Bertelsmann: Dismiss Napster Suits

Former Napster backer Bertelsmann AG has filed a motion in a New York court to dismiss three massive lawsuits filed by record labels alleging its financial support of the defunct P2P network contributed to widespread piracy of copyrighted works.

The $17 billion suit, filed by a group of songwriters and two independent music publishers and later joined by EMI, claimed evidence in Napster’s bankruptcy proceedings show Bertelsmann knew the company was breaking the law but decided to keep the service running while it worked on a legitimate version.

Now Bertelsmann has lashed back in a motion, arguing that the lawsuits “reflect groundless and cynical efforts by music publishers” to seek recovery from a third-party lender for damages the plaintiffs failed to recover from the bankrupt Napster.

“No court has ever held that merely providing funding to an accused
infringer exposes the funder to copyright infringement liability, and that entertaining such a “groundless and discredited” theory would upset capital markets by potentially expanding the reach of the copyright laws to actors far removed from the actual infringers,” the German media giant said in a statement accompanying its motion.

The music publishers have alleged that bankruptcy court documents show that the bulk of Bertelsmann’s funding for Napster, which was supposed to go towards creating a legitimate file-swapping service, instead when into paying to keep the illegal Napster in operation. During that time, the suit alleges Bertelsmann knowingly colluded with Napster to infringe on copyrighted works. The group is seeking a penalty of $150,000 covering more than 110,000 infringed works, the maximum statutory penalty.

But in its response, Bertelsmann notes that Chief Judge Marilyn H. Patel of the Northern District of California had already rejected the theory on which plaintiffs rely here — that Bertelsmann became indirectly liable for infringements by Napster’s users by providing a financial “lifeline” that prolonged the file-sharing service’s existence.

In dismissing similar infringement claims against venture capital firm Hummer Winblad, an investor and controlling shareholder in Napster, Judge Patel held that such an attenuated, “tertiary” theory of indirect copyright infringement was “objective[ly] unreasonable” and unsupported by existing copyright law. Bertelsmann argues that the plaintiffs cannot escape the same result through forum-shopping,” the company said.

Bertelsmann said its motion for dismissal was supported by the fact that the plaintiffs have not provided evidence to prove the necessary elements of “vicarious” or “contributory” infringement. Specifically, Bertelsmann argued that the plaintiffs have not proved it (Bertelsmann) had the ability to control Napster’s activities or the allegedly infringing activities of Napster’s
users.

The company has also asked the court to dismiss the suits on the grounds
that the plaintiffs did not provide evidence to show it derived a direct
financial benefit from those allegedly infringing activities; or Bertelsmann
substantially and knowingly participated in the alleged directly-infringing
conduct of Napster’s users.

“The Bertelsmann motion also makes note of the fact that Napster’s legal
status was still in question at the time of the loan,” it added.

Instead of directly profiting from Napster, the company noted that it
lost heavily on the funding it provided to Napster before the company filed
for bankruptcy protection.

In fact, Bertelsmann argued, its investment in the file-sharing network
was aimed at helping the record industry through the creation of a “fully
licensed file-sharing service in which all the major record labels and music
publishers were invited to participate.”

“The plaintiffs’ failure to state viable claims against Bertelsmann is
especially ironic since the undisputed purpose of its loan, to convert
Napster to a fully-licensed subscription service, was recognized by record
industry representatives as a productive step in the right direction, and
one plaintiff is actually pursuing a similar vision with the Napster brand,”
the company argued, pointing to the pending relaunch of Napster as a
legitimate music service.

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