Freeny Attack

618

March 1, 2004

E-Data Corporation (www.e-data.com) has commenced litigation and is seeking an
injunction against Getty Images and Corbis in both the Netherlands (Docket: KG
04/88 and KG 04/140) and the United Kingdom (Docket: Pat04007 and Pat04008) for
infringing upon its European patent EP 0 195 098 B-1, also known as "the Freeny


patent."

The Freeny patent covers the downloading of digital files from the internet and
the recording of the information, such as a photograph, onto a tangible object,
such as a tape, a CD, or a sheet of paper. This is the heart of the business
that Getty Images and Corbis are in. (The Freeny patent also covers other types
of downloading that are not directly germane to the stock photo industry.)

E-Data claims that its patents covering a specific system and method of
distributing digital content over electronic and wireless networks entitles it
to a royalty payment on any revenue generated as a result of such uses. E-Data's
standard royalty is 5% of sales. That includes past sales to the extent the
statutes in the respective countries allow. In some countries the law allows
them to reach back 3 years; in others 6 years.

Bert Brodsky, chairman of E-Data Corporation stated, "Getty Images and Corbis
are in blatant violation of our patents by enabling consumers across Europe to
download photographs. Collectively, these two companies generate well over $130
million per year in Europe from the sale and download of stock photos and
images. As a result, we are seeking an injunction to prevent further violation
of our intellectual property."

Mr. Brodsky continued, "Given our recent settlements in Europe with Microsoft,
Tiscali, On Demand Distribution, and Satellite Newspapers, as well as our
favorable rulings in the U.S., we are quite confident in the scope of our
patents. In addition to Getty Images and Corbis, we are contemplating
injunctions against a number of additional companies currently infringing upon
our patents-including a prominent multi-national corporation involved in the
downloading of music across Europe."

While these particular suits are just for usage in the Netherlands and the UK,
according to Koos Rasser of Howrey Simon Arnold & White (E-Data's attorney)
E-Data will eventually seek compensation for online delivery of images in the 10
European Union countries where E-Data Corporation owns the rights to the Freeny
patent, and the United States and Canada.

Rasser said, "In the US we're entitled only to compensation on sales made prior
to January 19, 2003, which is when the US Freeny patent expired. The European
and Canadian patents are still in force."

He explained that in the case of companies operating in the United States,
"It's six years before we notify them of their infringement or they otherwise
become aware of it. So, for example, if we write them on March 5, 2004, we can
claim royalties for sales over the period March 5, 1998 to January 19, 2003."

In the United States, E-Data has secured more than 30 domestic licenses and has
received a favorable decision by the Court of Appeals for the Federal Circuit on
November 6, 2000, supporting the scope of the company's patents.

Is there any good news?

One slight bit of good news is that in the U.S. the patent can not be extended
so the longer it takes E-Data to notify any particular infringer, the shorter
the back time period covered. On the other hand Rasser pointed
out that if companies, "cover the US market from another country where the
patent is still in force (such as Canada) we may (I emphasize MAY) be able to
get after them with the Canadian patent."

I pointed out to Rasser that while a 5% royalty going forward might be possible
for companies to live with, as long as the sellers can pass that cost along to
their customers, as they would a sales or VAT tax. But, paying 5% of past
revenues when they weren't passing along the costs is likely to bankrupt many
small operators in the industry because very few have the cash or the potential
growth to offset this unexpected cost. I asked, "Is there likely to be any way
for companies to work around this problem?"

Rasser said, "It is not in E-Data's interest to drive its licensees into
bankruptcy. I'm sure an arrangement of some kind will be made to prevent that
from happening."