WASHINGTON – Dotcast Inc. will withdraw its patent infringement lawsuit against Movie Gallery Inc. under a new settlement that Movie Gallery says will save it money.
The deal prevents Dotcast, which engineers and provides digital broadcast technologies, from filing any claims against Movie Gallery in its Chapter 11 case. It also allows Movie Gallery to reject a licensing agreement regarding a movies-on-demand service it no longer operates called MovieBeam.
Dotcast disputed the validity of Movie Gallery’s license and filed a lawsuit against the company in a Georgia district court last May alleging patent infringement.
“The settlement agreement will provide economic benefit to the debtors’ estates by expunging claims related to the license agreement and avoiding the cost and expense related to further potential litigation,” Movie Gallery said in court documents filed Friday.
The U.S. Bankruptcy Court in Richmond, Va., will consider the settlement at an April 9 hearing.
Dotcast, based in Kent, Wash., claimed that MovieBeam infringed upon a communications technology patent it holds. A unit of Movie Gallery filed its own lawsuit in a California to argue that it held a valid license to operate MovieBeam.
Both suits were temporarily halted when Movie Gallery filed for Chapter 11 bankruptcy protection in October.
In December, Movie Gallery announced that it would shut down the MovieBeam service as part of its restructuring. About 1,800 customers subscribed to the service, which required them to purchase a television set-top box that allowed them to order films for between $1.99 and $4.99. Movie Gallery acquired the service from the Walt Disney Co. in March 2007 for about $10 million.
The settlement calls for both companies to withdraw their respective lawsuits and for Movie Gallery to reject the license it says it holds. Movie Gallery said that, since MovieBeam has been shut down, the license “does not represent a source of potential value” for its future operations or its creditors.
“The debtors no longer require any of the benefits provided under the license agreement and thus any costs incurred under the license agreement diminish the debtors’ estates to the detriment of creditors,” Movie Gallery said.
The settlement also requires Movie Gallery to turn over certain software and equipment related to the MovieBeam service. Dotcast would pay Movie Gallery $12,000 to cover the costs of gathering and delivering these goods.
Movie Gallery., based in Dothan, Ala., sought Chapter 11 protection on Oct. 16, 2007. The company operates the Hollywood Video and Movie Gallery video-rental chains.
