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If Sightsound.com gets its way, anyone who wants to sell digitally downloadable music or videos would have to pay it a licensing fee.
Sightsound.com has two patents for the "method" of selling digital audio and video files across the Internet. The company says its patents also cover any "player" software that charges for each download.
With these patents, Sightsound.com, based in Mt. Lebanon, Pennsylvania, could extract royalties from any record company or entertainment retailer that wants to set up shop on the Net. The likes of RealNetworks (RNWK), LiquidAudio, and online record labels like GoodNoise could be affected. Already, Sightsound.com is selectively staking its claim.
"There are a limited number of inappropriate download relationships taking place on the Net that are protected by our method," said Scott Sander, president and CEO of Sightsound.com. Sander said the company will pursue license fees.
Sightsound.com calls itself a "download service provider." It supplies software and consulting to other companies that want to set up audio or video download sites. Sander said the company is planning for an initial public offering, and recently met with analysts.
In March, the company licensed the patents for an undisclosed sum to online music promoter and software maker a2b music, a subsidiary of AT&T (T). And Sightsound.com is suing online music retailer N2K, which runs Music Boulevard. The claim alleges that N2K's e-mod technology for buying music online is infringing on Sightsound.com's patents. N2K has until Thursday to answer the complaint, first filed in January, Sightsound.com said.
N2K officials would not comment on the suit.
Already, some online music companies are paying up to avoid possible litigation.
"We felt it was a wise thing to negotiate and obtain a license -- not only for a2b music but for folks that use our platform," said Howie Singer, chief technical officer for a2b music, which negotiated a license with Sightsound.com.
Patent attorneys said a company that holds a controversial patent, like Sightsound.com, can increase its clout significantly by getting a technology giant like AT&T or International Business Machines (IBM) to agree to a licensing agreement.
This is not the first time the US Patent and Trademark Office has granted a sweeping patent for a key electronic commerce concept to a single company. The patent holders could charge a toll from all other comers. Net auctioneer Priceline.com has a patent on its business model, a "name your price" reverse auction. Postage-meter maker Pitney Bowes claims its patents cover most methods of electronically selling snail-mail postage. And in 1996, a three-person outfit called E-Data asserted that its patent covered all methods for purchasing and downloading merchandise, news, fonts, and software.
The patent holder has the advantage, lawyers said. But the patents can be challenged successfully. Patent consultant Gregory Aharonian said many patents can be invalidated in court if a defendant can find "prior art," or technologies that predate the patent. Many electronic commerce concepts, for example, can be proved to have existed on primitive internets like France's Minitel or Videotext, a failed interactive TV project in the early 1980s.
"There are lots of fairly generic patents the [US Patent and Trademark] Office grants that may or may not turn out to be valid," a2b's Singer said.
The fact that both Sightsound.com and N2K are willing to undertake expensive patent litigation indicates both parties are confident in their claim, lawyers said.
In any case, Sightsound.com will proceed with the lawsuit and with pursuing licensing agreements. "We're going to be one of those overnight sensations that was 13 years in the making," said Sander.
Some companies are changing their business plans to avoid patent entanglements.
"We plan to partner with a technology company in order to avoid possible conflicts like these," said Alan Manuel, co-founder of CDuctive, a Web site that sells customized CDs.
