Record brands say firm allowed infringement. Critics say the move may deter endeavor capitalists. Unable to draw out their pound of flesh from bankrupt Napster Inc., two of the five major record labels are suing the project capitalists who backed the defunct song-swapping service that turned music industry economics ugly. Universal Music and EMI filed a federal lawsuit against Hummer Winblad Venture Partners and two of the San Francisco firm’s general partners, Hank Barry and John Hummer, on Mon in Los Angeles.
The suit promises that they added to the copyright violations by Napster’s tens of an incredible number of users. 150,000 per violation, the suit asks for punitive damages. It also is supposed to dissuade investment in virtually any of the song-swapping services that have increased in Napster’s place. The suit may tag the first time another party has targeted an opportunity company for wrongdoing by a company in which it invested. The trade group among others warned that if the labels lose the situation even, the fact that they sued will deter institutional traders from dealing with a high level of risk with new companies. Silicon Valley intellectual property lawyer Mark Radcliffe.
Barry and Hummer didn’t react to telephone and e-mail messages seeking comment Tuesday. Barry served as Napster’s leader for more than a 12 months, and both men sat on Napster’s table. 13-million investment in May 2000. The investment was made five weeks following the record industry — like the two brands — sued Napster for allowing infringement.
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Lawyers not mixed up in case said Hummer Winblad has two fair defenses. First, Napster hadn’t yet lost the record industry suit when the firm invested. Second, directors and traders are holding responsible for the functions of their companies seldom. In those full cases in which individuals are held responsible, they typically own 100% of the business at fault.
The suit “is extending contributory infringement way beyond where it’s ever gone,” said Wayne State University copyright regulation professor Jessica Litman. U.S. District Judge Marilyn Hall Patel wrote if so. However the two record labels may have proof specific actions by the venture firm’s principals. And Hummer Winblad could be hurt by the fact that Napster lost the majority of its court battles.
The plaintiffs have “a reasonable shot at the official. The director is thought by me is a little tougher, and the shareholder theory is actually tough,” said Radcliffe, who represents entertainment and technology companies. Barry and Hummer anticipated that they could be sued and tried to negotiate protection from legal consequences when German media firm Bertelsmann was planning to buy Napster early last year. Those talks foundered, and Bertelsmann itself has been sued for its investment in Napster. But not everyone decided that the brands’ suit changes how Silicon Valley firms make investments. As the suit notes, other venture firms experienced deep concerns about Napster’s legality and didn’t make investments.