Dolby Labs Sues Adobe For Copyright Infringement

For 15 years, Dolby supplied encoding and decoding technologies for use in Adobe products including Audition, After Effects, Lightroom and Premiere Pro. The licensing agreement between the companies allowed Adobe to self-report usage, on the condition that Dolby could carry out an audit. However, after the software company failed to comply in recent years, Dolby has rolled out the lawyers.

Adobe has some of the most recognized software products on the market today, including Photoshop which has become a household name.

While the company has been subjected to more than its fair share of piracy over the years, a new lawsuit accuses the software giant itself of infringement.

Dolby Laboratories is best known as a company specializing in noise reduction and audio encoding and compression technologies. Its reversed double ‘D’ logo is widely recognized after appearing on millions of home hi-fi systems and film end credits.

In a complaint filed this week at a federal court in California, Dolby Labs alleges that after supplying its products to Adobe for 15 years, the latter has failed to live up to its licensing obligations and is guilty of copyright infringement and breach of contract.

“Between 2002 and 2017, Adobe designed and sold its audio-video content creation and editing software with Dolby’s industry-leading audio processing technologies,” Dolby’s complaint reads.

“The basic terms of Adobe’s licenses for products containing Dolby technologies are clear; when Adobe granted its customer a license to any Adobe product that contained Dolby technology, Adobe was contractually obligated to report the sale to Dolby and pay the agreed-upon royalty.”

Dolby says that Adobe promised it wouldn’t sell its any of its products (such as Audition, After Effects, Encore, Lightroom, and Premiere Pro) outside the scope of its licenses with Dolby. Those licenses included clauses which grant Dolby the right to inspect Adobe’s records through a third-party audit, in order to verify the accuracy of Adobe’s sales reporting and associated payment of royalties.

Over the past several years, however, things didn’t go to plan. The lawsuit claims that when Dolby tried to audit Adobe’s books, Adobe refused to “engage in even basic auditing and information sharing practices,” a rather ironic situation given the demands that Adobe places on its own licensees.

Dolby’s assessment is that Adobe spent years withholding this information in an effort to hide the full scale of its non-compliance.

“The limited information that Dolby has reviewed to-date demonstrates that Adobe included Dolby technologies in numerous Adobe software products and collections of products, but refused to report each sale or pay the agreed-upon royalties owed to Dolby,” the lawsuit claims.

Due to the lack of information in Dolby’s possession, the company says it cannot determine the full scope of Adobe’s infringement. However, Dolby accuses Adobe of multiple breaches including bundling licensed products together but only reporting one sale, selling multiple products to one customer but only paying a single license, failing to pay licenses on product upgrades, and even selling products containing Dolby technology without paying a license at all.

Dolby entered into licensing agreements with Adobe in 2003, 2012 and 2013, with each agreement detailing payment of royalties by Adobe to Dolby for each product licensed to Adobe’s customers containing Dolby technology. In the early days when the relationship between the companies first began, Adobe sold either a physical product in “shrink-wrap” form or downloads from its website, a position which made reporting very easy.

In late 2011, however, Adobe began its transition to offering its Creative Cloud (SaaS model) under which customers purchase a subscription to access Adobe software, some of which contains Dolby technology. Depending on how much the customer pays, users can select up to thirty Adobe products. At this point, things appear to have become much more complex.

On January 15, 2015, Dolby tried to inspect Adobe’s books for the period 2012-2014 via a third-party auditing firm. But, according to Dolby, over the next three years “Adobe employed various tactics to frustrate Dolby’s right to audit Adobe’s inclusion of Dolby Technologies in Adobe’s products.”

Dolby points out that under Adobe’s own licensing conditions, businesses must allow Adobe’s auditors to allow the company to inspect their records on seven days’ notice to confirm they are not in breach of Adobe licensing terms. Any discovered shortfalls in licensing must then be paid for, at a rate higher than the original license. This, Dolby says, shows that Adobe is clearly aware of why and how auditing takes place.

“After more than three years of attempting to audit Adobe’s Sales of products containing Dolby Technologies, Dolby still has not received the information required to complete an audit for the full time period,” Dolby explains.

But during this period, Adobe didn’t stand still. According to Dolby, Adobe tried to obtain new licensing from Dolby at a lower price. Dolby stood its ground and insisted on an audit first but despite an official demand, Adobe didn’t provide the complete set of books and records requested.

Eventually, Dolby concluded that Adobe had “no intention to fully comply with its audit obligations” so called in its lawyers to deal with the matter.

“Adobe’s direct and induced infringements of Dolby Licensing’s copyrights in the Asserted Dolby Works are and have been knowing, deliberate, and willful. By its unauthorized copying, use, and distribution of the Asserted Dolby Works and the Adobe Infringing Products, Adobe has violated Dolby Licensing’s exclusive rights..,” the lawsuit reads.

Noting that Adobe has profited and gained a commercial advantage as a result of its alleged infringement, Dolby demands injunctive relief restraining the company from any further breaches in violation of US copyright law.

“Dolby now brings this action to protect its intellectual property, maintain fairness across its licensing partnerships, and to fund the next generations of technology that empower the creative community which Dolby serves,” the company concludes.

Dolby’s full complaint can be found here (pdf).