SoundExchange, a nonprofit group that collects royalties for public performances of recorded songs, on Thursday, Aug. 23, agreed to limit to $50,000 the amount Internet music providers have to pay to license the material. Previously, the group had called for Internet broadcasters to pay $500 per channel, a fee many online radio companies said could drive them out of business. For popular Internet radio services, such as those operated by Yahoo! Inc. and Time Warner Inc.'s AOL unit, streaming thousands of channels to listeners, the fees would add up quickly.

SoundExchange was created by the Recording Industry Association of America in 2000 and spun off in 2003. The group's members include major record companies, including EMI Group plc, Sony BMG Music Entertainment, Universal Music Group and Warner Music Group, along with more than 2,500 independent labels such as Alligator Records, Beggars Group, Benson Music Group, Koch International Sonido Inc. and Tommy Boy Entertainment.

Despite the move by SoundExchange, Internet radio companies say concerns over licensing costs for digital music continue to jeopardize their future.

"The real meat of the negotiation is around the rates per song, which have yet to be determined," said Tim Westergren, founder of Pandora Media Inc., an Internet radio company in Oakland, Calif., that has raised more than $20 million in venture funding from firms including Walden Venture Capital and Labrador Ventures. "Currently our business model is broken, and it will only be unbroken when the rate is fixed."

SoundExchange is proposing that broadcasters pay a rate of 0.19% per song, up from 0.0761% per song, an increase of 150%. Internet radio providers want either a lower rate or a rate that would be determined as a percentage of revenue. Under the old model, a streaming music firm could choose to pay either a per-song royalty or a percentage of its revenue that was determined on a sliding scale depending on the company's sales.

Jim Lussier, a general partner with Norwest Venture Partners, said the licensing cap will help portfolio company Mercona Inc., a Sunnyvale, Calif., Internet radio company. He noted, however, that the SoundExchange agreement doesn't disperse the cloud over the online radio industry.

"All of the players in the business are still working on the monetization model, and I'd say the jury is still out even with this settlement on how viable and how profitable Internet radio will ultimately be."

John Blackledge, an analyst with J.P. Morgan Chase & Co., says Internet radio advertising is estimated at $500 million in 2007. Bridge Ratings LLC, a radio audience measurement company, estimates that by 2020 Internet radio is projected to generate revenues of $19 billion.

David Van Dyke, president and CEO of Glendale, Calif.-based Bridge Ratings, said the future of Internet radio remains in the balance, while noting that the fee cap and, more broadly, the negotiations between SoundExchange and Internet broadcasters, represent progress.

With the future uncertain for Internet radio as a whole and venture-backed companies such as Mercona, Pandora and Austin, Texas-based Slacker Inc., businesses that rely on selling advertising on those radio networks are also keeping an eye on what happens. Doug Perlson, CEO of radio advertising network TargetSpot Inc., said the negotiations with SoundExchange will benefit his customers. TargetSpot has raised an undisclosed amount of venture funding from Union Square Ventures and CBS Radio.

Perlson hopes the music industry can agree to "rational" royalty rates. "I don't think that SoundExchange is looking to put Internet radio out of business," said Perlson. "No one wants that as an unintentional consequence, and at the end of the day hopefully sanity will prevail.

Because many of these advantages are intangible, intellectual property -- and more particularly patents -- are a fundamental tool for achieving and maintaining success in the marketplace. Indeed, many corporate deals are pursued and structured around the acquisition of patent rights that are deemed to improve a company's overall leverage and value.

However, a company's failure to properly secure its patented technology can result in loss of value and the ability to attract buyers or licensees of its hard-earned commercial advantages. Sometimes, corporate deals can unravel or decrease in value upon a realization that a critical technology of the selling company has not been properly protected, or worse yet, has been lost to the public. Such mishaps are typically uncovered by a potential buyer's due diligence efforts that assess the seller's patent portfolio and other IP rights and strategies. In losing its patent rights, a company effectively concedes its right to exclude others from making, using or selling the invention, meaning that anyone can practice the invention without having to obtain rights or authorization from the company.

Frequently, patent rights are inadvertently lost because of a company's failure to appreciate the requirements for obtaining a patent on an invention. In particular, activities during the product development and marketing stages can hamper if not preclude a company's ability to pursue and secure its valuable patent rights. To guard against this, it is imperative that a company inform and educate all appropriate departments and personnel on the patent process and its requirements.

In essence, a patent is a government sanctioned monopoly for a period of time in exchange for public disclosure of the patented invention. During the term of a patent -- which commences when a patent is granted and ends 20 years from the date the application was filed -- its owner can exclude others from making, using or selling the patented invention. Before it grants a patent, however, the Patent Office must be convinced that the invention under consideration is novel. It makes no sense to give someone a patent on an invention that is not new since doing so would unfairly grant exclusive rights to one that was not the first to invent. Moreover, granting a patent on technology that already exists goes against a primary purpose for offering patent protection in the first place, namely, creating an incentive for public disclosure of an invention in return for the exclusive rights to make, use and sell the invention.

To encourage inventors and companies to promptly file patent applications on its inventions, the U.S. Patent Laws mandate that an application be filed within one year of an invention's commercialization, public use or disclosure. The one-year requirement gives rise to the concept of the "critical date," which may be thought of as exactly one year before the date an application for patent is filed in the United States. For example, if a patent application is filed on Jan. 1, 2008, the critical date would be Jan. 1, 2007. Specifically, a patent cannot be issued if before its critical date the invention was: (1) disclosed in a printed publication in the United States or a foreign country, or (2) in public use or on sale in the United States.

Understandably, the one-year requirement of the Patent Laws can create numerous problems for a company's product development and marketing departments. For example, assume a group of inventors within a company develop a new process that enables the company to manufacture widgets in about half the time of its competitors. Upon finalizing the process, the inventors disclosed its particulars during a trade show that was held on Oct. 1, 2006. If the company did not prepare and file a patent application on or before Oct. 1, 2007, the inventors and ultimately the company would lose the ability to secure patent protection on the innovative and valuable process.

Likewise, assume the marketing department for the company produces marketing literature that is distributed to potential customers in anticipation of the process being developed. If the literature provides sufficient detail, its disclosure may start the one-year clock for filing an application covering the process. The same would be true if the company tried to license or sell the process even before it was finalized and complete.

Of course, ultimate responsibility for compliance with the various requirements of the Patent Laws should rest with a company's in-house or outside patent counsel, but given the speed with which companies are innovating in today's business environment it is prudent to ensure that all appropriate departments and personnel be aware of the pitfalls that may arise.

To minimize the risk of this occurring, companies should be vigilant about informing and educating its product development, marketing and other appropriate departments to ensure they do not run afoul of the requirements for obtaining patents and thereby help ensure that valuable patent and other IP rights are not lost or abandoned. In addition, policies and procedures should be implemented to regulate the dissemination of information that may compromise valuable technologies and innovations.

-- Ozzie Farres is an associate in the intellectual property group at Hunton & Williams LLP.

The insolvent telecom won approval of its disclosure statement at a Thursday, Aug. 30, hearing from the U.S. Bankruptcy Court for the District of Puerto Rico in Old San Juan, filings show.

The plan will be sent to creditors for a vote. NewComm will return to court for an Oct. 5 confirmation hearing, according to court papers.

Under the proposal, Guaynabo, Puerto Rico-based NewComm will dole out any remaining proceeds after its sale to PRWireless Inc. The latter won the company's assets at a heated March auction for an estimated $158.64 million. The rest of NewComm's estate will be liquidated.

PRWireless was created by debtor-in-possession lenders D.B. Zwirn Special Opportunities Fund LP, M/C Venture Partners and Columbia Capital LLC. The joint venture competed against HyPR Comm Inc., an affiliate of hedge fund Highland Capital Management LP, at an auction in which NewComm's price jumped about $45.1 million. The sale closed on June 22, filings show.

Of the $158 million generated from the sale, $68 million was used to pay off NewComm's prepetition senior debt. The company's DIP loan has also been paid off.

As of the plan's filing, about $40.95 million remained for distributions to creditors, with most of it earmarked for unsecured creditors and equity holders.

The plan represents an agreement between NewComm, its unsecured creditors, PRWireless, Spanish telecom giant Telefónica SA and the company's equity holders as to how the proceeds should be distributed.

The company has little secured debt, and any fund owed will all be paid in full under the plan. Unsecured creditors, owed an estimated $10 million, are expected to be paid in full.

Stockholders are to get a pro-rata share of $17.5 million as a result of the agreement with Telefónica. The Spanish telecom will have its claim subordinated to the bottom of the creditor hierarchy, but would receive the residual amount left over after equity holders are paid. That amount is estimated to be $12.5 million.

The Telefónica agreement is key to the plan in that it resolves possible litigation that could have delayed the plan confirmation process. Both parties will get releases because of the settlement.

NewComm describes itself as a Code Division Multiple Access wireless telecom carrier that covers Puerto Rico. The company has 90,000 subscribers and 195 cell sites, but it is the smallest of six wireless carriers in Puerto Rico.

The debtor filed for Chapter 11 protection on Nov. 28 in Puerto Rico, roughly six months after fending off an involuntary petition a Telefónica affiliate brought on.

Peter Wolfson is lead debtor counsel at Sonnenschein Nath & Rosenthal LLP, while Carmen Conde Torres is debtor co-counsel at C. Conde & Associates.

Mark Wolfson of Foley & Lardner LLP represents the unsecured creditors committee, while Mildred Caban of Goldman Antonetti & Cordova PSC is the committee's co-counsel.