Who invented cloud gaming? T5 Labs tangles with OnLive (exclusive)

Cloud gaming service OnLive recently announced that it had a fundamental patent on its business of instantly providing sophisticated video games to users over broadband connections. But an unknown startup, T5 Labs, says it has won a patent that predates OnLive’s filing. At stake is a the future of Internet-delivered gaming — and a lot of money.

OnLive launched its service last year, allowing gamers who might previously have popped a disc into a console to log on to an online service and instantly play high-quality games — even on devices that normally couldn’t handle those games’ sophisticated graphics and fast action. Since then, OnLive has spread out to new markets and raised $40 million, valuing it at as much as $1.8 billion. If its challenger, T5 Labs, can invalidate OnLive’s patent, then the startup stands a chance of collecting big royalties across the emerging cloud gaming industry.

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Just as Salesforce.com and other Web-based software companies do the computation in data centers and send the results to users’ Web browsers, OnLive does the intense number crunching required for games remotely over the Internet. That allows gamers to play high-quality games on low-end computers or other devices with screens and Internet connections, such as iPhones and iPads. OnLive’s technology can fundamentally disrupt the traditional video-game business, which still revolves around physical distribution of games in boxes through retail outlets. And OnLive’s technology also threatens companies which make game hardware, since consoles with specialized graphics chips aren’t necessary anymore.

But it looks like T5 Labs is interested in disrupting OnLive. Graham Clemie, head of T5 in England, said his firm has been granted a patent related to cloud gaming and it predates the “fundamental” cloud-gaming patent that OnLive recently announced. OnLive’s patent has a filing date of Dec. 10, 2002, while t5 Labs has a filing date of March 1, 2002.

“T5 labs understands that OnLive recently received U.S. Patent No. 7,849,491 claiming video gaming inventions,” Clemie said in an email. “T5 labs is considering its legal rights, including deciding whether to commence a procedure in the U.S. Patent Office known as an “interference” to establish that t5 labs, rather than OnLive, is the first inventor and entitled to the patent rights on video gaming inventions covered by OnLive’s  USP 7,849,491.”

If the interference proceeding is successful, then T5 Labs would have the fundamental patent on cloud gaming, not OnLive, Clemie said. OnLive has not yet offered a comment on T5 Labs. If it does so, we will update our story. Update: An OnLive spokeswoman said, “We were contacted by Mr. Clemie. We looked at the application and saw no relevance whatsoever to OnLive and told him so. We are approached by people with irrelevant patents all the time. We are highly confident in our own patent portfolio, and have no further comment.”

“I believe this is called putting a cat amongst the pigeons,” Clemie added.

The T5 Labs patent names both Clemie and Dedrick Duckett as inventors. OnLive basically takes game data and compresses it, sending it over as video to the gamer.

Clemie describes his company’s solution as follows: “A normal compression box only sees a bunch of colored pixels moving around the screen. In a scene with a car driving by a field, it doesn’t know that there is a car object moving and a tree object that is static, nor that one is red and the other green. But in our case, the images are being created in real-time by the game software. So unlike the scenario of compressing video captured by a camera, we have extra information.”

He added, “We intercept the game’s rendering commands and exploit that extra information that gives us to accelerate the compression process. In fact, the compression happens whilst the image is being rendered rather than afterwards. All this happens using standard graphics cards. We do not need custom hardware.”

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Clemie (pictured right) said, “Compression acceleration is vital. As we move from standard resolution to 720P (high definition imagery), then 1080P (higher quality HD), then 3D, then even higher resolutions, the amount of work to do just keeps on growing. Without acceleration, cloud gaming becomes less and less economic.”

Clemie said the output is standard video based on industry formats such as MPEG (motion picture experts group) or h.264. Customers can use their existing set-top boxes to play games on their TVs. OnLive requires a small adapter to be used with its game system in order to display games on a TV.

Clemie said, “In short, it’s much cheaper for us to produce each video stream and far cheaper for our customers to receive them. Our solution is far more scalable and affordable.”

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He said T5 Labs has also received a patent in Japan and has another pending in Europe, all with the March 1, 2002 filing date. T5 Labs has about a dozen employees and is based in London. It was founded in 2001 and also competes with Gaikai, Otoy and others. Clemie said he got the idea from observing the use of thin clients in the telecommunications business and thought, “wouldn’t it be nice to do that with games.” The company is named T5 Labs after Theory5, as it took five attempts to get the technology right, Clemie said.

VentureBeat asked OnLive to comment on T5’s claims, but did not receive a response by publication time.