Sony to Pay SRS Labs $900,000 to Settle Patent Dispute

Sony agreed to pay SRS Labs $900,000 to settle a dispute over virtual-surround sound audio technology, SRS said in an SEC filing. Sony also will license three SRS patents granted between 1989-1999, including one covering a stereo enhancement system that processes a difference signal component from left and right signals to create a broader stereo image through two speakers. The dispute erupted in 2007, when Sony, an SRS customer, sued the company, saying 14 virtual surround sound patents were invalid. SRS had written Sony arguing that Sony’s S-Force technology in flat-panel TVs appeared to infringe multiple SRS patents.

The companies reached a standstill pact in November 2007 to enable settlement talks, SRS has said, and executives said the companies were near an agreement (CED Feb 27/09 p2). An outside patent counsel hired by SRS to review S-Force found that it infringed the company’s patents, SRS said.

Sony officials weren’t available for comment. But SRS is “very pleased” to have reached an agreement with Sony and expects the settlement to “signal a return to normal business relations” between the companies, SRS CEO Thomas Yuen said in a statement. Sony accounted for 13 percent of SRS’ fiscal 2006 revenue of $18.6 million, but dropped to virtually nothing the next year as it stopped using SRS technology, the company said. The companies’ ties date back more than 20 years, pre-dating SRS’ founding in 1993, Yuen said. The new agreement with Sony is expected to start producing revenue by late 2011 with TVs, and grow the following year as SRS seeks to have its technology included in Sony Vaio PCs and PlayStation, an SRS spokesman said.

Meanwhile, Samsung accounted for 42 percent of SRS’s Q2 revenue of $7.16 million as home entertainment-related sales rose by $699,301, SRS said. TV revenue within the home entertainment segment increased by $560,404, driven partly by an increase in Samsung TV sales, the company said. SRS reached a new licensing pact this year with Samsung. Samsung deployed SRS’ TruVolume technology in LCD TVs and TruVoice and noise reduction, in 33-35 cellphones, SRS has said. SRS’ Q2 revenue from South Korea rose to $3.38 million from $2.79 million a year ago, while those from Japan jumped to $1.01 million from $673,046. Samsung is based in South Korea, while Sony is in Japan. SRS’ U.S. sales increased to $1.64 million from $1.1 million. Among SRS’ major U.S. customers is Vizio, which uses TruVolume in its soundbars.

Home entertainment dropped to 58 percent of SRS’ Q2 revenue from 69 percent a year ago, as PCs rose to 18 percent from 10 percent, SRS said. SRS’ Q2 PC-related revenue increased by $751,469 due to the addition of new licensee Elitegroup Computer Systems and continued business with Asustek and Dell, the company said. SRS’ automotive sales increased by $477,470 amid improved business with Japanese automakers and represented nine percent of Q2 revenue, up from three percent a year earlier, SRS said. Telecommunications-related sales rose by $159,954, despite the category shrinking to 12 percent of total revenue from 13 percent, it said. SRS’ Q2 R&D expenses jumped to $1.82 million from $1.18 million as the company has added 17 employees since June 2009. Sales and marketing costs increased to $3.2 million from $2.7 million as SRS hired seven new employees, the company said.