Napster, Liquid Audio in R&D pact

LOS ANGELES: In a move suggesting that Napster Inc. is trying to make its
service more palatable to record companies, the song-swap company said on Monday
it had linked up with software maker Liquid Audio Inc., which provides
technology to sell music online securely.

Napster developed a song-swap service that lets fans swap songs for free by
trading MP3 files, a compression format that turns music on compact discs into
small computer files. "They want to collaborate with us to understand
various business models around content manipulation, movement and protection.
They are very worried about keeping a consumer base that is used to
all-you-can-eat-for-free," said Liquid Audio president and chief executive
Gerry Kearby.

But at the same time, Napster is very concerned about protecting copyrights,
he said. "They licensed our technology that allows a link-back to artists
so they can get paid," he said. "Certainly, the indication is they're
looking into alternatives," he added.

Liquid Audio was one of the three companies that recently provided the
infrastructure for retailers to sell recording giant EMI Music's music securely
in a downloading trial announced earlier this month. "Most people know that
Liquid Audio knows a lot about digital rights management," said Napster
chief executive Hank Barry at an online music conference in New York Monday
where he announced the research and development pact.

"But they also know a lot about MP3s–how they work, how they move. We
will be looking to share what we've learned with one another," he said.
Kearby said that Napster has licensed its "Genuine MP3" technology,
which traces the origin and ownership of recordings, embedding that in the music
and providing backend technology for watching the transaction flow.

Kearby said Napster would have to reach agreements with various record
companies before it could use this technology. Barry, an attorney who
represented Liquid Audio, said earlier there were no plans for Napster to use
Liquid Audio's technology within its song swapping service. Liquid Audio will
provide Napster with "consulting services" that will help Napster
"look at MP3 in new ways."

A hearing is scheduled in a US Federal Court in San Francisco on Wednesday
stemming from a lawsuit filed by the record industry that accuses San Mateo,
Calif.-based Napster of rampant copyright infringement.

(C) Reuters Limited 2000.