Microsoft Buys Liquid Audio DRM Patents

Microsoft will pay $7 million for U.S. and foreign rights to several key DRM patents held by Liquid Audio.

Microsoft Corp. on Monday agreed to pay $7 million for U.S. and foreign rights to a number of digital rights management (DRM) patents held by Liquid Audio Inc.—a move that strengthens the companys growing DRM arsenal.

Liquid Audio, which provides software, infrastructure and services for the secure digital delivery of media via the Internet, holds several key DRM patents. The U.S. patents cover such technologies as content distribution, audio encoding, digital watermarking, content distribution, lossless compression, secure content transfer to portable devices as well as the ability to honor territorial restrictions for digital music content.

In a statement released Tuesday, Liquid Audio said the terms of the deal include a royalty-free license that will allow it to continue using this patented technology in its digital distribution system.

"Selling the rights to our patent portfolio to a leading technology partner such as Microsoft helps us shift our strategy in preparation for the merger with Alliance Entertainment," said Gerry Kearby, president and CEO of Liquid Audio.

"This direction is consistent with our move away from product development and toward an exclusive focus on the digital distribution of media to the retail community, which is entirely complementary to Alliances physical media distribution business for home entertainment products," he said.

A Microsoft spokeswoman told eWEEK that the Liquid Audio agreement underscored the companys ongoing commitment to developing innovative new digital rights management technologies. "While it is too early to provide details on how we will use the intellectual property we acquired yesterday, we do see it as important in helping us realize our long-term vision for DRM technologies," she said. "Our long-term DRM vision is to develop innovative technologies that will be powerful catalysts for new entertainment, business and personal scenarios. This vision is what drives our efforts, including the Liquid Audio agreement."

This deal follows news that the Redmond, Wash., software maker is working on a DRM server, slated for beta testing later this year.

The company also currently offers a DRM system, Microsoft Windows Media Rights Manager, which is being used by seven music and video subscription services.

But Microsoft sees a broader opportunity for the DRM server solution. "Personal information such as medical and financial data; corporate information such as legal and business documents; and commercial content such as software, music and movies may all require DRM," a Microsoft spokeswoman told eWEEK recently.

Other Microsoft officials are positioning the DRM server as an attempt to define read-and-write privileges more broadly than they are currently defined. Bill Veghte, corporate vice president for the Windows .Net Server group, recently told eWEEK that that there are several "services" Microsoft plans to layer on top of Windows .Net Server 2003, as they will not be ready when the platform is released to manufacturing this year.

Microsofts goal is to find a way to incorporate a set of interfaces around DRM and its real-time communications server—code-named Greenwich—into the platform while still being able to develop and charge for solutions or services built on top of that.

Microsoft has already applied for a patent for a DRM operating system, but would not say if the DRM server would be based on this.

In a recent interview with eWEEK, Microsofts group vice president of productivity and business services Jeff Raikes also said the company "may be able to surprise you in what we can do with DRM" in Office 11.

"There was some really good work done on DRM for eBooks, but the real business opportunity for that is to use those technologies more broadly for business documents. It also needs to go across corporate boundaries.

"So the work has been under way, but weve made a corporate decision not to talk publicly about it right now. But I have some optimism about what well be able to do in the Office 11 timeframe," he said.

(Editors Note: This story has been updated since its original posting to include comments from Microsoft.)