What’s really behind Gemstar’s possible sale

11 07 2007

Back in 1986, a very astute mathematician by the name of Henry Yuen founded a company called Gemstar, later converged into Gemstar-TV Guide International. Sorry, those familar with will know the backstory…

Mr Yuen’s brainwave was predicting the explosion of choice that is digital TV, let alone what happended next, understanding that audiences would need a manageable way of navigating in this new environment of “unlimited” choice and that an Electronic Programme Guide (EPG) was the way to make this choice navigable.

Yuen’s real brainwave wasn’t merely about creating EPGs – many of Gemstar’s products lacked the nirvana of absolute simplicity and design elegance. His real brainwave was having one floor of his building for techies, creatives and biz dev people and another 9 for lawyers.

He patented every imaginable combination of EPG design and then set the company on its future course of sending lawyers after anyone who dared lay out program(me) information in the now ubiquitous grid design. Many feared the might of Gemstar, not because it was necessarily convinced that the patents would stand up in a court (US DBS operator EchoStar famously challenged), but that Gemstar’s preoccupation with ligitation, would likely result in unacceptable delays in putting new product to market within ever-diminishing windows of opportunity.

Rupert Murdoch took a look, liked it, and bought into it.

By 1993, Yuen had come a cropper and was fired from Gemstar, after the company reported missing revenue and other account irregularities. In 1986, he was convicted of securities fraud and ordered for pay US $22 million in fines.

But Gemstar trundled on, albeit in the post-Yuen era, by adopting a slightly more touchy-feely way of doing business: we’ll meet with you, understand your business objectives, before we consider suing you. The key here is the word “consider”, for by this stage, it was becoming widely acknowledged among both existing and potential licensors of the technology, that Gemstar’s patents may not stand up, particular in European courts.

So there you have it. Gemstar, a handsome business. Go buy it, but, as you’ll find with any disclaimers preceding many financial transactions: the value of investments may go down as well as up.