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MUSIC E-TAILERS AGREE TO PLAY SIGHTSOUND’S TUNE

Settlement reached before case went to federal district court

VARIETY – By Paul Sweeting
02/23/2004

WASHINGTON — In an accord with wide-reaching implications for the music and movie download biz, Bertelsmann Music subsids CDNow and N2K have agreed not to contest a series of patents held by SightSound Technologies covering the commercial downloading of music over the Internet.

Agreement, part of an out-of-court settlement reached over the weekend in SightSound’s patent infringement case against the online music retailers, paves the way for Mt. Lebanon, Pa.-based SightSound to challenge other online merchants offering paid downloads of movies and music, including such studio-backed initiatives as Movielink and Apple’s iTunes service.

“Resolution of this dispute, after six years of vigorous litigation, is momentous,” said SightSound attorney William Wells. “SightSound can now look forward with renewed strength to licensing those in the music and movie industry who seek to employ SightSound’s patented technology in downloading music and movies over the Internet.”

Patents upheld

As part of the agreement, CDNow and N2K accepted a consent order issued by the court under which the SightSound patents are deemed “valid and enforceable.”

The retailers did not acknowledge any prior infringing activity related to their sale of music downloads, but agreed to pay SightSound $3.3 million.

Settlement was reached one week before the case was scheduled to go before a jury in federal district court in Pittsburgh.

“This matter does not affect our core business, which is the sale of CDs through traditional and online sales channels,” said a CDNow spokeswoman. “This settlement does, however, position us well for the future if we wish to engage in the sale of downloaded music.”

Case dates to 1998, when SightSound sued N2K for patent infringement after N2K began offering paid downloads as part of a deal with Liquid Audio. N2K was later acquired by CDNow, which in turn was bought by Bertelsmann and merged into BMG Online.

Earlier rulings followed

In a series of earlier rulings, the court upheld the patents’ application to Internet downloads and denied CDNow’s motions for dismissal of the case.

SightSound prexy and co-founder Scott Sander said Monday that the company has already been approached by several parties interested in acquiring the patent portfolio.

“We realize that someone bigger than us might have to have these patents for the industry to really move ahead,” Sander said. “We hope that with our success today the industry has entered a new era of respect for intellectual property, both copyrights and patent rights.”

SIGHTSOUND WINS DOWNLOAD DECISION JUDGE EXPANDS PATENT TO WEB

VARIETY – By Paul Sweeting
02/14/2002

WASHINGTON — In a twist that could put a kink in studio and record company online plans, a federal magistrate in Pennsylvania has ruled that patents held by SightSound Technologies for distributing audio and video files over telecommunications networks covers Internet distribution.

The ruling, in a suit brought by SightSound against CDNow, means that the online music distributors MusicNet and Pressplay are now vulnerable to patent infringement suits from SightSound for offering paid downloads over the Internet.

Online video-on-demand providers Movielink and Movies.com could also be vulnerable.

“This is an important step forward in the aggressive enforcement of our patent rights,” SightSound president and CEO Scott Sander said.

The suit dates to 1998, when SightSound charged CDNow with infringing SightSound’s patents on selling digital audio and video files over telecommunications networks.

CDNow (now owned by Bertelsmann Entertainment) argued that the “telecommunications networks” referred to in the patents did not cover the Internet and, therefore, it could not be sued for infringement.

Chief Magistrate Judge Kenneth Benson of the U.S. District Court for western Pennsylvania disagreed with that interpretation, finding that SightSound’s patents cover the Internet.

Ruling opens the way for the case to go to trial and leaves Bertelsmann open to potential damages if the trial court finds that the patents were infringed.

A Bertelsmann spokeswoman said the company does not comment on pending litigation.

The patents at issue were originally filed in 1988 by SightSound chairman and co-founder Arthur Hair and were issued in 1993.

Pre-Web origin

In those pre-Web days, the patents described a method for transferring digital audio and video files from the memory of one computer to the memory of a second, remote computer over “telecommunications networks” and collecting an electronic payment in return.

In patent cases, a separate proceeding is often held before the trial to determine the scope of the patents and whether the language in the patent is applicable to the challenged activity. In arguing that the language in the 1988 patents did not apply to paid downloads over the Internet, Bertelsmann was hoping to head the case off before going to trial and facing possible liability.

In its ruling, however, the court wrote that “the terms ‘telecommunications line’ … should not be interpreted as excluding the Internet.”

Although the case was brought against CDNow, SightSound officials believe the patents, as interpreted by the court, would cover the online plans of all record companies, as well as the studios.

Company has sent letters to both MusicNet and Pressplay, informing them of SightSound’s patent claims.

Despite the lawsuit, SightSound says it’s not an enemy of Hollywood.

“We’ve been extending an olive branch to Hollywood for years now, trying to persuade them that we can do it for them faster, better and cheaper than they can do it themselves,” Sander said. “We stand ready to work with all copyright owners, not against them.”

SightSound operates its own paid movie and music download service through its Web site sightsound.com.