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Sonicblue Files for Chapter 11

The ReplayTV maker, which has been sued by copyright holders, says debt hurt the company.

March 22, 2003|Jon Healey | Times Staff Writer

Sonicblue Inc., the Santa Clara, Calif., company that sells ReplayTV digital video recorders and Rio MP3 players, filed for bankruptcy protection Friday, ending its efforts to redefine what consumers can do with music, television and movies.

Sonicblue is the latest technology firm to collapse after running afoul of the mainstream entertainment industry, which claims that ReplayTV recorders violate the copyrights of movie studios and TV networks.

Although its legal fees were astronomical, Chief Executive L. Gregory Ballard insisted that the company's demise had a different cause: an "oppressive" debt load that stemmed from a string of acquisitions.

Those purchases transformed Sonicblue from a manufacturer of specialized microchips into an innovative maker of digital audio and video devices. Its three main units all were the fruits of acquisitions. In addition to ReplayTV and the Rio portable digital audio players, the company sells GoVideo VCRs, DVD players and home entertainment systems.

Although Sonicblue filed for Chapter 11 bankruptcy protection, which lets companies reorganize and reemerge with less debt, Ballard noted that the company had tentative deals to sell all of its biggest assets.

The bankruptcy filing came before a federal judge could rule in a lawsuit against Sonicblue that raised two important questions about consumers' rights in the digital age: Is it legal to sell a device that can automatically skip commercials in TV programs, and can users send the shows they record to one another via the Internet?

The filing leaves creditors unable to recover much of the $334 million the company owed as of Dec. 31. Shareholders are expected to be left empty-handed.

Sonicblue's shares fell Friday from 23 cents to 6 cents on the Nasdaq small-cap market.

On Friday, Sonicblue announced a nonbinding letter of intent to sell its ReplayTV and Rio units to D&M Holdings, an electronics manufacturer in Tokyo, for as much as $40 million. The two still are negotiating the terms of the deal, Ballard said.

The company also announced a definitive agreement to sell the GoVideo unit for about $12.5 million to Opta Systems of Scottsdale, Ariz., a subsidiary of Carmco Investments.

The Bankruptcy Court will have to approve the sale of Sonicblue's assets. The auction is expected to be completed by the end of next month.

The fate of the lawsuit -- filed by the largest TV networks and all seven major Hollywood movie companies -- apparently will depend on whether the new owners of ReplayTV keep offering the disputed features. Ballard said that under the tentative deal, D&M would continue to support existing ReplayTV recorders.

But a spokeswoman for D&M said the company hadn't decided which features to offer if it buys the recorders.

Attorney Fred von Lohmann of the Electronic Frontier Foundation said the civil liberties advocacy group would continue pressing for a ruling to resolve the issues.

"The lawsuit from the beginning was designed to send a strong message to technology companies that they innovate at their peril unless they get Hollywood's permission first," he said.

Marta Grutka of the Motion Picture Assn. of America countered, "We're simply asking that any new technologies and innovations comply with well-established legal principles."

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