E-Data has settled a patent dispute with OnDemand Distribution (OD2), Microsoft and ISP Tiscali over their Western European on-demand music service, with OD2 agreeing to pay past and future royalties to E-Data.

New York-based E-Data, filed a lawsuit last October in the German court of Mannheim, seeking an injunction against the German subsidiaries of Microsoft, Tiscali and OD2 in an attempt to defend its European patent, known as "the Freeny patent." It also filed a similar lawsuit against OD2 in the UK in June last year.

The patent covers the downloading and recording of information, such as music, news articles and films, from a computer on to a tangible object such as a CD or a sheet of paper.

As part of the terms of its settlement, any financial arrangements between E-Data and OD2 cannot be publicly disclosed, said Koos Rasser, managing partner of Howrey Simon Arnold & White LLP, the law firm representing E-Data. The arrangement with OD2, which provides back-end operations for Microsoft's and Tiscali's online music services, also resolves all outstanding litigation with Microsoft and Tiscali, Rasser said.

Representatives from Microsoft, Tiscali and OD2 could not immediately comment.

Charles Freeny Jr was originally granted US patent, 4,528,643 in July 1985 for his "system for reproducing information in material objects at a point-of-sale location," according to the website of the US Patent and Trademark Office. The technology was subsequently patented in the 10 European countries. The US patent has since expired but remains active in Europe.

The pay-per-song service from OD2, Microsoft and Tiscali is offered under both the MSN Music Club and the Tiscali Music Club brands, and draws from an OD2 music catalogue of over 200,000 tracks from the five major labels and a handful of independents. OD2's distribution platform utilizes Microsoft's Rights Manager 7.0 software.

The settlement between OD2 and E-Data was reached before any injunctions had been issued and therefore users experienced no interruption to the service due to legal reasons, Rasser said.

E-Data said that the settlement with OD2 sends an "important message to other companies infringing upon E-Data's intellectual property". Rasser added that "OD2's service in Europe parallels the iTunes Music Store" from Apple, which is expected to launch in Europe sometime this year.

"We are in dialogue with Apple, though I wouldn't consider it negotiations," Rasser said. "We are explaining to Apple why we believe they need a licence and they are telling us why they believe they do not."

As for Napster parent company Roxio, E-Data has yet to enter into discussions as Napster has not fully fleshed out its plans for a European launch of its service, though it too is expected this year. "We just decided that Napster should be on our radar screen (for the time being)," Rasser said.

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