Napster has been reborn as a legal online music service, but the ghost of its former renegade song-swap self is trailing about $17 billion of legal baggage.
Music labels and publishers will face off against Bertelsmann AG in federal court in San Francisco on April 27 over claims the German media company’s 2000 investment in Napster kept the file-swapping service operating eight months longer than it would have done otherwise.
The lawsuits claim the extra lease on life promoted wide-scale piracy and cost the music industry $17 billion in lost sales.
The Bertelsmann cases were first filed in New York, while Vivendi’s Universal Music and EMI also sued venture capital firm Hummer Winblad in Los Angeles, claiming its $15 million investment and installation of a chief executive at Napster in 2000 also promoted piracy.
EMI declined comment. Universal was unavailable.
All the cases, first filed in 2003, were recently relocated to San Francisco under U.S. District Judge Marilyn Patel, who issued an injunction against Napster in 2000.
That injunction was stayed, and Napster was operating at the time of the Bertelsmann deal in October 2000.
Venture capitalists say a win by publishers and labels could have a chilling effect on investments in start-ups.
“If the recording community is successful, it will make the investment community think twice,” said Michael Cohen, an antitrust lawyer with Heller Ehrman White & McAuliffe.
Napster went bankrupt in 2002. Software firm Roxio bought its name and logo, relaunching it as a pay service last year. Roxio is not named in the latest cases.
Lawyers for Hummer and Bertelsmann said the plaintiffs, unable to get damages from Napster, are misguidedly seeking compensation from others who aimed to make Napster legitimate.
By providing $90 million in 2000, Bertelsmann said it hoped to turn Napster into a licensed service.
The labels and publishers claim Bertelsmann’s funding kept Napster going until July 2001, when it shut down because it could not comply with a new order Patel had issued after an appeals court largely upheld her original decision.
“Bertelsmann legitimized this company and totally changed the equation,” said Carey Ramos, counsel to songwriters and publishers, adding Bertelsmann’s investment inspired others to fund Napster “copycats” like Kazaa and Morpheus.
“Napster created the piracy we’ve seen in the last four years that continues unabated worldwide,” he said.
Hummer and Bertelsmann lawyers say the plaintiffs have a hard case to prove.
Bertelsmann attorney Bruce Rich said the plaintiffs are accusing Bertelsmann of “tertiary infringement,” a legal approach he believes will prove difficult to win.
The defendants’ lawyers cite a case in which Patel ruled against record producer Matthew Katz, who asserted infringement claims against Napster investors like Hummer.
“If Patel already ruled on the same theory with the same defendants, we see no reason why it should be different now,” said Michael Page, Hummer’s lawyer.
Ramos disagrees.
“Courts have been holding third parties responsible for copyright infringement for over 100 years,” he said. “The facts clearly establish that Bertelsmann actively supported the continuation of infringement on the Napster systems.”
