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Sony buys in InterTrust DRM technology

Cut-price deal

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Digital rights management (DRM) company InterTrust Technologies Inc has signed a licensing agreement with Sony Corp to pay InterTrust a $28.5m fee plus undisclosed future royalties to license copyright patents to use in its consumer electronics products. The deal gives Sony rights to InterTrust's 24 existing US patents, plus future rights to the 90 patents that are pending.

Sony, which operates a major recording company and is the world's largest manufacturer of audio-video electronics, has found copyright protection an increasing problem. The advance of digital and internet technologies such as music file swapping has increased piracy by making unauthorized copying easier. The addition of InterTrust's copyright technology should go some way toward preventing this type of abuse.

Sony has also been able to capitalize on InterTrust's increasingly fragile financial position to negotiate a cut-price deal. The DRM supplier closed 2001 with just $8.4m in sales. In business for 12 years, the company once had a workforce of 360 employees. Now it has just 35.

That said, the decision made in early May to jettison its failed DRM software business and look for a buyer for the operation was sound. The unit failed to gather sales momentum because the software was perceived as too niche. For the last couple of years, media companies, which are the main consumers of these types of products, have been looking for full feature media systems such as those offered by IBM and Microsoft. The inclusion of DRM functionality into content management suites is also becoming increasing commonplace, thereby weakening InterTrust's position still further.

The Santa Clara, California-based company is currently looking for a buyer for the software unit and has refocused around technology patent development. It plans to license these patents to third parties making Sony its first customer to strike such a deal. However, it will presumably sue if they don't pay. It is also involved in an ongoing battle with Microsoft over patent infringement. The lawsuit is still pending.

Although restructuring has stemmed losses, the company is still in a critical state prompting speculation that it will sell out to the highest bidder. Despite their fractious relationship, Microsoft is still considered the most likely acquirer. However, InterTrust isn't going to collapse yet. The company has $43.8m in cash and cash equivalents, which at the current burn-rate of $14.4m per quarter, should see it through another three quarters of trading activity at the very least.

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