Redwood City, Calif.-based Liquid Audio said the suit, filed last week in the U.S. District Court for the Northern District of California, seeks an injunction along with treble damages, or roughly three times estimated losses, and attorney's fees for willful infringement.
Liquid Audio said it uses the patented technology in its music business to determine the geographic location of an Internet user. If a major label, for instance, wants to make a song available for download only in the United States, the technology can determine whether someone is attempting to download the music in Europe.
"We've invested significant time and resources to develop and implement our secure distribution technology," Gerry Kearby, chief executive of Liquid Audio, said in a statement. "We intend to enforce our patents and protect our technology to the full extent of the law."
According to the suit, Liquid Audio is the sole assignee of a patent titled "Territorial Determination of Remote Computer Location in a Wide Area Network for Conditional Delivery of Digitized Products," issued in November 2000. The company provides software that helps control copying and transfers of songs to portable devices.
New York-based InfoSplit contested the lawsuit, saying its technology is different from Liquid Audio's geographic filtering system for music distribution. InfoSplit said it offers an IP (Internet Protocol) mapping catalog similar to the yellow pages. But instead of listing every business with a telephone number, InfoSplit's catalog lists every IP address with a geographic location.
"There is no infringement as far as we are concerned," InfoSplit CEO Cyril Houri said. "We offer the yellow pages; (Liquid Audio) offers the 4-1-1 service...(that) is a one-to-one relationship with the user. We don't deal with end users; we build with this index."
InfoSplit said its technology was developed in early 1999. The company was founded in October of that year. It sells its catalog to companies in online industries including advertising, gambling, video delivery, digital rights management and payment security.
The lawsuit comes three weeks after Alliance Entertainment unveiled plans to acquire Liquid Audio. Shareholders have been struggling over control of the online music company. Among other things, investors have complained that the company's market value is less than the amount of cash it has on hand.
In May, one dissident shareholder called on Liquid Audio to put itself up for sale after the company reported revenue of just $135,000 for the first quarter of the year and a loss of $4.9 million.
Despite its financial woes, Liquid Audio continues to capture powerful allies. It recently struck licensing deals with BMG Entertainment, Universal Music Group and an EMI division. The company distributes digital music through retailers including Amazon.com, BestBuy.com, CDNow, Sam Goody, Barnes & Noble and Sony Music Club.