A small Pennsylvania company's patent lawsuits could hamstring the government's $1.5 billion effort to make the transition to digital television easier on consumers' wallets. Rembrandt Inc. owns a patent on technology that it says is part of the digital television broadcasting standard used by the TV networks. Rembrandt is suing 14 companies, including Walt Disney Co.'s ABC, General Electric Co. s NBC Universal, CBS Corp. and News Corp. s Fox Broadcasting for patent infringement and wants millions of dollars in royalties. The American Antitrust Institute, a nonprofit advocacy group, asked federal regulators last month to bar Rembrandt from enforcing its patent. Otherwise, Rembrandt's suits could add "tens of millions" of dollars to the cost of digital TV, most of which will likely be passed on to consumers, the nonprofit said.

"This is a massive tax that Rembrandt is trying to place on the transition to digital TV," said David Balto, an antitrust attorney who co-wrote a petition the AAI submitted March 26 to the Federal Trade Commission.

The AAI argues that Rembrandt is violating antitrust and fair competition laws by abusing the monopoly provided by its patent.

In recent years, the FTC has required companies to license their patents and set maximum royalties in several cases that involve technology standards.

Industry groups set technical standards in areas such as computer networking and memory chip technologies. The standards let different companies make compatible products.

Television broadcasters will switch to digital-only signals on Feb. 17, 2009, after which analog TVs without cable, satellite or converter boxes won't work. Through a $1.5 billion coupon program, the government is offering $40 vouchers to help pay for the boxes.

Rembrandt has also sued five cable operators, including Comcast Corp. and Time Warner Cable Inc. and is in litigation with Harris Corp. (HRS), one of the companies that makes digital transmitters used by the networks to broadcast digital signals. The company has also targeted television-maker Sharp Electronics with a suit.

The royalties Rembrandt is demanding could be passed onto consumers as higher prices for TVs and for cable service, Balto said.

"We don't believe that we're infringing the patents that Rembrandt purchased from others," Jenni Moyer, a spokeswoman for Comcast, said. The patents are "invalid and unenforceable," she added.

Representatives of Fox Broadcasting and ABC declined to comment.

Rembrandt didn't return a phone call or e-mail seeking comment.

The company says on its Web site, however, that it "identifies and acquires patents that hold great market potential" and "pursues and secures revenue from these innovations as established by the U.S. Constitution."

Rembrandt acquired the patent in question in 2004 from Paradyne Corp., a spinoff from AT&T Inc. (ATT), which developed the technology and obtained the patent in the 1990s.

To its critics, Rembrandt is a "patent troll," a term for companies that purchase patents from inventors and then seek to enforce them in court.

"They make money from litigation, not innovation," Balto said. Balto and Richard Wolfram, an antitrust attorney based in New York who also helped prepare the AAI's petition, have previously worked for some of the companies sued by Rembrandt.

Rembrandt filed the suits in 2005 and late 2006. The company said in a 2007 letter the networks would license its patent for a fee equal to 0.5 percent of all revenues the companies derive from digital broadcasting, the AAI said.

It's unclear exactly how the royalty would be calculated, but the four broadcast networks will earn approximately $18 billion from advertising revenue this year, according to Mark Fratrik, vice president of BIA Financial Network, a media consulting firm. If that amount was used, the royalties sought by Rembrandt would be $90 million.

At the core of the AAI's complaint is that Rembrandt reneged on a commitment AT&T made when it owned the patent. AT&T was a member of an industry group that agreed on a digital television standard in 1995. The FCC then mandated that standard for all digital broadcasters the following year, meaning that the networks can't use other technologies.

AT&T pledged to license its patent to anyone who asked at a "reasonable and nondiscriminatory rate." Rembrandt has said in court filings that it isn't bound by that commitment.

By getting the patent after it became part of a technology standard and then demanding exorbitant fees, Rembrandt is illegally abusing its monopoly, the AAI said.

The FTC recently cracked down on similar practices, what lawyers call "patent ambushes." In January, it blocked Negotiated Data Solutions LLC, based in Chicago, from seeking higher royalties on patents related to the ethernet computer networking technology.

In a similar case last year, the commission required Rambus Inc. (RMBS) to license certain memory chip technologies to other companies and set maximum royalty rates. That case is on appeal.

FTC spokeswoman Nancy Judy said the agency is reviewing AAI's petition, but declined to elaborate. There is no set period for the FTC to respond.

Rembrandt's lawsuits, meanwhile, were consolidated last June in a federal court in Delaware, and could take several years to resolve, Wolfram said.

Written By CHRISTOPHER S. RUGABER

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