The 6-year-old company has been in court since 1998, suing Bertelsmann division CDNow for violating patents filed in the late 1980s. This week's preliminary ruling is the first major step forward, upholding SightSound's contention that it holds broad rights to one of the most common ways of selling music and video online.
The case hasn't yet come to trial. But if it does, and if a judge upholds SightSound's rights to enforce its patents, it could affect virtually anyone selling downloadable music or video online, including the major record labels and music studios.
If upheld, "they become another piece in the technology wheel," said P.J. McNealy, research director with GartnerG2, a division of Gartner research firm. Online music companies already pay technology fees for compression technologies, such as MP3 or RealNetworks RealAudio, and for the hardware and network bandwidth needed to store and transmit files.
But CDNow is likely to appeal the case if it loses in trial, McNealy added. That means that any extra cost to downloading music as a result of the SightSound patents isn't likely to filter into consumer prices for several years.
"This is a defining moment for SightSound," company CEO Scott Sander said in a statement. "This is an important step forward in the aggressive enforcement of our patent rights."
CDNow parent Bertelsmann declined to comment on the ruling.
The patent ruling, while not final, is a sign that many more of the most basic technologies and techniques underlying online media may be privately "owned" than previously thought. Just last month, Amazon.comto settle with Intouch Group, which claimed patent rights on the practice of giving consumers a snippet of online music to listen to before making a purchase.
The SightSound ruling came at the close of an early step in patent cases called a Markman hearing. This step comes before the full trial, but because it sets out the scope and reach of the patents under contention, it can be as or more important than later steps.
The patents filed by SightSound and granted in 1992 give the company control over a technique for "electronic sales and distribution of digital audio or video signals," specifically over a "telecommunications line."
SightSound is suing to stop CDNow from pursuing "any infringing activities," as well as unspecified damages. As yet the company has not sued any other companies. Spokeswoman Jennifer Pesci said the company did not discuss its legal strategy.
The decision was released early this week. The case is expected to go to full trial sometime in the next year, unless the parties settle.
Read in the light of a business environment 10 years after the patents were granted, the language is broad. Rather than covering a specific technology for encoding or transmitting data, they cite the basic model of sending a digital audio or video signal from one place to another over telecommunications lines, storing the copy on the consumer's computer, and using a credit card transaction for payment.
CDNow had contended that this didn't cover Internet transmissions, among a myriad of other objections. But in almost every case, the judge ruling on the scope of the patents agreed with SightSound.
"There is simply no way of reading the plain language of the claims...to exclude any means of transferring information so long as it can occur over telecommunications lines," Magistrate Judge Kenneth Benson wrote.
News.com's Paul Festa contributed to this report.