Piracy Battle Shifts to Bertelsmann

Two world-renowned songwriters and two independent music publishers sued Bertelsmann for $17 billion Wednesday, accusing the German media conglomerate of deliberately helping users of the wildly popular Napster song-swapping service violate millions of copyrights.

Opening a new front in the war on Internet file-sharing, the suit in New York federal court seeks class-action status for about 160,000 songwriters and their publishers and is based largely on evidence that emerged in Napster’s bankruptcy proceedings last year, including memos from Bertelsmann executives who concluded Napster was breaking the law.

Despite those reservations and the complaints of its own BMG record label, Bertelsmann invested about $90 million in Napster starting in October 2000 and exerted a large degree of control over its operations.

The lawsuit alleges that without those investments, Napster would have shut down many months before its actual demise in July 2001. If it had folded earlier, fewer songs would have been illegally copied by its users.

A Bertelsmann spokeswoman declined to comment on the filing, saying the firm doesn’t discuss litigation.

The named plaintiffs in the suit are songwriters Jerry Leiber and Mike Stoller and music publishers Frank Music Corp. and Peer International Corp. Leiber and Stoller wrote such classics as “Jailhouse Rock,” “Hound Dog” and “Stand by Me.” Frank Music controls the copyright for songs such as “Unchained Melody,” while Peer licenses “Blue Moon of Kentucky” and “Walk Like an Egyptian.”

The songwriters “have been fighting against Napster for years,” said Randy Poe, president of Leiber & Stoller Music Publishing. “They were there at the onset of this specific struggle, and they want to follow it through to its conclusion.”

Napster pioneered the use of peer-to-peer technology, which allowed tens of millions of users to find each other and copy songs in the unrestricted MP3 format. At Napster’s peak, as many as 10,000 works were copied each second, most of them copyrighted.

The legal case against Bertelsmann is similar to previous lawsuits against Napster filed by songwriters, music publishers and the major record labels, including BMG. Those suits accused Napster of aiding copyright infringement because it helped users find music Napster knew was protected.

A federal appeals court upheld a preliminary injunction against Napster, but the case never went to trial because the company filed for Bankruptcy Court protection in June 2002. Napster’s technology and dormant Web site were eventually sold to software firm Roxio Inc., which hasn’t detailed its plans.

None of the labels joined in Wednesday’s lawsuit, but they have been studying the issue and could file their own claim.

When it first invested in Redwood City, Calif.-based Napster, Bertelsmann said its loan would go toward developing a legal version of the file-swapping service that respected music copyrights. But the Bankruptcy Court evidence showed that much of the initial $60 million went for operating expenses that kept the pirate system running.

“Bertelsmann did not condition its funding on Napster’s stopping its infringement of plaintiffs’ rights,” the suit says. Instead, it “made a deliberate and calculated business decision to continue the infringing service in order to preserve Napster’s valuable user bases” for when a new, copyright-friendly system could be established.

Attorneys for the songwriters arrived at the $17-billion damage figure by seeking the maximum statutory penalty of $150,000 for each of the more than 100,000 works infringed on. The record industry blames Napster and its successors for two straight years of declining sales, costing them billions of dollars.

As previously reported, evidence against Bertelsmann includes the recommendation by a company task force that the old Napster service be kept running, despite its legal problems, while a new system was developed. In another memo, then-Chief Executive Thomas Middelhoff acknowledged that file-trading by Napster users “has thus far infringed upon the copyrights of artists and record companies.”

Legal experts said it would be harder to tie Bertelsmann to the wrongdoing than it was to link Napster.

“It tends to revolve around the degree of control and participation in the actual infringing activity,” said intellectual property expert Maureen Dorney of law firm Gray Cary Ware & Freidenrich in Palo Alto.