October 18, 2001 11:05 AM PDT

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Microsoft has taken the reins of digital rights management company Reciprocal, which couldn't reimburse the software giant after it extended a $10 million bridge loan.

Reciprocal spokesman Howie Singer confirmed Thursday that the Buffalo, N.Y.-based company did not repay its loan to Microsoft, which was due Sept. 17. That failure entitles Microsoft to Reciprocal's assets, according to a source familiar with the situation.

It's unclear whether Microsoft intends to absorb the assets or sell them to a third party. The Redmond, Wash.-based company is aggressively expanding its own anti-piracy technology, and smaller competitors are having trouble staying in the market.

Singer emphasized that Reciprocal, which helps maintain copyrights for online music, publishing, software and film, is still serving customers.

"We are in the process of being restructured, but the company is still operational," said Singer, who on Thursday morning was attending the Digital Rights Management Summit in New York.

Over the summer, Reciprocal was negotiating with a major media company in hopes of a full acquisition, said a former executive. But the deal fell through in early autumn, and the company could not raise new funds to pay off Microsoft's bridge loan.

Microsoft's taking control of Reciprocal's assets is the latest disappointment for the pioneer in digital rights management. In late September, Reciprocal laid off two-thirds of its staff, or about 120 workers, in an effort to conserve resources.

The layoffs underscored small companies' struggles to stay standing in the David-and-Goliath battle for control of the technology that protects songs, videos and other digital files from being copied or distributed without permission. In May, Preview Systems announced it would sell its assets and close its doors.


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