(Bloomberg) — Sonos Inc. became a favorite with audiophiles by selling sleek, wireless speakers for streaming music long before technology titans such as Alphabet Inc.’s Google entered the market with cheaper, internet-connected models.
Now Sonos is hoping a U.S. trade judge finds Friday that its partner turned foe, Google, infringed its patents for multiroom audio systems. Sonos is asking U.S. International Trade Commission Judge Charles Bullock to support its bid to block imports of Google’s Home and Chromecast systems and Pixel phones and laptops, which are made in China.
“Google has thrown everything at us in this case, but we believe that the evidence before the ITC demonstrates Google to be a serial infringer of Sonos’ valid patents and that the ITC case represents just the tip of the iceberg,” Sonos Chief Legal Officer Eddie Lazarus said in an earnings call Wednesday.
The dispute has caught the attention of regulators and Congress who are investigating whether the big Silicon Valley tech companies have become too powerful. Sonos officials urged politicians to beef up antitrust laws and enforcement against companies like Google and Amazon.com Inc.
Sonos and Google have each accused the other of bad behavior, and suits have been filed in California, Texas, Canada, France, Germany and the Netherlands. A federal judge last year said the legal fees being incurred in the global battle “will likely have been able to build dozens of schools, pay all the teachers, and provide hot lunches to the children.”
Sonos is fighting over what CEO Patrick Spence says is the “Golden Age of Audio.” Buoyed by consumers who buy more audiobooks, streaming music and podcasts and are looking for “theater-like” sound while watching movies from home, the focus on home sound systems is likely to survive even after the Covid-19 pandemic and work-from-home orders end.
Google is accused of ripping off Sonos designs since 2015, when the two were working together on ways to integrate Google Play Music into Sonos’ products. Google acknowledges Sonos makes a popular system, but said the patents in this case cover old ideas developed by other speaker manufacturers, like Bose Corp., and not used by Google.
Two of the five patents involve techniques to synchronize audio playback, to eliminate minor differences that the ear can interpret as echoes. The others involve ways to pair up speakers to create stereo sounds, adjusting volumes of either single or groups of speakers with a single controller and a way to easily connect the system to a home’s Wi-Fi.
Google, based in Mountain View, California, has filed its own allegations that Sonos took information learned during that earlier collaboration to incorporate, without permission, Google’s patented inventions for search, software, networking, audio processing and digital-media management and streaming.
“Sonos has misrepresented our partnership and mischaracterized our technology,” said José Castañeda, a Google spokesperson. “We designed our products and services independently, and we have strong IP rights that we believe they have infringed. While we look to resolve our dispute, we will continue to ensure our shared customers have the best experience using our products.”
Investors have been watching the ITC case closely, seeing it as a test of the Santa Barbara, California-based firm’s ability to enforce its intellectual property and protect its market from competitors.
The decision “clearly has important implications for Sonos’ long-term financial model and could potentially mark an important step towards monetizing its patent portfolio and growing its high margin licensing revenue,” Katy Huberty, an analyst with Morgan Stanley, said Thursday in a note to client
Tamlin Bason, an analyst with Bloomberg Intelligence, said a settlement could lead to a “multiyear royalty pact” of as much as $50 million a year, “given Google’s relevant market share.”
On Wednesday, Sonos boosted its revenue forecast for the year, of as much as $1.71 billion. Over the first nine months of the year, the company has spent $25 million on legal and transaction costs, which includes the expenses related to the Google litigation.
Google won’t give in easily. Tom Forte, an analyst with DA Davidson & Co. said he has “low expectations” for the case ending with Google paying royalties, but said it may help in talks with other speaker makers.
“Google will drag it on as long as possible and make it as expensive as possible,” Forte said in an interview. “Sonos is moving forward with this effort as a way to scare smaller participants — ‘If we’re willing to go after Google, we’ll certainly go after you.”’
Bullock’s expected announcement of his findings Friday is just the midpoint of the case. The full commission has to consider his findings before making a final decision, scheduled to be issued Dec. 13. If an import ban is imposed, it wouldn’t take effect for 60 days, well after the Christmas holiday shopping season.
Meanwhile, Sonos has been conducting surveys to see if its customers were interested in a Sonos-branded assistant. Sonos Chief Executive Patrick Spence would only say “stay tuned” when asked about the company’s plans.
The case is In the Matter of Certain Audio Players and Controllers, 337-1191, U.S. International Trade Commission (Washington).
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