Spotify’s entering the U.S. market highlights several IP valuation issues

IPBlog first discussed London-based Spotify’s promising music streaming business model in January. Spotify has now entered the U.S. market and registered 70,000 sign-ups the first week, accompanied by great reviews, an impressive marketing build-up ... and a patent infringement suit.

Spotify is being sued in both the U.S. (Southern District of California) and Europe by PacketVideo, now owned by DoCoMo, for willfully infringing U.S. patent number 5,636,276, and European patent EP 0 678 851 covering a "Device for the distribution of music information in digital form," a 1995 patent it purchased from Basil, Switzerland-based SDC AG in 2007.

Issue 1. Is this broad PacketVideo patent valid? If valid, how much is it worth (in terms of damages) with less than four years remaining on it?

Issue 2. The early reviews on Spotify’s service are very good. What would Spotify’s success do to valuation of other streamers (Rhapsody) and music companies (Apple)?

Issue 3. Most of the press reports on the lawsuit refer to the plaintiff as a patent troll, as PacketVideo is not the inventor nor has it developed technology around the patent, referring to the lawsuit as a “shakedown.” If NPEs were no longer allowed to exist and defend their acquired IP rights, what would that do to the value of patents in the hands of inventors unable to exploit or defend the IP? In effect, one entire class of possible acquirers of IP would be eliminated from the “bidding.”

Issue 4. Spotify is a music streaming company. Though the focus today is on patents, what does the service do to copyright values, specifically the rights of the artist?  According to 2009 data, a play on Spotify earned an artist .029 cents. When compared to the piracy Spotify is supposed to suppress, that doesn’t sound too bad. Compared to the music purchases it will undoubtedly suppress, it sounds quite low. Reportedly, the delay to entry into the U.S. was due to protracted negotiations with music companies, though no figures have been made public.