Napster’s VC Firm Sued

Napster may be dead and gone, but the legal battle rages on.

Two of the largest recording labels filed suit Monday against San Francisco-based investment firm of Hummer Winblad Venture Partners including partners John Hummer and Hank Barry.

Lawyers with Universal Music Group and EMI Recorded Music, which filed their complaint in a Los Angeles courtroom, said the legendary dot-com VC encouraged illegal sharing of copyrighted materials by funding the notorious file-swapping site to the tune of $13 million.

“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,” the labels said in a joint statement.

A spokesman with Hummer Winblad issued a brief statement saying, “We’ve received a copy of the complaint and we are reviewing it.”

According to the San Jose Mercury News, sources say Hummer Winblad is likely to defend itself on the premise that the firm invested in Napster in April 2000, well before the courts ruled that the peer-to-peer network should suspend its service.

The VC community is also rallying around Hummer Winblad as this kind of litigation could have a wider ripple effect. A letter to Senator John Kerry (D-Mass.) from The National Venture Capital Association suggested that lawsuits based on investment firms could cripple capital spending in the technology sector.

“The uncertainty attendant to those pending lawsuits is deterrence aplenty to the flow of investment capital to new technology,” association president Mark Heesen wrote. “Even without the threat of direct suit, investors in innovative technologies face the very real risk of loss of their investment.”

Napster has been out of action for sometime. U.S. District Judge Marilyn Hall Patel ordered the company to halt service after five record labels (Sony, AOL Time Warner, Bertelsmann, Universal Music and EMI Music) sued the company in the December 1999 citing copyright infringement. Napster’s new owner, Roxio said it would cooperate with the labels and reincarnate the platform as a paid subscription service later this year.

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