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Napster Gets 10 Months to Prove Claim

March 27, 2002|JON HEALEY | TIMES STAFF WRITER

U.S. District Judge Marilyn Hall Patel on Tuesday gave Napster Inc. nearly 10 months to prove its claim that the major record companies have misused copyrights and impeded competition.

Patel gave Redwood City, Calif.-based Napster access to more of the labels' documents and executives than the record companies had proposed, and much more time to prepare its case. The labels sought to wrap up the inquiry within a few months, but Patel's schedule lets Napster gather evidence until January.

The labels contend that Napster's free song-sharing service violated their copyrights, and Patel issued a pair of pretrial orders last year that effectively shut it down. But if the labels misused their copyrights, Patel said in a Feb. 22 order, they couldn't seek damages for copyright infringement until after the misuse ended.

Patel isn't expected to decide the issue until next spring, but if she sides with Napster, the ruling could spill over onto the labels' other copyright infringement lawsuits.

Four other online file-sharing services are being sued by the labels, music publishers and movie studios, and all have accused the record companies of copyright misuse.

Among other things, Napster's lawyers will be able to examine several hundred thousand pages of documents the labels have turned over to the Justice Department's antitrust division.

Federal investigators are examining whether the labels violated antitrust law through their online music ventures--MusicNet, which is co-owned by RealNetworks Inc. and the parent companies of Warner Music Group, BMG and EMI, and Pressplay, a joint venture of Universal Music Group and Sony Music.

Russell Frackman, an attorney for the labels, said his clients were ready and eager to provide evidence because it will rebut Napster's allegations.

Patel has heard only one side of the story thus far, Frackman said, and the materials submitted to the Justice Department will provide the other side.

A Napster spokesman said the ruling gives the company "a reasonable amount of time" to consider the evidence.

Meanwhile, one of Napster's original investors sued to oust half of the company's current board of directors, saying the move was needed soon in light of a pending offer to buy the company.

John Fanning, uncle of Napster inventor Shawn Fanning, filed suit Monday in Delaware Chancery Court to replace Hank Barry and John Hummer on Napster's four-member board with two new members, Joseph Amram and Martin Kay.

Barry and Hummer joined the board in May 2000 when their venture capital firm, San Francisco-based Hummer Winblad, poured several million dollars into Napster.

The lawsuit claims that shareholders voted to change the board on March 24, but Barry and Hummer disputed the validity of the vote.

The two board members also disputed the conversion of all Napster's preferred stock, which had controlled the votes in the privately held company, into common stock March 11.

Napster denied the allegations in the lawsuit and defended the current makeup of the board, which also includes the elder Fanning and Konrad Hilbers, who replaced Barry as the company's chief executive last year.

Company officials declined to say whether the company was in talks to be acquired.

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