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E-Data Sues Over Downloading Patent

E-Data Corporation is suing some of the most powerful and successful e-commerce players, demanding they pay a penalty for every time a customer downloaded digital content in the last six years.

E-Data has its sights on Amazon.com, The New York Times Company and Hallmark Cards, American Greetings , suing them for damages based on past patent infringements by their downloading services.

E-Data is one of a several unknown companies suddenly surfacing with patents they claim cover basic Internet functions and practices. Microsoft is fighting a judgment entered behalf of Eolas for infringing patents that cover the process of embedding applets or ActiveX controls in Web page, while Acacia Technologies has been asserting rights to streaming media.

The E-Data intellectual property in question, U.S. patent No. 4,528,643, is known as "the Freeny patent." Although the patent was awarded before the rise of personal computers, CDs and MP3 players, Port Washington, N.Y.-based E-Data claims the Freeny patent covers the process of downloading media from a computer to such devices, as well as in-store kiosks.

The Freeny patent expired in the U.S. in 2003, but still has almost a year before it expires in Europe. The company focused on licensing the patent abroad, and now has turned its attention back to the domestic scene. While it can no longer demand license fees, it can ask for money for prior use of the technology. It also can sue for damages caused by infringement in the last six years.

E-Data is feeling its oats after inking a worldwide agreement for past and future royalties with Apple Computer . While terms of the deal weren't disclosed, E-Data said it covers Apple's iTunes music download service, which has gained more than 70 percent of the market in legal music downloads in slightly more than a year of operation.

"Given our continued success, we have identified additional companies that are infringing upon our intellectual property, both in the U.S. and abroad, and will seek the necessary legal actions to ensure that our rights are enforced worldwide," E-Data chairman Bert Brodsky said in a statement.

In May, it sued Corbis and Getty Images, two digital stock photo services that let customers buy and download images.

The E-Data corporate Web site says license fees are "based on a model that includes revenue, volume and several factors." An E-Data spokesperson said he wasn't aware of the other factors, or what they might be. He wouldn't provide a hypothetical license fee, saying that the license includes a non-disclosure clause, to protect licensees' business information. "It also protects us in negotiations," he added.

Neither would he comment on whether any of the 30 domestic licenses E-Data touts were granted on a no-fee basis. Patent holders sometimes grant licenses at no cost to high-profile companies in order to bolster their claims.

The Apple agreement sounds impressive. However, intellectual property attorneys agreed that the secrecy about terms limits its impact.

"How significant the E-Data/ITunes settlement is turns on the details of the settlement itself," said Robert Badal, a partner in the Los Angeles law firm of Heller Ehrman White & McAuliffe. "If Apple paid a substantial sum or provided other significant consideration, that would make it more significant than if the settlement was a mere walk-away."

Said Steven Frank, a partner in the Boston firm of Testa, Hurwitz & Thibeault, "[The Apple agreement] is a potentially seismic event if it involves any significant payment by Apple -- and a tremendous marketplace boost to the credibility of this patent. But unless you know the terms, it's impossible to evaluate what the agreement really means."

Apple executives didn't respond to requests for comment.

The non-disclosure clause benefits E-Data, Frank said. "E-Data wants people to think [licensees] are paying them a fortune. If no terms are disclosed, it becomes difficult for people to make an assessment of how much deference should be accorded to this license. How can they evaluate whether they should be afraid? If Apple signed on for nothing, that proves nothing."

Other companies hit with the latest E-Data patent infringement suits, filed in the United States District Court, Eastern District of Texas, are Cinemark USA, Regal Entertainment Group , the Thomson Corporation (NYSE:TOC), International Data Group, Movietickets.com, Ticketmaster, Marcus Theaters Corporation, Fandango, Franklin Electronic Publishers, and NewsBank.

In March, E-Data settled with Microsoft, Tiscali, HMV, and On Demand Distribution for operating European music downloading services.