Settlement reached before case went to federal district court

VARIETY – By Paul Sweeting
02/23/2004

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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.

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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.

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“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
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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.”

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

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

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“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.”

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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
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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.

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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.

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“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.”

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