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Sound recognition

In 1967, an inventor introduced an audio technology that is heard every day: surround sound. So why is he broke, and until recently, all but forgotten?

Published November 2, 2003

[Photo by Joe Tabacca]
Peter Scheiber walks to the Plaza Hotel in Manhattan last month on his way to what he had been seeking for years.

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NEW YORK - In the chill of a late October afternoon, a man in a rented black tux walks against the wind along the Avenue of the Americas and Central Park South.

Lean and professorial in large wire-rimmed glasses, he is lost in thought, trying to fend off a growing case of nerves. The man has come home to his native New York to settle an old score.

The tuxedo belies his situation. Once, he stood to be a wealthy man. But after a frustrating and ultimately futile decadelong legal battle, he is barely scraping by. He lives on food stamps and is facing eviction from his home in Bloomington, Ind. He flew to New York with air fare borrowed from friends.

As he turns the corner into the twilight glow of the Plaza Hotel, a funny thought occurs to him.

He is wearing the same black shoes he wore the last time he set foot in the Plaza, 20 years ago. That was the day the president of Dolby Laboratories, Bill Jasper, took him to lunch at the Palm Court restaurant inside. They were marking the settlement of the man's patent infringement suit against Dolby in November 1983, and the start of a deal that was supposed to compensate the man lavishly for his brilliant work.

The man, you see, invented something in 1967 that the world of music and entertainment had never seen.

At 32, while he was studying for his master's degree in music at Indiana University, he developed a way to compress multichannel music into stereo formats and then play the sounds back through four speakers. The breakthrough would soon be called "quadraphonic" and later became known by its household name:

Surround sound.

The innovation has become a familiar part of everyday life, creating a realistic, wrap-around sound for movie and music lovers in theaters and homes.

In 1969, Time wrote: "The technical problem - how to squeeze four channels into one groove and then play them off again with high fidelity - has long seemed insoluble. Last week, however, a man came forward who seems to have solved the puzzle."

The man's name is Peter Scheiber. My cousin.

* * *

Until 10 days ago in Manhattan, I hadn't seen Peter in more than 30 years, since one of the annual family Thanksgiving reunions we had in Peekskill, N.Y., at the home of his parents, my great-aunt and great-uncle.

I didn't know anything about Peter's invention at the time. It was 1970, and I remember him only as a quiet man with black hair who played the bassoon - an instrument that seemed highly uncool to a 16-year-old wanna-be rock guitarist.

It was in that same house on Crompond Road, in that same year, that Peter gave a demonstration of his new product to the founder of a growing tape noise-reduction company, Ray Dolby.

The meeting was cordial. A Forbes magazine article in 1990 would describe how Peter's mother served Dolby and his wife, Dagmar, barbecued chicken.

This is how Peter remembers the visit: "He said, "Peter, the whole industry is annoyed with you because you won't tell how this works.' So I told him how it works. What a sucker I was."

It was a pivotal day. As Forbes wrote, "Dolby went on to develop an encoder that made its first appearance (in 1977) with the hit motion picture Star Wars." Dolby Labs would also become the undisputed leader in surround sound, with more than 100-million surround "decoders" licensed to date.

Peter, a lifelong bachelor, would go on to more surround sound breakthroughs and earn more than $1-million in the '80s and early '90s.

Any signs of Peter's success were gone when I saw him last month. Now his hair is missing on top and gray on the sides and in his thick mustache. He looks all of his 68 years: an old man, not the young musician on the brink of something big.

In the past 10 years, he has become a virtual hermit while teaching himself the intricacies of patent law. He suffered devastating defeat and financial ruin, fighting Dolby for what he believed was his fair compensation and rightful recognition.

Still, this night may make a difference. He has been invited to a fancy event at the Plaza with leaders in sound technology. His fixed monthly income of $842 almost made the trip impossible, but there is no way he will not be here.

* * *

There seems to be little dispute among audio experts about Peter's impact on surround sound.

"It becomes evident that the original concepts for what has come to be known as "Dolby Surround' . . . were originally founded by Peter Scheiber." - Analog Devices Inc.

"What is surround sound? Little more than a circuit inside a TV or stereo component that does what Scheiber's original quadrophonic concept described." - Forbes.

"It is to a certain Peter Scheiber that we owe the basis of surround sound." -

So what went wrong? How did he lose control of his invention and wind up at one point $115,000 in debt? How did he end up in a fight against an industry giant?

He was a shy, nerdy teen who dreamed of being a symphony performer. He had always loved tinkering with electronics. At 15, he wired speakers from his upstairs bedroom to the stone basement to the living room, creating a natural concert hall reverb and a primitive surround sound setup.

Peter enrolled at Oberlin College to major in physics, but soon switched to his passion, the bassoon, which he'd played since junior high. His teacher recommended Peter for a scholarship at Tanglewood, summer home of the Boston Symphony.

He went on to study with a bassoonist for the Chicago Symphony, which led to positions with the Ottawa Philharmonic and the Dallas Symphony. But his itch to invent made him restless, so he took a job as a senior lab tech at Texas Instruments.

It was in Texas that Peter came up with a crude model for his quad system. He'd been inspired by seeing four-track tape recorder demonstrations at Grand Central Station in New York.

Peter eventually finished the quad system in Bloomington, where he'd returned to go to graduate school. In technical terms: He created an "encoder" that processed multiple sound sources into a left and right stereo signal in the studio, then played them back as four separate speakers via a "decoder." The invention represented the first practical way of bringing surround sound to the mass market.

Soon he returned to New York to form a company, Audiodata, and begin marketing his invention.

There was interest, but no bites. Then came the Dolby visit. From that day on, he was out of his league in the world of market competition and corporate power.

Not all the early punches he took were big ones. CBS launched a quad system based on Peter's work - it even tried to invalidate the patents he'd received - but the move failed. RCA tried its own disc version, but bombed.

CBS attempted a comeback, using a new decoder Peter built to eliminate distortion. A reviewer for Rolling Stone raved about the product in April 1977: "I was treated to sounds reproduced by a new, super-sophisticated SQ matrix decoder developed by Peter Scheiber . . . separation was absolute and complete."

But with the prior flops from CBS and RCA, the public no longer was interested in quad.

Peter, however, had certainly not lost interest.

Neither, it seems, had Dolby.

* * *

When Star Wars hit theaters in '77, it featured stunning surround sound to match what at the time seemed like dazzling visuals.

Dolby Labs had ushered in a new era for movies. It wasn't until 1980 that Peter's patent attorney took notice, advising Peter that Dolby's technology seemed to be using Peter's technology. Peter made repeated attempts to contact Dolby Labs about licensing it, but was rebuffed.

So in 1983, he sued for patent infringement. During depositions, Dolby attorneys proposed a settlement that would pay royalties for use of Peter's invention in movie sound tracks and theaters.

But then came the surprise: Dolby revealed that it had begun handing out Peter's technology for home use. Dolby wanted to put surround sound in homes across the world, not just movie theaters. This venture had huge moneymaking potential, so Dolby proposed a deal.

Peter would license the technology to Dolby and instead of paying him a larger amount of royalties in a shorter time, Dolby would spread the royalties out over a longer time to keep its costs down. Specifically, it would continue to pay Peter for two years after his U.S. patents expired in 1993 (when his Canadian patents expired in 1995).

But a major legal land mine was in the deal.

Unfortunately, Peter's patent lawyer had left at the start of the negotiations because of a client conflict or he likely would have spotted it.

Peter's new lawyer was unschooled in patent law. The problem: the Supreme Court had ruled in 1964 that royalties could not be paid beyond the life of the patent, because such arrangements would encourage monopolies.

Were Dolby lawyers aware of this at the time? Nobody knows. The deal was accepted.

For a time, life was good. Peter, who moved back to Bloomington in 1985, made roughly $1.5-million from royalties over 10 years. He drove a BMW, owned a house in the city and rented a small one to university students.

Much of his income was spent paying his Audiodata partners and on developing improvements to the system. One such enhancement called "Logic" improved the direction and clarity of the sound. In 1986, Peter licensed Dolby for Logic, bringing in even more royalties.

Starting in 1984, he forged a partnership with Utah sound innovator Jim Fosgate. Peter licensed Fosgate to help improve Peter's surround system, and they collaborated on Fosgate projects as well.

Their literature showcased "two masters of invention." Peter feels he made important technical improvements in surround sound in that six-year period. But he says Fosgate cut him off when he thought major financing for his own company was at hand. (Fosgate, however, attributes the split to differences over which direction to take the technology.)

Then Peter says he made a critical error in judgment: He forgave Fosgate in writing for breaching the "cooperation" clause of their contract. That meant, Peter says, he could not prevent Fosgate from using Peter's technology in the future.

Peter insists that Pro Logic II, Dolby's latest surround sound advancement, was founded on contributions he made during the partnership. But Fosgate, hailed as the creator of Pro Logic II, emphatically denies that.

"Absolutely false. . . . Pro Logic 2 is a totally different animal than anything Peter knew of," he says. "It has nothing to do with anything Peter and I ever discussed."

The Dolby Laboratories official with knowledge of Peter's case was out of the country and not available for comment, according to a company spokeswoman.

By 1993, Peter had far more to worry about than the split with Fosgate. The legal land mine, imbedded in his settlement with Dolby, was about to explode.

* * *

He received a letter from a Dolby attorney late in 1994: The company was cutting off his royalty payments, two years before the deal expired.

The lawyer informed Peter that the deal with him was actually illegal because of the Supreme Court ruling. Dolby attorneys even requested the return of the first three payments to Peter in '94, totaling $180,000.

Peter got to keep the money, but other problems were looming. In 1997, Peter filed suit to enforce the Dolby royalty deal. Dolby argued the agreement was "invalid and unenforceable." Some three months later, it filed a supplemental brief, arguing that the agreement hadn't even called for royalties.

The financial implications of losing royalties between '94 and '95 were major: Dolby's consumer units were just taking off, and Peter would have made most of his money at that time. To make matters worse, his other licensee, Harman International Industries, cut off Peter's royalties early as well. Harman explained it was no longer using Peter's technology; it was using Fosgate's. "Which was really mine," Peter says. "The technology was taught in two of my patents."

It took five expensive years for the case to wind through the federal courts in Indiana. Peter's attorneys argued that Congress had taken the position that the "tying" of royalties to patents was no longer illegal, thereby trumping the 1964 ruling.

When the case reached the 7th U.S. Circuit Court of Appeals, Peter represented himself, doing all the research at the Indiana University Law School.

Finally, the appeals court decision came in June 2002, rendered by Judge Richard A. Posner. Though Posner made it clear that in his opinion Peter had made a just claim under the terms of the settlement, he ruled in favor of Dolby. Posner made no attempt to hide his distaste for the 1964 Supreme Court ruling (the ruling has "been severely, and as it seems to us, justly, criticized") but wrote that it was up to the high court to overturn its own rulings.

Immediately, leading legal publications interpreted Posner's verdict as an open invitation for the Supreme Court to review its 1964 ruling.

Peter spent months drafting his own brief for the Supreme Court. Later, the Washington office of the law firm Jenner & Block offered to represent Peter for a minimal charge.

Jenner & Block felt optimistic. But this January, Peter received a call from his lawyer, who told him: "They declined the petition without explanation." The court refused to hear the case.

Peter was numb. He had been through 227 court proceedings in seven years - and lost. After hanging up, he took his appreciation plaque from the Audio Engineering Society and his diploma as a fellow of that society and burned them in his yard.

"I'd gambled my entire future on this," he says. "For seven years, fighting this battle is what had sustained me. I had pretty much cut myself off from the world, learning the law. Now it was over."

* * *

Even before the ruling, Peter had sold his Nikon camera and lenses for cash, his two homes in downtown Bloomington and moved to a small, wooded place 5 miles out of town, overlooking Kerr Creek.

He wants to keep the house, but his monthly Social Security check barely covers the mortgage. And the attempts he has made at landing consulting jobs with competitors of Dolby have failed.

But he still has his computer. And in April, he received several e-mails at the house that caught his attention. They were from the National Television Academy, informing him that the development of surround sound might be an Emmy category.

He had already heard that Ray Dolby was going to receive a lifetime achievement award. Dolby had received the 1997 National Medal of Technology from President Clinton for his work with surround sound. The bitter part of him figured if somebody was going to get a surround sound Emmy, it would be Dolby.

Then came a letter dated Sept. 17 from National Television Academy president Peter O. Price: Peter was getting a technology Emmy "for the development of surround sound for television."

It was an unexpected moment of validation, something to savor even though he learned days later that Dolby Labs and Jim Fosgate would be honored with identical Emmys.

Still, he would go not simply to stake his claim as surround sound's pioneer. He would go to stress something he fervently believes: that his work is a vital part of the technology of today.

Maybe he would network, find someone who would like to hire him for his expertise, or to license one of several remaining patents for surround sound enhancements. In the end, he would go because, after everything that happened for two decades, he wanted people to know he's still here, still useful.

He spent two weeks writing and rewriting his acceptance speech, brought dozens of extra copies to hand out, scraped the travel money together and arrived last week in New York. The big day began with a lavish 6 p.m. cocktail party, filled with hundreds of tuxedo-clad technology leaders and their spouses. Peter, ever the outsider, stayed hesitantly on the edge of the group before finally spotting a familiar face: Jim Fosgate.

They exchanged pleasantries and talked about old times, making no mention of any past tensions.

During dinner, Peter sat, by his own choice, at a table apart from Dolby president Bill Jasper - who'd taken him to lunch at the Plaza in 1983 - and Fosgate. He fidgeted through speeches by other award winners.

Jasper was the first surround recipient. He alluded to various contributors to the surround-sound cause, but didn't mention Peter. Fosgate followed, and did single Peter out as one of his teachers.

[Photo by Joe Tabacca]
Peter Scheiber with the Emmy he received Oct. 23 from the National Television Academy for his development of surround-sound technology.

Then, it was Peter's turn. He moved to the ballroom stage to loud applause. He had prepared a five-minute talk, highlighting his various contributions, point by point. But he was never much of a public speaker.

He spoke without the lively inflections of the previous honorees. He had folded the paper tightly in thirds, making it hard to read. The lights glared in his eyes, and he felt disconnected from the crowd. When Peter said a thank-you that sounded like the end of the speech - even though he'd planned to say more - the audience applauded enthusiastically and Peter had to forgo the rest of the speech.

As the awards ended, Peter kicked himself for not giving the speech more effectively. He felt he had been seen as a museum piece, "This nice old guy who did this thing way back, which is now obsolete, even though the old thing is very much alive in the new thing."

That's when a young award winner stopped him on the way out of the ballroom. The man, Peter Scott, was part of a team that won for advanced media technology.

"Excuse me, that was a great speech, and I just want to thank you for everything you did, you're a pioneer," Scott said.

Peter thanked him. His words counted for something. So did the boxed-up, gold statuette for surround sound that he carried quietly into the night.

[Last modified November 2, 2003, 13:05:56]

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