After writing off a substantial investment in defunct song-swap pioneer Napster, German media company Bertelsmann now faces a multibillion dollar lawsuit from a group of music publishers.
The music publishers are seeking damages of at least $US17 billion, claiming that Bertelsmann contributed to wide-scale infringement of their copyright works by funding Napster, which created an Internet song-swapping service based on peer-to-peer (P-to-P) technology. The plaintiffs, including the songwriters Jerry Leiber and Mike Stoller, allege that Bertelsmann's decision to provide funding to Napster prolonged the service's life and thus the illicit sharing of music, according to a copy of the complaint filed in the US District Court for the Southern District of New York.
Music publishers and record companies, including Bertelsmann's own record label BMG, originally sued Napster in late 1999 and early 2000 for copyright infringement and were granted a preliminary injunction, which was subsequently stayed on appeal.
However, the music publishers complaint alleges that, "notwithstanding Bertelsmann's full knowledge of Napster's gross infringement of music copyrights - which its own record label had only just decried in court as 'the most egregious case of massive copyright infringement that has even existed' - Bertelsmann shocked the music industry by throwing Napster a lifeline."
It was at that time, in October of 2000, that the German firm formed a strategic partnership with Napster and funded it with $US50 million in capital, the complaint states. Bertelsmann's initial investment was followed by several more.
The plaintiffs allege that if it weren't for Bertelsmann's funding of Napster, the P-to-P service would have been shuttered in 2000, instead of in 2001 when it was ordered to shut down by a California federal court.
"But for Bertelsmann, the massive infringement on the Napster service would have ceased nearly a year earlier," the complaint states.
Rocco Thiede, a spokesman for Bertelsmann in Gütersloh, Germany, said he had no knowledge of the lawsuit and no comment other than the company's official statement on the online music venture: "Napster was never a Bertelsmann company."
A representative for Napster in the US said that the company does not comment on legal issues.
The lawsuit adds a new chapter in the short but heavily litigious history of Napster.
The same plaintiffs in the original suit against Napster, which forced the company to discontinue service two years ago, are going after its biggest financial backer, Bertelsmann, in a move that could encourage media companies to sue deep-pocketed backers of controversial file-sharing services.
Bertelsmann invested over $US100 million in Napster, according to the company's annual report.
In November, software vendor Roxio acquired the remaining assets of the song-swapping company immediately after a bankruptcy court in Delaware approved the deal. The supplier of CD-burning software agreed to pay $US5.3 million in cash and stock for Napster's intellectual property, including domain name and trademarks, and extensive technological portfolio.