Is SunnComm a sham or the next, big DRM success?

From hell to hell and maybe heaven

Millions today, nothing tomorrow

Beyond Quiet Tiger, SunnComm has had odd dealings with a number of other companies.

In 2000, it announced a $20m agreement to provide a Taiwanese CD-maker called Will-Shown with its DRM technology. Here, the disgruntled types charge that SunnComm made the arrangement sound like a done deal - a move that inflated SunnComm's value in the public eye. SunnComm, despite having almost no revenue, would later pull out of the lucrative contract, saying it wanted to focus on the "domestic market" first before expanding overseas - a rationale that doesn't sit well with its critics.

Behind the scenes, however, the deal went awry as SunnComm became concerned about entering the Chinese CD market. It was advised by government officials and a consultant that certain groups in China and Taiwan would likely try to break SunnComm's DRM technology.

"We went over there and had numerous discussions," said Anthony O'Brien, a one-time consultant for SunnComm. "My advice was not to do anything because the technology would only be used by companies to break it and abuse it. Everything was murky over there then, and no one could guarantee it could be protected."

This advice prompted Jacobs to pull out of the deal.

"Once we learned that, we told (Will-Shown) we were not ready to expand internationally. At worst, it's the worst example of our work to date," Jacobs said.

SunnComm's critics question whether or not Will-Shown even exists, but those interviewed for this story have documents detailing negotiations with the firm.

Another deal that has some concerned was a licensing arrangement between SunnComm and Dstage. The press release for this deal reads, "SunnComm, Inc. (OTC:SUNX), a leader in digital content security for optical media, today announced that it has licensed its Proprietary Copy Management Technology to, Inc. (OTCBB:DSTG) for a one-time fee of $4,000,000."

This statement makes the $4m sound like a cash pay out, but, in actual fact, SunnComm received shares of Dstage - a low volume, penny stock. SunnComm would later reveal this in another statement.

While SunnComm seems to have a dubious flair for aggressive language in its press releases, this deal again checks out with Jacobs' overall strategy of returning value to SunnComm shareholders. They received a piece of Dstage as a dividend - small dividend as it may be.

The most recent questionable SunnComm deal came in February of this year when it announced a planned purchase of the UK's Dark Noise. The British firm apparently had the technology needed to plug the Shift key problem, which SunnComm refers to as the "analog hole." This deal was covered in the mainstream press with Jacobs giving the Dark Noise technology a top notch rating.

"This stuff works," he told CNET. "The science is real. You can't hear it (the DRM technology) when (a piece of music) is being used properly, and you can do nothing but hear it when a song is copied improperly."

Dark Noise

In a statement announcing the buy, SunnComm presented Dark Noise as a proven player in the DRM market that was currently awaiting the approval of two patents for the analog hole technology. The Register, however, searched UK government filings and found that Dark Noise is a very small firm that has moved from office to office and is currently headquartered in Whitby, Yorkshire well outside of the London address claimed in the press release. We also searched three different patent databases in the Europe and the US and could fine no record of an application or approved patent for Dark Noise.

What's happened to the deal? Well, it appears to be falling through, according to Jacobs.

Dark Noise was unable to remove the "you can't hear it" part of its DRM from the CDs completely. "They had to get that out," Jacobs said. "They said it could be done, and we believed them."

SunnComm now believes the Shift key problem can be solved in-house and plans to do so by the fourth quarter, but it has made similar claims in the past. SunnComm has its Quiet Tiger arm simply licensing the Dark Noise technology instead of acquiring the company and then has researchers in Israel and at the University of Miami fixing the Shift key issue.

Beyond all of these deals, SunnComm's past and present are riddled with characters who have had various run ins with the SEC. For example, a July 2000 press release advises investors to call Mario "Ike" Iacoviello about SunnComm's shares, and Iacoviello is also listed as a contact in the Will-Shown press release. He's also quoted as a SunnComm spokesman in another CNET story about SunnComm.

In 1999, the SEC announced charges against Iacoviello for violating "the antifraud provisions of the federal securities laws while employed as a registered representative with the San Diego branch office of La Jolla Securities Corp. by accepting undisclosed compensation for recommending and selling stock in RMS Titanic, Inc. to his clients." Iacoviello never admitted or denied wrongdoing.

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