Microsoft Patent Claims Force Avistar To Cut 1/4 Of Staff

Avistar Communications, a videoconferencing company that makes 40% of its money from licensing intellectual property, said Wednesday that it must cut a quarter of its staff and suspend the creation of a Chinese development facility in large part due to Microsoft patent challenges against all of Avistar's 29 U.S. patents.

In an interview, Avistar CEO Simon Moss and president of intellectual property Tony Rodde said the two companies have recently been engaged in "professional, not unfriendly" discussions about the possibility of Microsoft licensing Avistar's intellectual property, so it came as a surprise to Avistar when the company found out that Microsoft had filed a stack of complaints more than six feet high with the United States Patent and Trademark Office.

"It was extremely surprising, and it leaves us bewildered about what the motives were here," Moss said. "Some of these patents have zero to do with Microsoft's technology or their product strategy."

Instead of filing suit, Microsoft urged the USPTO to re-examine those patents. "We have asked the U.S. patent office to take another look at Avistar's patents in light of prior art which was not considered in the original examination of the patents," Michael Marinello, director of public relations for Microsoft, said in an e-mailed statement. The company has repeatedly called for patent reform that would ensure higher patent quality. Microsoft declined to clarify any further discussion between the two companies.

With its videoconferencing software, Avistar counts several large companies, including UBS, Deutsche Bank, and Colgate-Palmolive, among its customers. The company recently released a videoconferencing suite called C3. Moss estimated last year that Avistar's customers would have 90 million total minutes of usage in 2008.

Microsoft is a significant player in the collaboration and videoconferencing markets with products like Office Communications Server, Live Meeting, RoundTable, and a series of Webcams. In an earlier statement, Avistar claimed this competition spurred Microsoft's complaints and that an ongoing transformation of Avistar gave Microsoft an opportunity to pounce. "This seems to have been taken by Microsoft as a sign of weakness," Moss said in that February statement.

Avistar expressed confidence that the complaints will not succeed. "We're extremely bullish about this," Moss said in the interview. "We're really confident."

That public confidence may seem to fly somewhat in the face of the major staff cuts and cutbacks Avistar says it now needs to take, but Mosse and Rodde said it could be expensive for Avistar to combat such a large threat to its business. Founded in 1993, Avistar pulled in $12 million in revenue in 2007, a tiny company compared to Microsoft.

The 29 patents Avistar holds in the United States are only a sliver of the company's 80 patents held worldwide. Among those licensing Avistar's patents are major players in videoconferencing including Sony, Polycom, Tandberg, and Radvision. An analysis by appraisal and services firm Ocean Tomo last year found that Avistar's intellectual property could potentially be worth between $300 and $500 million in licensing fees alone.

Microsoft itself is no stranger to patent litigation and complaints against it. Microsoft has said that its standing legal bill -- not counting lawsuit losses -- for patent lawsuits against it is more than $100 million annually, and that it defends more than 30 patent suits at any one point in time. On the flip side, Microsoft also routinely licenses its own intellectual property and has been criticized by the open source community for claims, without specific details, that open source software may infringe on as many of 235 Microsoft patents.