Custom CD Patent Could Impact Future Music Retail Prospects

In an announcement that could stun the neophyte custom CD compilation business and concurrently impact future prospects for the $12 billion music recording industry, superSonic BOOM has signed an exclusive licensing agreement with Ergon Technology for a patented manufacturing process covering customized audio products. Like Open Market's announcement last week that it had received patents from the US government for its e-commerce technology, superSonic's announcement raises more questions than it answers.

As reported in Webnoize, superSonic's announcement could mean that just about any company with some kind of investment or interest in music delivery as a means to sell music will need to either rethink the way it does business, or pay superSonic a licensing fee in order to support its service or create its products. This potential circumstance is arising out of superSonic BOOM's exclusive license of a patent for a custom CD ordering and manufacturing process that looks strikingly similar to systems that facilitate the downloading of a song and the burning of a CD-R---the basic model of most custom CD business. With the online custom CD compilation business heating up, superSonic's competitors---Musicmaker, CDuctive, CustomDisc, and EZCD, among others---would most likely be the first affected by enforcement of the broadly defined patent.

The abstract describes the patent as "a system for creation of user-selected customized audio products, defined as a plurality of songs from different recording artists recorded on a single compact disc (CD) or digital audio tape (DAT) cassette . . ." and encompasses ". . . integrated, state-of-the-art digital databases, communications networks, computer workstations, and unique workstations processing software, and provides an innovative product/service (individual customized albums or audio data compilations) which currently does not exist." The patent filing date is from January 1996, although it is an extension of a patent first filed in 1994.

The patent covers the transfer of support items such as "still-video or visual text information, including textual data of recording artists, still photos . . . and graphics for custom album production." It also covers integration of some kind of royalty-collecting mechanism for billing purposes and extends to beyond audio-based products, listing uses for other markets such as "personal self-improvement, business lectures, and other forms of audio data marketed to the public."

"[Patent holder Neil Schoen] has patented a process for creating customized audio products, and anyone who uses that process might be subject to infringing on the patent," said Ted Hooban, president of superSonic BOOM. While emphasizing that his company does not want to take a hostile position, Hooban said that if any parties are found to be in violation of the patent, they would be subject to paying license fees to both superSonic BOOM and to Schoen.

As the exclusive licensing party for the patent, superSonic BOOM can sublicense the patent to other operations conducting similar business, Hooban said. The company plans to send out letters of notification to its competitors, filling them in on superSonic's licensing agreement with Schoen. Once those letters have been sent, Hooban said, "We either do a licensing deal, or litigation may ensue." He said his company was approached by Schoen initially for its own potential violation of the patent, but then negotiated with him for exclusive licensing arrangements, the terms and time span of which were not disclosed.

While superSonic's management and its representatives are being very careful in discussing just what the licensing agreement means, they are clear in their intentions for the future. "The concept is to build a portfolio of patents to cover the various emerging technologies related to distribution of digitized audio information," according to Marc Rossi, a patent attorney from Rossi & Associates working with superSonic BOOM. While neither Hooban nor Rossi would talk specifically about this portfolio, they confirmed that superSonic BOOM is on the verge of signing another, similar patent agreement.