DIGITAL RIGHTS MANAGEMENT AGREEMENT

EXHIBIT 10.2



DIGITAL RIGHTS MANAGEMENT AGREEMENT



This Digital Rights Management Agreement (the "Agreement") is entered into and effective as of November 4, 1998 (the "Effective Date") by and between MICROSOFT CORPORATION, a Washington corporation with principal offices at One Microsoft Way, Redmond, WA 98052 ("Microsoft"), and AUDIBLE, INC., a Delaware corporation with principal offices at 65 Willowbrook Boulevard, Wayne, New Jersey 07040 ("Audible").



Recitals



i. Whereas, Microsoft develops, markets, and licenses computer software, including operating system software and applications;



ii. Whereas, Audible is the creator and provider of an Internet-based service that permits customers to use a computer with an Internet browser to select and download spoken word audio files consisting of licensed and original literary, business, and entertainment works and other types of spoken word information in a secure Audible-proprietary file format, via the World Wide Web (currently using the URL "http://www.audible.com"), and to play back such Content using Audible's proprietary software or transfer to other devices (such as the Audible Mobile Player) for portable playback;



iii. Whereas, Microsoft intends to develop a Digital Rights Management technology, which controls the use of digitized electronic text, audio, software, or other content so that licensors may limit end users to specifically licensed uses ("DRM"); and



iv. Whereas, in addition to other business relationships between the parties, Audible and Microsoft wish to cooperate in Microsoft's DRM project, on the terms and conditions set forth herein.



Agreement



NOW THEREFORE, the parties agree as follows:



1. Definitions.

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For purposes of this Agreement, in addition to the capitalized terms defined elsewhere herein, the following terms shall have the meanings described below:



1.1 "Audible.com" means the Internet-based service controlled or sponsored by Audible which permits customers to use a computer with an Internet browser to select, download and license copies of Content, for pay, in an Audible- proprietary file format, via a World Wide Web site currently using the URL "http://www.audible.com."



______________________________ *** Confidential information has been omitted and has been filed separately with the Securities and Exchange Commission.

1.2 "Audible Mobile Player" means the portable playback device available to End-Users from Audible for the purpose of downloading Content and playing it under certain terms and conditions promulgated by Audible.



1.3 "Audible Security Code" means version 1.0 of the computer software created by or for Audible, in object and source code form, which permits End Users to use Content they download from the Audible.com only in the manner for which the Content is licensed to them. Audible Security Code is further described in Exhibit A.



1.4 "Client Software" means Audible's proprietary software that is used as of the Effective Date to download and play back the Content from Audible.com.



1.5 "Content" means Spoken Word Audio files consisting of licensed and original literary, business, and entertainment works and other types of spoken word information which Audible has the right to distribute via the World Wide Web to be accessed by computing devices.



1.6 "Development Agreement" means that certain Agreement by and between the parties dated of even date herewith, by which, among other provisions, Audible will modify the Client Software and license it to Microsoft for distribution.



1.7 "Documentation" means any and all documentation, user manuals, service manuals, database definitions and structures (including identification of each table and field), reference manuals, specifications, make files which specify source code modules and forms, sample databases, installation software which builds installation disk images, installation guides, graphics files and other files, development plans and notes, materials associated with production of the "on-line help" feature of the Audible Security Code, flow charts, diagrams, drawings, maintenance notes, release notes, notes regarding errors, source code notation, and other notes, memos, spreadsheets and other documentation made by or for Audible and pertaining to all or any part of the object code or source code of the Audible Security Code, whether printed on paper or stored in electronic, optical or other machine readable form, in each case, as in existence on the date of this Agreement.



1.8 "DRM API" means an application program interface for the DRM, permitting application software programs to access DRM functionality.



1.9 "Electronic Book" means a single file that contains both text and audio renditions of the same work (e.g., books, magazines and other such analog printed content) and is readable by a Dedicated Reading Machine. As used herein, "Dedicated Reading Machines" means a new class of hardware devices under development by Microsoft and its development partners and by other third parties that both (a) are designed and marketed to be used mainly for the purpose of both reading text from and listening to spoken word audio and (b) are capable of simultaneously displaying the text that corresponds with the audio that is playing, provided that neither (i) personal computers (PCs), laptop computers and general-purpose Windows CE based devices



______________ ***Confidential Information has been omitted and has been filed separately with the Securities and Exchange Commission.





which are primarily designed for other purposes, nor (ii) audio-only devices, such as the Audible Mobile Player, shall qualify as Dedicated Reading Machines even if such devices satisfy the requirements of (a) and (b) above.



1.10 "Gross Transaction Revenue" means the actual gross amounts received by Audible in its capacity as a Clearinghouse, as defined in Section 5.1 of this Agreement, for confirming the licensing of DRM encoded content pursuant to Section 5.2.



1.11 "Microsoft Products" means computer hardware and/or software products developed, licensed, and/or marketed by or for Microsoft.



1.12 "Net Transaction Revenue" means the Gross Transaction Revenues, less sales or use taxes, excise taxes, value-added taxes, and duties, in each case attributable to the amounts received by Audible, in its capacity as a Clearinghouse, as defined in Section 5.1 of this Agreement, for confirming the licensing of DRM encoded content pursuant to Section 5.2, and less any payments made by Audible to Microsoft as royalties for use of DRM in its capacity as a Clearinghouse (other than those set forth in Section 5.2).



1.13 "NRE Expenditures" means the costs incurred by Audible in connection with Audible's development work under Section 4 of this Agreement, which shall consist of (a) the time spent by individuals on behalf of Audible in performing the work at a reasonable labor charge, including any overtime compensation and expenses and including direct program management, (b) an allocation for Audible's administrative expenses attributable to the implementation and management of the work, fixed at [ *** ] of labor charges under subsection (a), (c) the cost of calls, faxes, copying, media, meals and local transportation outside of regular business hours, and other third party charges incurred by Audible in relation to the work, (d) the cost of materials, equipment, supplies, and licenses used in connection with the work, (e) reasonable travel and living expenses of Audible's staff and agents when away from their normal place of business in connection with the work, and (f) other reasonable expenses incurred by Audible in connection with the work.



1.14 "OEMs" means Microsoft-approved original equipment manufacturers of computing equipment utilizing Microsoft operating systems, applications, or other technology.



1.15 "Spoken Word Audio" means spoken word audio content for sale in the

------------------ form of audio book distribution, text based audio programming, time shifted conference proceedings, soundtracks from television broadcasts, audio business programming, and/or time shifted radio distribution.



2. Audible Security Code.

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2.1 Delivery. Within five (5) days after the Effective Date, Audible

-------- shall deliver the Audible Security Code and all Documentation to Microsoft at the following address: Steve Stone, Microsoft Corporation, One Microsoft Way, Redmond, Washington 98052. As part of the



______________ ***Confidential Information has been omitted and has been filed separately with the Securities and Exchange Commission.





services to be provided under Section 3 of this Agreement, Audible will provide one-day, on site consulting services in accordance with industry standards, at Microsoft's Redmond, Washington campus to explain the deliverables hereunder to Microsoft's designated technical personnel.



2.2 Acceptance. Microsoft shall evaluate the Audible Security Code within

---------- ten (10) days of receipt to confirm that the delivery is complete. If the delivery of Audible Security Code and Documentation is not complete in its contents, Audible agrees to promptly deliver to Microsoft any missing items.



2.3 License. (a) Upon receipt by Microsoft, Audible shall be deemed to

------- grant to Microsoft a nonexclusive, perpetual, irrevocable (except as stated in this Agreement), royalty-free, fully paid up, worldwide right and license to:





(i) Use, copy, edit, format, modify, translate and create derivative works of the source and object code versions of the Audible Security Code, and the Documentation internally by Microsoft solely for the purpose of incorporating all or part of the Audible Security Code or derivative works thereof in Microsoft Products which implement DRM;



(ii) Reproduce, license, rent, lease, transmit, sell or otherwise distribute, and have reproduced, licensed, rented, leased, transmitted, sold or otherwise distributed, to and by third parties, (i) source code and/or object code versions of the Audible Security Code or derivative works thereof, solely as incorporated in Microsoft Products which implement DRM, and (ii) the Documentation and derivative works thereof for use in connection with Microsoft Products which implement DRM; and



(iii) Subject to subsection 2.3(b) below, grant the rights set forth in this Section 2.3(a)(ii) in the Audible Security Code and the Documentation to third parties, including the right to license such rights to further third parties.



(b) Source Code License. The license to use and permit others to use source code and related documentation (collectively, the "source code") for the Audible Security Code as stated in subsection 2.3(a) above shall be subject to the following terms and conditions. Such source code shall only be used and sublicensed under confidentiality and non-disclosure obligations. Microsoft hereby agrees that the source code remains the sole and exclusive property of Audible. Microsoft agrees that the source code may not be used for the benefit of any party other than Microsoft or its sublicensees or assignees as allowed herein, and must not be made available publicly or without the restrictions stated in this Agreement as it may compromise the security of Audible's own products and services. Microsoft agrees that it will not (and it will not allow others to) alter or remove any copyright, trade secret, patent, proprietary and/or other legal notices contained on or in copies of the source code.



Except as noted below, the foregoing license grants include a license under any current and future patents owned or licensable by Audible to the extent necessary: (i) to exercise any license right granted herein; and (ii) to combine the Audible Security Code or derivative works thereof with any Microsoft Product which implements DRM. Except as expressly licensed to Microsoft





______________ ***Confidential Information has been omitted and has been filed separately with the Securities and Exchange Commission.





in this Agreement, Audible retains all right, title and interest in and to the Audible Security Code and the Documentation. Subject to the license grant in Section 2.3 and Audible's ownership of the underlying Audible Security Code and Documentation, Microsoft shall own all right, title and interest in and to any derivative works of the Audible Security Code and Documentation created by or for Microsoft.



Notwithstanding the above, the license granted by Audible to Microsoft under this subsection 2.3(b) shall not include [ *** ]. Audible hereby agrees that, under the direction of Microsoft and pursuant to third-party license rights to be obtained by Microsoft for those third-party components, Audible will provide to Microsoft assistance to integrate those licensed components into the Audible Security Code as required. Audible shall remove from each delivery of Audible Security Code all software code that Audible excludes from its license pursuant to this subsection 2.3(b).



(c) Notwithstanding ...