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Roxio Completes Purchase of Napster System

The $5-million sale is approved after judge dismissed last-minute objections.

November 28, 2002|Joseph Menn | Times Staff Writer

The brand name, Web site and technology of pioneering file-swapping service Napster Inc. were sold to Silicon Valley software firm Roxio Inc. on Wednesday after a bankruptcy judge dismissed an unorthodox last-minute objection by Napster's first boss.

Record labels and other creditors will no doubt fight over the sale proceeds and may pursue legal means to collect more money, but the sale essentially ends the brief, dramatic life of Napster Inc.

Napster's system, the first to popularize technology known as peer-to-peer, connected tens of millions of computer users who swapped digital song files for free.

Roxio made minor changes to the purchase arrangement to overcome objections by Napster creditors during a daylong hearing and then closed the sale for $5 million in cash and warrants to buy 100,000 Roxio shares. It will put something on the site soon, with details about its plans due in the next few months.

"We're very, very happy about this," said Roxio General Counsel Bill Growney.

Shares in Roxio, which makes software for recording compact discs from music stored on computers, rose 9 cents to $5.37 on Nasdaq before the ruling, which came after the close of regular trading.

The record labels won a series of court rulings against Napster, and the company wasn't able to release a system that allowed for payments to copyright holders before it filed for bankruptcy in June. Successor networks are less centralized and have been difficult to attack legally, spawning a raft of proposed federal legislation and new digital rights technology.

Napster's sudden and controversial rise made the software's principal author, Shawn Fanning, now 22, a household name. But it was his uncle John Fanning who had registered the, and domain names, incorporated Napster Inc., and kept majority control in its first months.

Fanning tried to block the sale to Roxio this week by saying he still owned some of Napster's assets.

In a Wilmington, Del., Bankruptcy Court filing Monday, Fanning argued that he had never executed an agreement transferring the rights to Napster's Internet addresses when he formed the company in May 1999. And he said that even if he had, it was a temporary license that should have expired when Napster filed for bankruptcy.

Finally, Fanning said he never signed an asset-transfer agreement drafted around the time of Napster's main venture financing round in May 2000. He said that a signature page of another document from months earlier had been improperly substituted.

"Mr. Fanning never entered into any valid and binding agreement with Napster or any other debtors to assign to sell the intellectual property sought," Fanning wrote. "Mr. Fanning remains the rightful owner of the domain names."

In contrast to Fanning's previous filing in the bankruptcy case, which described him as the "reputed owner" of the domain name and the Napster logo, no lawyer submitted Monday's document on Fanning's behalf. Fanning signed the six-page document himself.

But Fanning did not appear in court Wednesday, leaving his lawyer, Robert Wilcox, with no witnesses to back up the claims.

"The judge was not very happy about his attorney showing up without a witness," said Rick Chance, an investment banker who testified Wednesday on his efforts to sell Napster's assets.

Judge Peter Walsh also asked why Fanning hadn't objected earlier, when Napster's assets were nearly sold to German media firm Bertelsmann. Noting that there was substantial evidence that Fanning had signed the documents in question, Walsh ultimately ruled that the sale to Roxio could proceed.

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