Sony BMG Settles With 39 States Over CD Spyware

LOS ANGELES – Sony BMG Music Entertainment will pay $4.25 million as part of a settlement with 39 states to resolve investigations into problems caused by music CDs loaded with hidden anti-piracy software.

Under terms of Thursday's agreement, which also applies to the District of Columbia, the record company will reimburse consumers whose computers were damaged while trying to uninstall the anti-piracy software.

Sony BMG also said it will no longer distribute any compact discs loaded with copy-protection software that hinders computer users from easily locating it or removing it from their PCs.

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The office of Massachusetts Attorney General Tom Reilly took the lead in brokering the multistate agreement, which was expected to be filed Thursday in Suffolk County Superior Court in Boston.

"If companies want to use technology to protect their interests, they need to be up front with consumers, and give consumers the opportunity to make informed choices about buying and using these products," Reilly said in a prepared statement.

Thirteen states that started the settlement process with Sony BMG will each receive $316,538, while the rest will get $5,000, Reilly's office said.

New York-based Sony BMG, a joint venture of Sony Corp. (SNE) and Bertelsmann AG, said it was pleased to reach the agreement.

It covers CDs loaded with one of two types of copy-protection software — MediaMax or XCP. The record label began including MediaMax on some of its discs in August 2003 and introduced XCP in January 2005.

Last year, the record company shipped more than 12 million compact discs on 52 Sony BMG titles, each loaded with one of the two programs.

About 4 million CDs with the MediaMax software and about 3 million CDs loaded with the XCP software were sold.

Both programs restricted the number of copies of a disc that a user could make, but the programs caused problems for some users when they played the CDs on their computers.

The XCP software concealed itself to thwart computer users from finding it and attempting to delete it. It also ended up opening a potential security hole on PCs running on Microsoft Corp.'s (MSFT) Windows Operating System, making them vulnerable to viruses or other threats.

Some who used certain antispyware software to remove the programs ended up with a glitch that disabled their CD-ROM drives.

As word spread on the Internet in late 2005 that the CDs carried hidden software, some suggested the company was using the technology to spy on consumers.

Sony BMG maintained it did not use the software to collect personal data about consumers without their consent — an assertion backed up by an outside company commissioned by the company to audit its use of the copy-protection software.

Sony BMG ultimately recalled the discs with XCP in November 2005 and released a way to remove the files from users' computers. It also released a software patch to fix a potential security hole from the MediaMax 5.0 program.

Customers will be able to file a claim with Sony BMG to receive refunds of up to $175, but claims must include a description of how their computer was harmed and documentation of repair expenses.

The refund policy will also apply to states that were not a party to the settlement.

The latest settlement closes out the states' investigations into the problem.

On Tuesday, Sony BMG reached a separate settlement with California and Texas, agreeing to pay $1.5 million to the states and reimburse consumers for PC damage. The company earlier settled a class-action case over the episode.

In addition to Massachusetts, the states that were a party to Thursday's settlement are: Alabama, Alaska, Arizona, Arkansas, Connecticut, Delaware, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Michigan, Mississippi, Montana, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Vermont, Virginia, Washington, West Virginia, Wisconsin and Wyoming.