Suit Claims $17B in Damages from Bertelsmann


Napster may be dead
and gone
but the billion dollar litigation that marred its existence has
shown no signs of letting up.

German media conglomerate, Bertelsmann AG, a one-time backer was slapped with a $17 billion lawsuit in New York late Wednesday
alleging its financial support to Napster contributed to copyright
infringement by users of the rogue file-sharing application.

Bertelsmann, itself a former foe of
Napster, pumped more than $90 million into the peer-to-peer firm with
ambitious plans to create a
legitimate, membership-based music download service but that partnership is
now at the center of the latest legal wrangle.

The suit was filed by a group of songwriters and two independent music
publishers — Frank Music and Peer International — that have long been part
of the anti-Napster brigade. According to allegations in the lawsuit,
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.

“Bertelsmann did not condition its funding on Napster’s stopping its
infringement of plaintiffs’ rights. [Instead, it] made a deliberate and
calculated business decision to continue the infringing service in order to
preserve Napster’s valuable user bases,” the lawsuit alleges.

The music publishers allege that bankruptcy filings 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.

Even though lawyers routinely ask for inflated penalties, industry
watchers say the $17 billion claim is heavily inflated in today’s retail
music market. On average, 110,000 songs round out to less than 10,000 CDs
and, calculating at $14 per CD, 110,000 songs work out to a retail value of
$140,000.

However, there is no way to quantify the actual losses suffered by
copyright holders during Napster’s peak when approximately 10,000
copyright-protected digital files were copied every second. Napster boasted
a userbase of tens of millions in late 2000.

The lawsuit is also seeking class-action status for about 150,000
songwriters and music publishers.

Lawyers on both sides could not be reached for comment at press time but
one analyst described the suit as “unsurprising.”


“In the music business, lawsuits are a business model. It doesn’t surprise
me that Napster’s name is still associated with lawsuits. We saw the same
thing with MP3.com and the numerous lawsuits that followed them,” said Lee
Black, a digital music analyst with Jupiter Research.

Black said it was unfortunate that Bertelsmann was being sued for its
Napster partnership even after its public efforts and big spending to
redirect the file-sharing service towards legitimacy. “It was not until
after Bertelsmann invested that Napster changed direction and decided to
pursue deals with the labels,” he added.

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