Muze Sues Former Kiosk Partner

Having already convinced a U.S. District Court Judge to slap a preliminary injunction on Digital on Demand (DOD), Muze Inc. is readying more legal action against its former partner.

New York-based Muze says it has filed suit against DOD in U.S. District Court for the Southern District of New York, seeking damages of at least $300,000.

The suit centers on a new DOD record-store listening post program launched at a New York Barnes & Noble store in September. That system allows customers to listen to song clips simply by scanning an album's bar code.

Last year, Muze and DOD signed a licensing agreement that gave DOD's Red Dot Net in-store kiosks access to Muze's album information and song clip databases. Muze says that DOD violated that agreement by launching the listening post system, which was also powered by the Muze database.

Muze operates its own listening post stations, which require customers to punch in a code to listen to a selected group of albums. Barnes & Nobles uses the system chainwide.

Muze filed suit seeking at least $300,000—the amount it would lose if Barnes & Nobles replaces the Muze listening posts with the DOD listening posts chainwide—with a request for a temporary injunction preventing DOD from accessing the Muze databases. That injunction was granted Nov. 17 by U.S. District Court Judge Laura Taylor Swain.

Muze attorney Andy Baum says his client only licensed use of its databases in DOD's kiosks, which allow consumers to listen to song clips and order albums. Some enable customers to burn CDs at the kiosk.

Without the Muze data, DOD would not have been able to launch the listening post system in September, Baum says. "So, instead of waiting to develop their own ability, they just took our stuff," he says. "And of course there was no way we could get paid for it." Muze was receiving a percentage of sales made through the kiosks.

But DOD lawyer Marya Yee says the licensing agreement did not prohibit Carlsbad, Calif.-based DOD from using Muze data with a different type of technology. She says the company is fighting the suit, adding that Muze should have expected DOD's use of the data to change with the advancement of new technology. And, she says, the company "should have expected competition from a competitor."

Muze competitor Alliance Entertainment Corp. bought DOD earlier this year. Muze's closest competitor owned by Alliance, the All Music Guide (AMG), has begun to provide the data needed to power DOD's kiosks and the listening posts at the New York Barnes & Noble store, in the city's Union Square area.

Muze had the option of terminating its licensing agreement with DOD 90 days after the company was purchased by Alliance. Although Alliance is a Muze competitor, Muze did not feel it was necessary to cancel the agreement at that time, Baum says.

When DOD's listening post program launched in September, Muze, Baum says, sent the company a letter asking it to cease use of its databases. The use continued, he says, at which point Muze gave DOD notice it would terminate the agreement in 90 days—which expires Dec. 14. Swain's injunction prohibits the use of the Muze data through that date.

After receiving the termination notice, DOD began using the AMG data to build a new database, which has kept its kiosks from going blank as a result of Swain's injunction, Yee says. However, she says, the kiosks now have access to far fewer song clips than were available through Muze's system, which includes more than 1 million song clips.