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How A Stock Was Lost With Endless Litigation Battles

Not all innovative electronics makers go on to fame and wealth despite some great products. A story of endless lawsuits and legal hassles has helped to push innovative chip maker Sonicblue into bankruptcy. The stock value of a share of Sonicblue stock has fallen from from a high of $6 a share down to just 6cents a share, ruining the portfolios of many investors who thought that this company might well have a bright future, but that future was only filled with lawsuits, and only dashed.

Sonicblue's GoVideo division has been a story of many legal problems over it's dual recording deck designs. While music has always allowed portability with cassette recorders and Cd recorders that allow users to record mixes of their favorite songs to take with them to play in their car or on the go, the movie industry has fanatically begun a series of copy protection schemes starting back with videotapes. For some odd reason, Hollywood wants to limit the use of their videotapes and DVDs even once purchased and owned by the consumer, unlike the music industry, and has unfortunately found many allies in congress to pass special rights legislation which seemed solely aimed at just GoVideo.

GoVideo's dual VHS deck recorders of the early 1980's once allowed consumers the freedom to make a copy of any videotape that they owned, whether it was a home movie of their own kid's birthday party or some commercial movie video owned by them. Hollywood was outraged and used lawyers and eventually a high priced lobby of congress to force videotape recorders makers to put an anticopy chip into any new VCR sold. This was a windfall for a company called Macrovision, but only hurt the unique marketing advantage of GoVideo in the marketplace. go-video_dvr4300_large.jpg

Certainly any commercial counterfeiting of videos in which the copyright is not held by the maker are illegal to sell. There are existing laws to deal with that problem. But that was never the intent of GoVideo to allow for any commercial counterfeiting. GoVideo simply allowed the common home user the same market freedom to make a copy of any videotape or favorite scenes that they owned just like any music album, tape or Cd. But Hollywood just didn't see it that way and insisted on special copyright rights and protections for their works from congress. No other copyright holders are given such fanatical special rights by congress to protect their products as is the movie industry.

The strange thing is that Hollywood is built around making money in two short marketing campaigns. The first campaign comes when a movie is new and featured at movie theatres and the second is for a few weeks after the movie is released on DVD to videostores and retailers. Despite the fact that Hollywood mainly intends to make money in just these two short marketing bursts, it demands the right to claim ownership control of their product once owned by the consumer unlike the music industry does. Unfortunately all of this legal go round with the motion picture business only hurt the finances of GoVideo. But then GoVideo even started it's own lawsuit against the parent company of Panasonic, Matsushita and other companies when they offered some dual deck units such as those that included both a DVD recorder and a VHS recorder as well as antitrust issues.

But it was not only the story of lawsuits that hurt SonicBlue's GoVideo. SonicBlue faced lawsuit problems from no less than 28 companies including NBC, CBS, ABC, Disney and others when they offered a chip in their VHS or DVD recorders that allowed a consumer to watch a TV show without having to watch all the commercials. These plaintiffs claimed that their revenue would be hurt if consumers don't have to watch commercials in a TV show that they record for later time shifting playback. Now many TV and cable networks have taken this even further, where some networks are using a new copy protection scheme so you can't record their TV shows for later playback at all, preventing time shifting which the Supreme Court had previously ruled is an entirely legal practice for home consumers. This makes no sense whatsoever, and is probably based merely on greed that if consumers can't record their favorite TV, then they will eventually buy it on DVD when released. But it is greedy nonsense like this that has only tired out many consumers. If TV networks don't want you to watch their shows, then why even broadcast them in the first place. With hundreds of TV and cable networks out there, and a person's need to work and earn a living, they can't always be home to watch a show, so time shifting has long been a popular thing to do for TV consumers with their home VCR, TIVO, DVD recorder or even home computer with a TV tuner.

SonicBlue's future should have been also been bright after they swooped to purchase the innovative MP3 units that Diamond Rio won the right to continue to produce after some legal problems of their own from the music industry. But now SonicBlue has racked up some huge financial losses and is in bankruptcy.

SonicBlue's history of financial ruin is the history of endless meddling by other companies in their affairs, as well as some companies fanatical concerns for protecting the profits of their TV or movie products, even when those products were not even seriously threatened. By comparison the clearly illegal file sharing services hurt both the music and movie industry, and rightfully when copyright holders are hurt, they have the right to legal action. But SonicBlue or GoVideo never were in such a league of rogues. They merely sought to offer the home consumer the same freedoms as have been allowed those who record a music cassette of their favorite songs to play in their car or on a picnic to record a TV show or a video they own in their collection.

SonicBlue is a sad story of a promising electronics company that once thought that innovative products would sell in a free market economy. However, all of the endless lawsuits by other companies only proves that the marketplace is hardly as free as one would ever think. Even Mattel that owns Barbie dolls won a recent successful lawsuit against the Bratz dolls which will be soon going off the market in a few days.

Unfortunately it sometimes seems that as much business environment energy is spent in lawsuits and courtrooms as it is in product development at times in the United States. It is also funny that some business organizations such as the Chamber Of Commerce argue for new laws to limit consumer lawsuits over defective products that injure and kill, but many member companies of the Chamber Of Commerce routinely sue each other over endless product development lawsuits.

As the American economy sinks into serious recession, few have raised the issue that many companies have sued each other and wasted so many millions of dollars in courtroom battles that the bottom line has been hurt and consumers forced to pay higher prices. SonicBlue is a pretty good exhibit A for a company sued into ruination by other companies, even if they really failed to prove themselves to be victims.


Note: Wizbang Blue is now closed and our authors have moved on. Paul Hooson can now be found at Wizbang Pop!. Please come see him there!

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Publisher: Kevin Aylward

Editors: Lee Ward, Larkin, Paul S Hooson, and Steve Crickmore

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