(FORTUNE Magazine) – MANAGING DIGITAL COPYRIGHTS hq: Sunnyvale, Calif. founded: 1990 sales: N.A. employees: 130 privately held address: www.intertrust.com

Back in the late 1980s, InterTrust founder Victor Shear noticed that content companies were getting edgy because anything they published digitally was easy to copy and pass around. "No one had methods for protecting content that would motivate asset holders to publish," he says. So in 1990 he hired a bunch of scientists to create a system for managing digital rights. The engineers produced a lot of patents, but they were, oh, nine years ahead of their time. Only now--with everybody from governments to newspapers to record companies looking to sell wares on the Net--is Shear's vision taking wing. InterTrust's first product, Commerce 1.0, will be put into action by clients later this year.

Here's how it works. InterTrust has created a digital wrapper called a "digibox," which can house any pieces of content you might want to access--an article, a photograph, a song. When you click on a Website's link to buy a music file, for example, a box pops up on your screen. It may contain free marketing materials, like a clip from a song, but that music file you wanted will open only after you pay. Because files stay in their digiboxes even after they've been purchased, the content can't be copied and distributed illegally.

What's brilliant about InterTrust's technology--what makes content providers go wild--is that it doesn't just prevent illegal copying. It also creates a new way to market and deliver goods through sharing: A music company could set up the product so that if you were to e-mail a digibox-wrapped music file to a friend, she wouldn't be able to open it without buying it first. But she could look at free marketing material, and then click and buy. Shear calls this "superdistribution."

Because the products delivered in digiboxes are all digital, they can be configured in any number of ways. A record company can let you hear a song once free or three times for 25 cents; for $1.50, it might authorize you to download a copy of the song onto your PC or into an MP3 player like the Diamond Rio. The system is great for cross-selling because when the boxes pop up on the user's screen, they can push all kinds of goodies. On an Allman Brothers Band demo that InterTrust has put together, viewers get to buy video, audio, and concert tickets and T-shirts. "Our contact at Universal calls it the Grateful Dead business model," says CFO Erwin Lenowitz. "The Dead were around for a quarter of a century, and they made their millions on paraphernalia."

InterTrust works with MCA's Universal music group, whose first InterTrust-enabled music offerings should appear this Christmas. Still, Commerce 1.0 is hardly the only music solution around: IBM and AT&T, among others, are pursuing the same niche. But Shear believes he has the best technology, and if tunes of the future don't come wrapped in digiboxes, well, he has other companies--including a division of Harris that delivers digitized government maps to authorized users--signed up as customers. Finally, Victor Shear's time may have come.

--Eryn Brown