March 28, 2007
The End is Near – Bertelsmann Settles EMI Claims Over Napster
By John Ottaviani
Various sources are reporting that EMI has agreed to settle its copyright infringement lawsuit against Bertelsmann AG related to Bertelsmann’s investment in Napster.
The settlement removes the last large record label with claims against Bertelsmann in the Napster case. Terms of the settlement were not disclosed, but sources quoted by the LA Times put the estimate between $50M to $150M.
After Napster filed for bankruptcy protection in 2001, the record labels and music publishers dragged Bertelsmann and other investors, including Silicon Valley venture capital firm Hummer Winblad Venture Partners into the lawsuit. Infringement claims were filed against the investors, arguing that the investors were liable for contributory and vicarious copyright infringement because they had effective control of Napster. The court refused to dismiss the claims because the recording companies accused the investors of assuming control over Napster’s operations and directing the infringing activities that gave rise to Napster’s liability. UMG Recordings, Inc. v. Bertelsmann AG, 222 F.R.D. 408 (N.D. Cal. 2004).
The decision caused a great deal of discomfort among those firms, in the private equity community dealing with content distribution companies. Investors were forced to review and rethink commonly used structures to control a portfolio company, and evaluate whether and how those control structures exposed the investors to liability for copyright infringements of the portfolio company.
Last September, Bertelsmann agreed to pay Universal Music Group approximately $60M to settle Universal’s copyright claims. Hummer Winblad settled with Universal and EMI in December.
The case is still pending, with the songwriters and music publishers remaining as plaintiffs. Without the support of the record labels, it is unlikely that case will be actively pursued for much longer.
And we can finally turn off the lights on one of the longest-running Internet intellectual property disputes.
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