Amazon.com has agreed to settle a patent infringement suit brought against it by digital music company Intouch Group, setting a potentially costly precedent for other companies distributing music online.
In a confidential agreement, Amazon and Intouch settled a lawsuit pending against the Internet retailer. Remaining defendants are Liquid Audio, Listen.com, DiscoverMusic and Entertaindom, a now-defunct unit of AOL Time Warner's Warner Music Group.
Intouch's patent covers systems that allow people to sample music as well as systems that enable a Web store to ascertain a visitor's music preferences. Amazon and the other defendants challenged the validity of Intouch's patent and contend they do not infringe on it. But their attempts at convincing a judge to dismiss the complaint have been unsuccessful.
Amazon said in a statement that it believes the settlement is "reasonable and allows both companies to move forward with their respective businesses."
By settling with Intouch, Amazon has broken ranks with its co-defendants, and others may follow the merchant's lead. Intouch is in settlement discussions with at least one other defendant, according to sources close to the company.
"The litigation results may make our patent stronger in the long run," Intouch Chief Executive Joshua Kaplan said in an e-mail interview. "It is our belief that the proven validity of the patents, coupled with the recent settlement agreement reached with Amazon.com, will now encourage other companies to seek reasonable licenses with Intouch."
In addition to the digital music companies it has already targeted in the ongoing lawsuit, 12-year-old Intouch also has designs on the major music labels and their subscription-based streaming audio services: MusicNet--a joint venture of RealNetworks, AOL Time Warner, Bertelsmann and EMI Group--and the
Microsoft-allied Pressplay, a joint
venture of Sony and Vivendi Universal.
Intouch said it is in discussions with several of the music labels and the streaming services.
The company also alluded to music industry backers supporting its patent litigation but would not name them.
"Intouch has several financial backers from the music industry," Kaplan wrote. "The company feels it can now leverage these relationships to quicken the pace of licensees, given the Amazon.com settlement."
In June, the U.S. District Court for the Northern District of California defined the patent's scope as covering music samples, or files "substantially less" than full length.
Pair of patents
Intouch holds two patents in the area of downloadable music samples. The first, known as the "157" patent, covers a method of downloading portions of songs at a kiosk. The second, known as the "916"
patent, covers downloading portions of songs over a computer network. Both patents require that the music downloaded be significantly shorter than the full-length file and that the listener be uniquely identified--for example, by placing a cookie on the computer.
Intouch said it would move to enforce its patents against companies developing kiosk-based user registration and music sampling. That could include the recent alliance between Microsoft and Trans World Entertainment; those companies agreed to collaborate on Trans World's kiosks and Web site for music downloads.
Intouch's allegations that the defendants violated the 916 patent cut to the heart of Amazon's music marketing strategy, as the company's Web site offers potential customers samples of music before they buy it.
If the other defendants and the subscription services follow Amazon's example and settle, the small company could be in a position to cash in big on a widely anticipated revolution in paid music distribution over the Internet.
Intouch said it expects to be able to charge licensees up to 1 percent of sales, or anywhere from a half-cent to 1.5 cents per download, depending on volume.
The Intouch case has elicited comparisons with the ongoing litigation between software makers and E-Data, another small company with a potentially far-reaching patent. That case, entering its sixth year, moved forward last year with a ruling favorable to the patent holder.
Companies including IBM, VocalTec and Adobe Systems have chosen to license E-Data's technology rather than fight its patent claim.
News.com's Greg Sandoval contributed to this report.