Time Warner vs ORC
Optical Recording Corporation (ORC) was established in 1984 with the main purpose of capitalizing on the technological innovation of James T. Russell. Russell’s new technology was based on his recent invention that revolutionized recorded music storage devices. Although Russell was not the first to come up with the concept of the Compact Disk (CD), he was among the first people to patent this technology. By 1985, Russell held over 25 patents in 7 countries across the world to various technologies related to optical recording and playback. Russell's intellectual property was purchased by ORC in Toronto in 1985, the firm then proceeded to notify a number of CD manufacturers that their CD technology was infringing on patents held by ORC. In 1987, ORC signed an agreement with Sony allowing them to license with other companies and use of ORCs CD technology in return for royalties and licensing fees. ORC continued negotiation process with other companies interested in or involved in CD/CD player production. A large CD manufacturer, now called Time Warner, objected to infringement claims presented, and was then sued by ORC in 1992. The CD industry in late 1980’s to early 1990’s was comprised of a number of companies across the world. One of the major reasons that contributed to the development of rivalry among the CD manufacturers was high profitability of the market and projected growth. As a technological breakthroughs for many companies, CD technology was a very high yield and low risk investment. The following trend explains the high priority of CD technology during legal negotiations described later in the research.
The main purpose of the following report is to analyze and discuss legal and managerial decisions of John Adamson in regards to securing ORC’s legal right to the CD technology. In addition, this paper will provide an overview of business and legal techniques that could have potentially improved business standing of ORC. Furthermore, this report will identify the courses of action for ORC leading up to the final legal proceedings with Time Warner in 1992. The situational analysis that identifies all external variables affecting the business and legal decisions of ORC in the period of 1984 to 1992 will be also provided in this report. The collaborative effort for our team members will provide a contingency plan that evaluates negative and positive consequences of each of the ORC’s legal and business decisions and how they might affect development of the company in the future. The need for an initial revenue stream was the focal point of ORC’s efforts in obtaining licensing agreements with major players in the industry. Sony was the first firm to sign a licensing agreement with ORC, and while ORC expected to engage in licensing agreements with other similar firms it was found that most of these firms were infringing on the Russell Patents. It was discovered that a quick estimate of the royalties owed to ORC by infringing CD manufacturers totaled $200 million in the U.S. This patent infringement offered ORC a way to create a revenue stream to further their development in research, in which ORC had been falling behind. ORC owned the patents to this technology but would be gambling its resources to the point of bankruptcy if they were to fail. However, they decided to pursue the patent infringement case starting with informing the infringing firms of ORC’s patents. In 1986 ORC had the first meeting with a suspected infringing firm, Phillips Corporation and the DuPont Corporation, which did not go as smoothly as ORC had hoped. Attorneys for Phillips and Dupont did not believe that the patents were infringed upon and questioned the legitimacy of Russell’s patents. It was clear that no further forward progress could be made with Phillips or DuPont without legal action taking place. ORC decided not to pursue legal action against Phillips and DuPont at this point. A critical decision considering ORC...
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