This isn't going to be connection between IIS and Weblogic as DRM does not use Weblogic (aside from the manual configuration for the DRM web service). The error that you're getting is being returned from your database server and seems to indicate that the connection to the Oracle database server has been dropped for some reason. There are some suggestions on what to do to try and resolve the ORA-03135 error here ORA-03135 Connection Lost Contact Tips
Instead of localhost can you try giving the actual server name instead.
Thanks Craign and Denzz for your help.
It was due to the connectivity issues between DRM and database over the firewall. We have disabled the firewall temporarily and it works.