SRS Labs in Discussions with Sony on Resolving Legal Dispute

SRS Labs and Sony are nearing settlement of a legal battle over Sony’s use of virtual surround technology in flat-panel TVs, SRS CEO Thomas Yuen said in a conference call. The companies are scheduled to meet in March in Japan in an effort to resolve the suit, he said.

The companies reached a standstill agreement in November 2007 to enable settlement talks. Sony sued SRS earlier that year, seeking a court order finding that 14 SRS virtual-surround-related patents were invalid. Sony’s so-called S-Force technology in flat-panel TVs appeared to infringe multiple SRS patents, SRS has said. SRS has since been granted a continuance on some key patents, Yuen said. SRS also claimed to be near an agreement with Sony a year ago (CED Feb 27/09 p2), but no settlement was reached.

The companies have had “amicable” discussions and are “looking for a beneficial way to conclude this dispute,” Yuen said. SRS’ is “being a little more patient” with Sony in seeking a settlement given its 15-year relationship with the company, Yuen said. Sony deployed SRS’ TruSurround XT virtual surround technology in 75 percent of its U.S. line of 30 to 35 flat-panel TVs, said Jeff Klaas, vice president of global sales. A Sony spokesman declined to comment. Sony accounted for 11 percent of SRS’ fiscal 2006 revenue of $18.5 million, but dropped to virtually nothing the next year when it stopped using the technology in most of its sets, SRS has said.

SRS also has reached a new licensing pact with Samsung for 2010, Yuen said. Citing the sharp decline in LCD TV prices, Samsung last year sought to renegotiate a licensing agreement with SRS covering surround sound and volume-leveling technologies (CED Nov 4 p3). Samsung, which has deployed SRS’ TruVolume technology in LCD TVs and TruVoice and noise reduction in 33 to 35 cellphones, accounted for 39 percent of SRS’ $5.5 million Q4 revenue, company officials said. SRS’ technology typically has built TruVoice into a cellphone’s DSP, but the technology will be “much more valuable” in a baseband processor going forward, Klaas said. Being integrated with a baseband processor enables SRS’ technology to “move down” from smartphones toward entry-level models, he said. In addition to Samsung, SRS’ technology is built into NEC’s cellphones in Japan and BBK’s models in China, company officials said. “We have completed negotiations with Samsung for 2010 and are working on future models for 2011 and beyond,” Yuen said.

SRS’ Q4 profit grew to $473,066 from $137,321 a year ago as revenue jumped to $6.97 million from $4.89 million on strong home entertainment-related sales. Home entertainment revenue, which includes TVs, rose to $4.5 million from $3.2 million a year earlier as Hisense, Samsung, Skyworth and Vizio built TruVolume into their sets, the company said. SRS’ Q4 PC revenue soared to $1.1 million from $273,000 a year earlier as it gained design wins in Asustek, Dell, Hewlett-Packard and MSI notebook PCs.

SRS’ royalty payments from flat-panel TVs are “relatively strong” despite the sets’ declining prices, Klaas said. SRS’s IP prices are “flat” in TVs due largely to its securing “incremental” royalties “in some cases,” Klaas said.