April 22, 2003 12:40 PM PDT

Record labels sue Napster investor

Two major record labels filed suit Monday against venture capital firm Hummer Winblad Venture Partners for its investment in Napster, alleging that it contributed to rampant music theft through the former file-swapping network.

Universal Music Group and EMI Recorded Music filed a lawsuit in the U.S. District Court in Los Angeles against San Francisco-based Hummer Winblad, its cofounder John Hummer and general partner Hank Barry, who was formerly the CEO at Napster.

The 23-page complaint charges that the Napster system, as conceived and implemented, "provided a safe haven for the rampant piracy of copyrighted works on an epic and unprecedented scale...Hummer Winblad knowingly facilitated infringement of plaintiff's copyrights for its direct financial benefit."

During the Napster heyday, while millions of people logged onto the peer-to-peer community to exchange digital music files, Hummer Winblad was one of the outfit's chief backers. In May 2000, Hummer Winblad invested about $13 million in Napster and took control of its business and legal liabilities, with Barry assuming an interim CEO role.

Legal efforts by the recording industry and music publishers essentially crushed Napster two years ago. But now the music industry is seeking punitive damages from Napster backers, in a move that could portend further suits targeting assets of companies that back independent file-swapping services.

"Businesses (as well as those individuals or entities who control them) premised on massive copyright infringement of works created by artists, should face the legal consequences for their actions," said a joint statement from the two record labels.

Representatives from Hummer Winblad could not immediately be reached for comment.

A series of court battles
The suit is the music industry's latest legal shot at backers of illegal file-sharing networks. In February, a group of music publishers filed a lawsuit against Bertelsmann in federal district court in New York for at least $17 billion. The publishers alleged that the German media company's investment in Napster led to massive abuse of their copyrighted works, and they charged that Bertelsmann's strategy to fund Napster extended the life of the file-swapping service, leading to greater theft of copyrighted works.

In October 2000, Bertelsmann stunned the entertainment world when it announced that it would invest in Napster--even though BMG Entertainment, a record company owned by Bertelsmann, was suing the file-swapping software company. As continued lawsuits crippled Napster, Bertelsmann offered to buy it outright, but that plan fell through. Napster filed for bankruptcy last June. Software maker Roxio now owns most of Napster's assets.

By the time of its close, Napster had contributed to billions of separate acts of copyright infringement, according to Monday's complaint. The record labels are seeking punitive damages of no less than $150,000 per violation of copyright, among other awards.

The music industry has tirelessly worked to eradicate online file-sharing services. Its lawsuits against Napster and Aimster led to the demise of those services, and the industry continues to target other players including Sharman Networks, owner of the popular Kazaa file-swapping software.

Record companies and music publishers have much to be concerned about, according to recent research. Worldwide sales of music CDs, records and cassettes fell for the third year in a row, hit largely by rising Internet piracy in the United States, according to figures for 2002 by the International Federation of the Phonographic Industry. Last year saw the steepest fall yet, with a 7 percent drop in global music sales and a 10 percent fall in units sold in the United States.

News.com's Sandeep Junnarkar contributed to this report.

 

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