December 17, 2007 / 7:27 PM / in 10 years

XM settles patent lawsuit with Universal Music

NEW YORK (Reuters) - XM Satellite Radio Holdings Inc said on Monday it has settled a patent infringement lawsuit filed by Universal Music Group and hopes to reach deals with the other music companies.

<p>An XM Satellite Radio unit is shown installed in a private vehicle in Washington, February 20, 2007. REUTERS/Jason Reed</p>

The dispute centers around XM’s portable “Inno” device, which can store and record music from satellite radio.

Major music labels including Vivendi’s Universal, Warner Music Group Corp, EMI Group Plc and Sony BMG sued XM in May 2006, saying the Inno infringes copyrights and transforms a passive radio experience into the equivalent of a digital download service such as Apple Inc’s iTunes.

XM said on Monday it reached a multiyear deal with Universal, which will withdraw from the complaint. It said the pact covers all XM radios with advanced recording functions, including future products. XM did not give the financial terms.

“We look forward to continuing our discussions with the other music companies in hopes of arriving at a resolution that benefits everyone, especially consumers,” XM said in a statement.

Warner Music, EMI and Sony BMG, a joint venture between Sony Corp and Bertelsmann AG, all declined comment.

Warner Music is in talks with XM to try to settle the dispute and expects a resolution soon, said a source familiar with the matter who spoke on condition of anonymity.

Janco Partners analyst April Horace said the Universal agreement would likely be followed by others.

“Once you’ve created a precedent in how to resolve that issue, I think it’s easier to resolve the others,” said Horace.

She said the two companies had likely agreed to a set fee for every related device XM sells, but noted that, since these devices were not XM’s highest volume products, the payments were unlikely to have a material impact on XM finances.

The original lawsuit, filed in New York federal court, had accused XM Satellite of “massive wholesale infringement” and sought $150,000 in damages for every song copied by XM customers using the Inno, which went on sale last year.

XM argued the Inno, which is manufactured by Pioneer Corp, is a legal device that lets consumers listen to and record radio as the law has allowed for decades.

”We are pleased to have resolved this situation in an amicable manner,“ Universal Music Chairman and Chief Executive Doug Morris said in a statement.” XM is “recognizing the intrinsic value of music to their business and the need to respect the rights of content owners.”

XM, with more than 8.5 million subscribers, is waiting for regulatory approval to merge with No. 2 satellite radio company Sirius Satellite Radio Inc. Sirius already has a deal with the recording industry.

XM shares closed down 4.72 percent at $12.91 on the Nasdaq, a move Horace noted was more closely related to general stock market weakness and investor impatience for approval of the merger rather than a reaction to the settlement.

Sirius shares fell 4.83 percent to $3.15.

Additional reporting by Franklin Paul and Tiffany Wu; Editing by Gerald E. McCormick/Andre Grenon

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