Leveraging In-Three Patent Portfolio, VFX Giant Announces Licensing Deals with Samsung, Prime Focus

Digital Domain Media Group (DDMG) revealed today that it had filed a lawsuit last year against Prime Focus World, alleging infringement of DDMG's patents on various 2D-to-3D-conversion processes. In an out-of-court settlement, Prime Focus agreed to a licensing and collaboration arrangement with DDMG on conversion work for feature films. DDMG said that Samsung Electronics had also agreed to pay licensing fees for 3D technology it was using in consumer electronics devices.

In a significant development, DD today said that its position is that any movie, television project, or videogame that involves 3D conversion dips into the company's patented technology, and indicated that it would "very quickly" begin pursuing licensing deals across the industry.

The six patents in question originated with digital stereoscopic pioneer In-Three, which DD purchased in 2010. The company said in an announcement today that those patents cover "any modern conversion process that involves rotoscoping … and relate to any conversion process that includes horizontal image displacement/transform." The announcement of the licensing deals with Samsung and Prime Focus is important because it sets the stage for more aggressive enforcement action across the industry.

Who is Infringing? Everyone.

"Who is infringing? Everybody that has an interest in a 3D film," DDMG Chair and CEO John Textor told investors on a conference call today, "from the content creators to the production companies to the distributors, the exhibitors, the projector companies … the theaters, down to the television sets and the videogames."

Textor acknowledged that the company will be selective when putting the squeeze on its industry partners — for example, he said, the Hollywood studios that it relies on for VFX work will get a pass. "It's fair to say that everybody else, other than the studios, is fair game," he declared. He declined to respond to specific questions about which companies have been approached and whether any more lawsuits have been filed, but he did mention RealD and IMAX by name.

In practice, he suggested that DDMG's strategy would be to approach companies first with a deal that would give them exclusive rights to use the patented technology in their market segment, which would effectively shift the onus of patent enforment onto the licensees. "We're going to give people the opportunity to step up and buy down some exclusives, and if they don't respond very quickly we will politely send a different kind of letter," Textor said. He suggested that DD was also considering partnering with firms that specialize in patent litigation, who would offer a "significant up-front payment" to DD, followed by a share of all royalties collected.

That money would come in handy, Textor said, as Digital Domain expands out of its traditional focus on VFX services and into new frontiers like education (the Digital Domain Institute in Florida), production (the film adaptation of Ender's Game, due for release in late 2013), and its new animation studio styled after Pixar, Tradition Studios.

Next Up: Dead Elvis

He was especially keen to tout the company's expertise in creating "virtual performers" like the hologram of Tupac Shakur that recently performed at the Coachella music festival in Indio, CA. In fact, Digital Domain recently agreed to create all performances for the virtual career of Elvis Presley — a business deal that could herald the end of an era for the company as a VFX house.

"We need to talk seriously about the reallocation of resources [and] prioritizing virtual performances over some of the film work we've been doing," Textor said. "We might be a whole lot less likely to take a project in VFX just to post revenues if we need to build five performances for Evlis and [another] one of our stars is in the Super Bowl half-time show. The priority needs to be the high-margin, massively expanding business."

It's not such a drastic shift, Textor argued, noting that key VFX talent at DD's Venice facility will still be tapped to re-animate the dead celebs. "We are absolutely thrilled with the Elvis that we're focused on, in terms of age and vitality at that point of his career," Textor told investors. "And there is a long list of virtual performers from major estates who want to be right behind Elvis. If Tupac is number one and Elvis is number two, then just about every rumor you've ever heard about a late celebrity that deserves to come back? In our opinion, they have to come back through us."