Patent License Agreement

EXHIBIT 10.10





PATENT LICENSE AGREEMENT





FRAUNHOFER-GESELLSCHAFT, ZUR FORDERUNG DER

ANGEWANDTEN FORSCHUNG E. V.





LIQUID AUDIO, INC.



- -------------------------------------------------------------------------------- THIS AGREEMENT DOES NOT BIND OR OBLIGATE EITHER PARTY IN ANY MANNER UNLESS DULY EXECUTED BY AUTHORIZED REPRESENTATIVES OF BOTH PARTIES - -------------------------------------------------------------------------------- FRAUNHOFER-GESELLSCHAFT ZUR FORDERUNG DER ANGEWANDTEN FORSCHUNG E.V.



/s/ DR. M. PAULUS - --------------------------------- for By (Sign)



Dr. M. Paulus - --------------------------------- Name (Print)



Director of Patent & License Dep. - --------------------------------- Title



August 20/1998 - --------------------------------- Date







LIQUID AUDIO, INC.



/s/ ROBERT FLYNN - --------------------------------- By (Sign)



ROBERT FLYNN - --------------------------------- Name (Print)



VP Business Development - --------------------------------- Title



August 18, 1998 - --------------------------------- Date



1. INTRODUCTION



This Agreement is made and entered into this 14th DAY OF AUGUST 1998 by and between FRAUNHOFER-GESELLSCHAFT ZUR FORDERUNG DER ANGEWANDTEN FORSCHUNG e. V., a non profit organization duly organized and existing under the laws of the Federal Republic of Germany and having its principal office of LeonrodstraBe 54. 80636 Munchen, Germany, (hereinafter referred to as "FhG"), acting on behalf of its Fraunhofer-Institut fur Integrierte Schaltungen (IIS) and LIQUID AUDIO, Inc., a corporation duly organized under the laws of California and having its principal office at 810 Winslow Avenue, Redwood City, California 94063, USA. (hereinafter referred to as "LA").



WITNESSETH



WHEREAS, FhG and LA have already agreed on a Letter of Intent of October 22/29. 1997; and



WHEREAS, FhG is willing to enter into a separate agreement with LA to license a certain software to LA, which is described in said separate software licensing agreement, provided that the terms of the separate agreement are agreed to by LA; and



WHEREAS, FhG is the owner of certain technology and wishes to have this technology utilized by LA; and



WHEREAS, LA wishes to obtain a non-exclusive license to use the technology upon the terms and conditions hereinafter set forth: and



WHEREAS, FhG Intends this Agreement to confer a license with LA retaining to its own use all ownership rights in the technology, Including, but not limited to, patent rights, copyrights, Implementation rights and licensing rights therein, and further Intends that no license, expressed or implied, for use other than herein set out shall be transferred hereby; and



WHEREAS, LA knows and accepts that this agreement only holds for an intermediate time period until either the signing of a further Interim agreement which may include licensing of content (the "Further Interim Agreement") or of a Patent License for the technology, which was developed in collaboration between AT&T Corporation., Dolby Laboratories Licensing Corporation, FhG and Sony Corporation to create a Joint proposal for an extension of the ISO MPEG-audio standard (IS 13818-3) targeted at a proposed standard (IS 13818-7) for MPEG non-backward compatible audio coders (the "Main Contract", see Section 10.1)



For and in consideration of the covenants herein contained as well as of other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, it is covenanted and agreed by and between the parties hereto that:



2. DEFINITIONS



2.1. "AAC Standard" means the specifications and operating parameters established by the Joint Technical Committee of the International Standards Organization ISO/IEC IS 13818-7 information technology - Generic coding of moving pictures and associated audio information - Part 7: Advanced Audio Coding.



2.2. "FAC Technology" shall mean the technology which is part of the AAC Standard and which was developed by FhG before and during or after the collaboration to create a joint proposal for the extension of the MPEG-audio standard and which is protected by patents and patent applications, which are owned by FhG or for which FhG has the right to grant licenses.



2.3 "FAC Content" shall mean Content that is encoded in compliance with all or a portion of the FAC Technology, regardless of whether the date representing such encoded Content is manipulated or encrypted to protect the security or privacy of such data after or during the encoding process.



2.4. "Content" shall mean music or any other information in analog or digital audio form.



2.5. "Effective Date" shall be the date upon which the Parties have signed this Agreement.



2.6. "Licensed Technology" means all patents now or hereafter owned or licensed by FhG covering the FAC Technology, including without limitation all the patents and patent applications scheduled at Appendix A, including any divisional, continuation, or substitute application and/or reissue based on such patents or patent applications and all corresponding foreign counterparts to such patents and patent applications.



2.7. "Field of Use" shall mean the LA software used to store, deliver, serve, play, encode, decode, convert or otherwise use or manipulate Content and/or FAC Content.



2.8. "Licensed Product" shall mean any LA product which includes a decoding and/or encoding device, or software capable of encoding and/or decoding Content and/or FAC Content, all in compliance with all or a portion of the FAC Technology, and which LA product infringes a valid claim to the Licensed Technology but for this license agreement.



2.9. "Licensed Products Revenue" shall mean Licensee's gross revenues that are actually received and non-refundable from the sale of the Licensed Products.



2.10. "Licensee" means the party identified on the title page of this Agreement and its Subsidiaries.



2.11. "Licensor" means FhG and their respective successors and assigns.



2.12. "Parties" shall mean Licensor and Licensee.



2.13. "Party" shall mean any one of the Parties.



2.14. "Minimum Royalty" shall mean [*]



2.15. "Subsidiary" of a company means a corporation or other legal entity (a) the majority of whose shares or other securities entitled to vote for election of directors (or other managing authority) is now or hereafter controlled by such company either directly or indirectly; or (b) the majority of the equity interest in which is now or hereafter owned and controlled by such company either directly or indirectly; or which does not have outstanding shares or securities, as may be the case in a partnership, joint venture, or unincorporated association, but more than 50% of the ownership interest representing the right to make decisions for such corporation, company, or other entity which is now or hereafter owned and controlled by such company either directly or indirectly; but any such corporation or other legal entity shall be deemed to be a Subsidiary of such company only so long as such control or such ownership and control exists.



3. GRANTS OF LICENSE



3.1. "Grants of License": Subject to the terms of this Agreement including the Limitations of Licenses below, the Licensor hereby grants to Licensee under the Licensed Technology during the Term of this Agreement a non-exclusive, non- sublicensable), non-transferable, worldwide license to make, have made, use, sell and offer for sale only as permitted hereunder, import, or otherwise distribute Licensed Products for use within the Field of Use. Licensee shall be permitted to distribute the Licensed Products to its end user customers pursuant to an end user license agreement that permits use of the Licensed Products but prohibits further redistribution. exploitation, or use of the Licensed Product by any party other than the end user customer that purchased the end user license to the Licensed Product.



3.2. "Limitations of Licenses": The limits within this section 3.2 shall supercede Section 3.1. to any extent they are inconsistent.



3.2.1. The License does not include the right to create, generate,

encode, decode or otherwise modify data or bitstreams using the Licensed

Technology other than for the Field of Use.



3.2.2. Licensee hereby declares and guarantees to inform its purchasers

of the Licensed Products about these restrictions in writing (e.g. in

manuals or end user license agreements).



3.3. The rights granted by Licensor under this Agreement are expressly limited to the use of the FAC Technology, and no other rights are granted under the Licensed Technology, any other patents or trade secrets, or to provide any product or service that is not required by the FAC Technology.



4. ENFORCEMENT



* Certain information in this Exhibit has been omitted and filed

separately with the Commission. Confidential treatment has been

requested with respect to the omitted portions.

4.1. Licensee shall notify Licensor of all suspected or actual Infringements of the Licensed Technology that come to its attention. Licensor shall have exclusive authority to act thereon and in connection therewith, Licensee shall cooperate with Licensor by furnishing evidence, documents, testimony, and the like as Licensor reasonably requires. Licensor shall reimburse Licensee for out- of-pocket expenses associated with the cooperation requested by Licensor.



4.2. Licensor shall have the option, but not the obligation, to seek redress for such infringement at its own expense. Licensee has no right, authority or standing to bring any action against any third party relating to the third party's infringement of the Licensed Technology.



5. PUBLICITY



5.1. No party shall make public disclosures inconsistent with the rights and obligations created hereunder. Any party may require the other party to promptly supply a copy of any public disclosure it made related to the subject matter hereof after the public disclosure is made. No party shall disclose the terms of this Agreement to any third party without the written permission of the other party, except as may be required by applicable law or regulation.



6. PAYMENTS AND REPORTS



6.1. In consideration of the rights granted herein Licensee shall pay Licensor a royalty of [*] of the Licensed Products Revenue ("Running Royalties").



6.2. For the purpose of timing of payments, a Licensed Product shall be considered sold when Licensed Product Revenues are actually received and non- refundable.



6.3. If Licensee sells or otherwise transfers Licensed Products to an other licensee who pays content royalties to Licensor, then no royalties shall be due on such Licensed Products provided that Licensee is not aware or has no reason to be aware that such other licensee is re-selling or otherwise re-distributing such Licensed Products for the purpose of avoiding royalties hereunder.



6.4. Within thirty (30) days after the end of each calendar half year ending on June 30 or December 31, commencing on the half year containing the Effective Date, Licensee shall pay Licensor the greater of either (a) the Running Royalties accrued during such calendar half year or (b) the Minimum Royalty. Simultaneously with such payment, Licensee shall provide Licensor with a report certified by Licensee's chief financial officer or the chief financial officer's designate (the "Royalty Report"), which includes:



6.4.1. the number of sold Licensed Products during the calendar half year

even if this number is zero;



6.4.2. the Running Royalties owed on such sold Licensed Products;





* Certain information in this Exhibit has been omitted and filed

separately with the Commission. Confidential treatment has been requested

with respect to the omitted portions.





6.4.3. the amount of Licensee's payment accompanying the Royalty Report;



6.4.4. any other information that the Licensor and Licensee deem

reasonable to ensure the Licensee is complying with this Agreement.



6.5. Payments to Licensor shall be made by wire transfer to the bank and account indicated in this Agreement.



6.6. Licensor will credit to Licensee any overpayment of royalties made in error if such error is identified and fully explained by written notice to Licensor during the term of this Agreement.



6.7. Time is of the essence with respect to all payments required hereunder.



6.8. All dollar amounts in this Agreement refer to United States dollars unless otherwise indicated. Any conversion to United States dollars shall be at the prevalling rate for bank cable transfers as quoted for the last day of such semiannual period by the Wall Street Journal.



6.9. Overdue payments shall be subject to a late payment charge calculated at an annual rate of three percent (3%) over the prime rate or successive prime rates (as posted in the Wall Street Journal) during the delinquency. If the amount of such charge exceeds the maximum permitted by law, such charge shall be reduced to such maximum.



7. BOOKS AND RECORDS



7.1. During the Term of this Agreement and for a period of six (6) years thereafter, Licensee shall keep complete, full, and accurate books and records of all information which may be required by Licensor in order to confirm the accuracy of Licensee's reports and payments. Licensor shall have the right to have a professionally registered accountant inspect such books and records of Licensee to the extent necessary to verify their accuracy and that of other statements provided for herein; provided however, that such activity shall be made during regular business hours upon reasonable notice and Licensee may not be audited more than once in any calendar year. Any royalty statement that is not audited and specifically disputed by Licensor within two (2) years after issuance shall be deemed to be binding and conclusive on Licensor. Such accountant shall not reveal any information to Licensor other than what is required to be reported under this Agreement, unless the accountant is ordered to disclose additional information by a court of competent jurisdiction. The cost of the examination shall be paid by Licensor unless the inspection reveals that the total amount owed for the period under audit is greater than five Percent (5%) of the amounts reported, in which case Licensee shall pay the reasonable out-of-pocket costs of the inspection and collection.



7.2. Licensee shall be responsible for and shall pay any tax, duty, levy, customs fee, or similar charge ("Taxes"), including interest and penalties thereon, however designated, imposed on it as a result of the operation or existence of this Agreement.



except for withholding and other Taxes based on Licensor's net income, which the Parties acknowledge that Licensee may be required to withhold or deduct from payments to Licensor.



8. CONFIDENTIALITY



8.1 "Confidential Information" shall include any information disclosed by one Party ("Discloser") to the other Party ("Recipient"), and marked as confidential, proprietary or with similar designation, or confirmed in writing as such within 30 days after disclosure, including but not limited to Royalty Reports, source code, specifications, designs, plans, drawings. Inventions, software, data, prototypes, methods, processes, business and/or technical information relating to the business of the Parties.



8.2. Recipient shall reproduce Confidential Information only to the extent necessary t ...