Sorely in need of a laugh? Try this: Broadcom sues Netflix for being successful

  • Disrupted the set-top box market - and making a profit...
  • …so high-time to weigh-in with a patent infringement suit
  • "That money should have been ours"
  • Fiddling while the world burns

One hundred and eleven years ago, the English novelist E. M. Forster published a short science-fiction story called "The Machine Stops". It's about a future world that relies on an immense interconnected machine to provide its all its requirements and the piece was remarkably prescient in predicting technologies such as the Internet and instant messaging. And then, one day, the machine stopped working...

In the Spring of 2020 our global machine, if not yet actually stopped is slowing dramatically as the corona virus, knowing no boundaries and facing no immediately available counter-measures to stop its progress, scythes its way through global communities and economies. In this unprecedented period of very real existential threat, the call is for us all to pull together and act together to weather the storm and put petty animosities and corporate and individual greed aside in the name of the greater good of mankind. In the commercial world, many corporations, to their great credit, are doing exactly that - and then there's Broadcom.

The San Jose, California company makes a range of semiconductor and infrastructure software products for the data centre, networking, software, broadband, wireless, storage and industrial markets and it is currently suing Netflix. "Why?" you may well ask. Well, because Netflix is so popular with consumers that many thousands of them have been cancelling their cable tv subscriptions thus rendering their set-top boxes redundant - and for years Broadcom has been making enormous profits from the chip-sets in those boxes. 

This is the substance and literal headlines of Broadcom's plaint, filed late last week, even as California went into indefinite lockdown. "Netflix has caused, and continues to cause, substantial and irreparable harm to the Broadcom Entities selling semiconductor chips used in the set top boxes that enable traditional cable television services. Upon information and belief, as a direct result of the on-demand streaming services provided by Netflix, the market for traditional cable services that require set-top boxes has declined, and continues to decline, thereby substantially reducing Broadcom’s set-top box business.” 

Yes, Broadcom is suing Netflix because its immensely successful service has disrupted the market, superseded old technology and hammered the set-top box market to a pulp. 

That's the reality but, of course and as usual, the lawsuit is framed around the hoary old comms industry favourite, of alleged patent infringement. However, in this case that becomes evident only when wading through the verbiage of a 92 page-long complaint in which, and almost as an afterthought, Broadcom claims that "Netflix has built its familiar video streaming business, in part, on the Broadcom Entities’ patented technology. Netflix relies on this technology for crucial aspects of the Netflix streaming service. This includes, for example, the Netflix systems used to ensure effective and reliable delivery of streaming content with minimal interruptions, to ensure the efficient use of Netflix server resources, and to encode Netflix streaming content in a format compatible with a large percentage of the client devices."

In the States, cablecos make subscribers pay monthly to "rent" the set-top boxes installed in their homes. It was and still is a scandal. Produced in bulk they cost a few bucks to manufacture but customers pay somewhere in the region of US$250 per annum, year-after-year-after-year to have one in their homes. It was a bit more than just the proverbial "nice little earner" from a captive user base. Until recently the cable industry was making upwards of $20 billion a year profit but then came the introduction of streaming services, an innovation that, via a simple connection to the Internet, provides instant access via a laptop, a smart tv, or other home entertainment streaming technologies such as Amazon's Firestick to a massive content universe at much lower cost than old-fashioned subscription services based on set-top boxes.

Pay us what we would have made if it wasn't for you being better

Elsewhere in the filed suit Broadcom’s lawyers write, "The five biggest US pay-television providers saw their traditional subscriber rolls shrink 4.2 per cent in 2018, as they collectively lost around 3.2 million customers for the year. That’s an acceleration from estimated sector-wide declines of 3.7 per cent in 2017 and two per cent in 2016." This, it is claimed, would never have happened without Netflix infringing Broadcom patents. The lawsuit adds, “Upon information and belief, Netflix could not displace traditional cable television services, or could not do so as effectively, without the use of the Broadcom Entities’ patented technology, which - as explained above - enable critical aspects of Netflix’s systems."

So, what does Broadcom want? More money of course, what else? The company claims that it first became aware that its patents may have been infringed "on or about September 26, 2019". That means Broadcom didn't notice anything wrong from the time Netflix was founded in 1997 until it had become a massively popular and successful business in its own right. Someone must have been asleep on the job. 

Netflix posted its first profit (of $6.5 million on revenues of $272 million) in 2003 and in 2019 its annual revenue was $20.9 billion and, whilst its final accounts for the year are yet to be published, profits are expected to be in a ratio directly commensurate with known revenues. So, well worth Broadcom having a legal pop at extracting some cash from it then.

Back to the Broadcom lawsuit: [Netflix] "declined to agree to terms for a license for its use of the Broadcom Entities’ patents and technology, and declined to present a counteroffer to license terms offered by the Broadcom Entities. Left with no other choice, the Broadcom Entities bring this action to protect their rights and their investment in the research and development of novel technologies." (not that there's anything particularly novel about chipsets in set-top boxes).

What Broadcom is angling for is a prolonged and massively expensive jury trial (with all involved in hazmat suits and gas masks of course) to get damages, costs and above all to try to claw back, via some sort of royalty payment system, the money that it thinks it should have made and would have been entitled to if the set-top box market hadn't been disrupted.

This is corporate greed writ large; commonplace and bad enough at any time but obscene in current circumstances. Perhaps we can now expect Cunard to sue the airlines for superseding the lucrative transAtlantic trade their liners once had or see Standard Oil suing Tesla for loss of revenue because people like electric cars?

So far, Netflix is staying schtum. If or when the company does respond let's hope the reply is as terse and dusty as is possible. A couple of words of Anglo Saxon would do nicely.


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