Bertelsmann, which owns BMG, one of the world’s largest music
companies, had invested more than $85 million in Napster in the
hope of turning it into a legitimate, profitable subscription
service.
At the same time, several record companies, including BMG, were
suing Napster for copyright infringement. It was this action that
led to the shut-down of the service in June 2001.
The costs of the lawsuit forced Napster into Chapter 11
bankruptcy proceedings, a means of keeping the company going whilst
restricting the rights of its creditors. When Napster’s assets were
offered for sale at auction as a going concern, Bertelsmann was the
only serious bidder and this would have brought its total
investment in the on-line service to over $100 million.
A US bankruptcy court ruled, however, that the media giant could
should not be allowed to buy Napster, on the basis of objections
raised by the file-swapping service’s creditors.
As a result, Napster’s assets were eventually bought by
CD-burning software provider Roxio for $5.3 million in cash. Roxio
did not, however, assume any of Napster’s pending liabilities.
The lawsuit against Bertelsmann was originally filed in February
in a federal court in Manhattan. It was brought by a group of music
publishers and songwriters, including those behind hits like “Stand
By Me” and “Unchained Melody”. They claim that Bertelsmann’s
financial support to Napster facilitated copyright infringement by
prolonging the life of the service and allowing millions of users
to swap copyright protected music on-line.
The suit further alleges that Bertelsmann knowingly colluded
with Napster in the infringement of copyright, since the funding
was not conditional on the illicit sharing of music being
stopped.
Bertelsmann made, according to the filing, “a deliberate and
calculated business decision to continue the infringing service in
order to preserve Napster’s valuable user base for Bertelsmann’s
own benefit.”
The music publishers are seeking damages of at least $17 billion
(£10.6bn). The lawsuit also sought class-action status to include
approximately 150,000 songwriters and music publishers – which now
appear to include Universal.
According to Reuters, Universal said yesterday: "Bertelsmann did
not merely provide a loan to Napster; nor was it merely a passive
investor in Napster. Rather, it took control of the Napster system
to financially benefit itself at the expense of Universal and its
artists."
