D&M HOLDINGS ‘NOT A PARTY’ IN COPYRIGHT SUIT AGAINST REPLAYTV, CEO SAYS

D&M said deal to acquire ReplayTV and Rio assets was expected to close in about 10 days. It said it planned to keep all ReplayTV customers and would design, produce and distribute lines of ReplayTV and Rio products after acquisition was completed. Purchase price includes acquisition of inventory, receivables, intellectual property and capital equipment, D&M said. It said it also would assume control of “selected contractual relationships and liabilities.”

But in D&M’s opinion, those liabilities won’t extend to assuming SonicBlue’s role of defendant in suit against ReplayTV by major entertainment companies, Gilmour told us. Oct. trial date has been set in suit in which group of 28 entertainment companies is seeking injunction to bar company from including commercial-skip and Internet retransmission functions on ReplayTV PVRs. “We do not believe that we are a party to the existing lawsuit, and that that lawsuit will sort of cease to be in existence post-bankruptcy,” pursuant to “the way that bankruptcy works,” Gilmour said. “The plaintiffs in that case would need to refile a lawsuit, and the process would begin over.”

Gilmour said that “at the same time, we still have our own options open to us on exactly what we do with the products.” Asked to elaborate, he said “all we did was buy assets here. We agreed to continue to offer the Rio and Replay product lines and to continue to offer the Replay services that enable the Replay boxes to work. But we haven’t necessarily decided which features will be in the products.” Gilmour said “we haven’t made any decisions” whether to eliminate commercial-skip or Internet retransmission features that had been at crux of suits against ReplayTV or whether they would be eliminated as direct result of any litigation. According to D&M legal opinion, suit targets SonicBlue as owner of ReplayTV at time litigation was filed, he said: “Given that the bankruptcy process did not sell a business, it just sold the assets, that suit stays with the estate,” which is SonicBlue. Gilmour wouldn’t answer whether D&M would have pursued ReplayTV acquisition if legal opinion within company had been different. SonicBlue CEO Gregory Ballard and other SonicBlue executives couldn’t be reached for comment by our deadline.

Preliminary industry reaction to D&M’s winning bid in ReplayTV auction generally was positive, even among retail accounts that had soured on product because of lackluster consumer sales or poor support from SonicBlue. For example, Philip Hannon, vp-mdsg. at Abt Electronics, said his chain had discounted its remaining ReplayTV inventory and was “clearing out our shelves right now.” He said Abt probably would continue liquidating its remaining 40-50 ReplayTV PVRs unless he heard “a great story from D&M Holdings right away” suggesting that it do otherwise. Nevertheless, Hannon gave ReplayTV acquisition high marks because “at least they have a good name behind them now and only time will tell.” Under D&M ownership, Hannon said, “it can only be a positive” for ReplayTV because “they will have a lot better financial footing than ReplayTV ever had on its own or under SonicBlue.”

Other D&M developments: (1) Company established new Digital Networks N. America (DNNA) subsidiary to “drive the strategy and develop the core technologies that will enable the brands under D&M Holdings to become the leaders in the emerging entertainment- based home networking market.” ReplayTV and Rio assets will be merged under DNNA, company said. (2) Gilmour said D&M was on track to complete acquisition of McIntosh Lab on schedule this month.