference call with investors, Gemstar Co-President Peter C. Boylan III said North Carolina "has a reputation for being a very fast docket for patent cases." His comments about the patent case sounded ominous for EchoStar.

"Charlie has a massive problem," Boylan said, referring to EchoStar Chairman Charlie Ergen. "He's just passed 5 million subscribers and over 6 million set-top boxes with an infringing interactive program guide. ...If we prove willful infringement, all damages will be tripled."

Scary stuff.

According to the EchoStar lawsuit, Gemstar Chairman Henry Yuen has insisted that EchoStar pay $15 per set-top box, which EchoStar called "an exorbitant fee totaling almost four times the fee that EchoStar pays for the basic technology."

The mystique of the Gemstar patents brings to mind Thomas Edison, whose patents were vital in the early days of motion pictures. Edison and some of his competitors formed the Motion Picture Patents Co. in 1908 and tried to exert control over production and distribution. Some rebellious filmmakers sued. Ultimately, the federal government pressed and won an antitrust case. It all boiled down to how the patents were used to impose "undue and unreasonable restraint" of trade, the trial judge found.

However the Gemstar-related lawsuits are resolved, the litigation provides a window to how the business works.