Lawyers Target PC Makers After AOL MP3 Injunction

[silver]

from computerwire.com

Lawyers representing PlayMedia Systems Inc are considering extending their software copyright infringement suit against America Online Inc to include PC makers such as Dell and HP, following the granting of a preliminary injunction against AOL 6.0 on Monday.

Henry Gradstein, attorney for the LA-based plaintiff, told ComputerWire following the court success: "We're looking at broadening the suit. We now believe our MP3 encoder software is also in [AOL subsidiary] Compuserve software. We're also considering original equipment manufacturers of the software, too ... companies like Dell, HP, Compaq."

On Monday, AOL, the AOL Time Warner Inc subsidiary, was effectively prevented from distributing its version 6.0 software by a California District Court. Judge Howard Matz enjoined AOL from using PlayMedia's AMP software, which decodes MP3 music files, in any of its own applications apart from WinAMP, and from distributing software that does include it (that is, AOL 6.0)

The judge also told AOL that it must remove AMP from AOL 6.0 on all its users' desktops by means of a "live update" over the internet, and that it must inform its 6.0 subscribers that it is doing this. This means than none of the portion of AOL's 31 million subscribers that use AOL 6.0 will be able to play MP3 tracks using AOL Media Player.

An AOL spokesperson said the firm "respectfully disagrees" with the ruling, will request an emergency stay, and will file an "immediate appeal." Gradstein, a partner in LA law firm Gradstein, Luskin & Van Dalsem, said any AOL appeal would be "baseless." He said AOL was requesting a hearing with Matz as early as yesterday morning.

If AOL's appeals do not work, the company says it faces a substantial bill to comply with the injunction's terms. AOL says it has a stockpile of about $39m worth of AOL 6.0 marketing material, including piles of the ubiquitous mailshot CDs, which would represent dead money if 6.0 has to be withdrawn.

The injunction would also cause it major problems with its OEM channel. PC makers would have to return 4.2 million CDs at a cost of $12.6m, or $14.7m if the ISP decided to ship non-infringing replacements to these OEMs. PC makers that have already pre-installed 6.0 would have to un-install the software to the tune of some $12m to $15m. In total, AOL claims the injunction could cost it almost $70m.

PlayMedia, which is asking for $47m in damages, has been pursuing this case for about three years. The company's primary product is AMP, software which decodes MP3 audio files for playback. In 1999, PlayMedia sued Nullsoft Inc for using the AMP source code in Nullsoft's WinAMP without its permission. The lawsuit was ultimately settled without either party admitting they were wrong, and Nullsoft paid PlayMedia $7.5m as part of a technology licensing contract.

It is that contract that is now being debated in court. The contract stopped Nullsoft using AMP source code, but allowed it to use object code "in conjunction with WinAMP only". Shortly after the settlement, AOL bought Nullsoft, inherited the PlayMedia license, and started integrating its new subsidiary's software into its Media Player, which shipped as an integral part of AOL 6.0 when it was launched 12 months ago.

According to AOL, Media Player is powered by a WinAMP engine (it runs "in conjunction with" WinAMP), meaning its use of AMP code is legal under the Nullsoft contract. PlayMedia, having seen the Media Player source code, says that less than 10% of the original WinAMP code is in the application, and that code is basically the AMP stuff Nullsoft licensed from PlayMedia in 1999.

Smelling success when the case goes before a jury next year (a preliminary injunction means Judge Matz thinks PlayMedia has a better than 50:50 chance of winning), PlayMedia's lawyers are turning their attention to other potential infringers. Compuserve is AOL's lower-end ISP business, and Gradstein believes it too has AMP included in its software. Gradstein is also investigating whether OEMs that carry AOL software could be found liable for copyright infringement.

The AOL spokesperson confirmed that the latest release of AOL, version 7.0, is not affected, as its media player does not use AMP, it uses the MP3 decoding engine from Fraunhofer-IIS, the Germany-based "home of MP3" development lab. AOL said 2.5 million people downloaded 7.0 in its first week of release. Gradstein said about 10 million people, about a third of the global AOL subscriber-base, use 6.0.

Sil