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Financiers agree to settle Napster suit

Venture firm strikes a deal with Universal and EMI in a test of liability on copyright issues.

December 13, 2006|Joseph Menn | Times Staff Writer

The San Francisco investment firm behind the first widely used file-swapping service has agreed to settle a multibillion-dollar copyright lawsuit filed by two record labels.

Hummer Winblad Venture Partners, which put $13 million into Napster Inc. in 2000, has been defending its role in the suit by Universal Music Group and EMI Group. The labels accuse Hummer Winblad of helping Napster's tens of millions of users steal an unprecedented volume of music through their linked computers.

The two sides reached the tentative deal, which requires court approval, ahead of a summary judgment hearing that had been scheduled for today.

The case had loomed as a test of whether financial backers could be punished for rampant Internet piracy. But the settlement's financial terms weren't disclosed, so the question might remain murky, at least until a related case is resolved.

It's unclear what broke the logjam in negotiations. But Hummer Winblad was helped by an aggressive defense against the record companies.

The venture firm argued that it shouldn't be held liable for violating copyright laws when the labels themselves broke antitrust law by conspiring to heavily restrict the consumption of digital music.

U.S. District Judge Marilyn Hall Patel found enough evidence supporting the antitrust argument that in April she ordered the labels to disclose internal legal documents that would ordinarily have been protected by attorney-client privilege.

Patel ruled that the companies had misled the Justice Department about how they set the rules and prices governing the use of digital music by two industry-sponsored ventures, MusicNet and Pressplay.

Record industry sources said Universal and EMI were worried about Patel's findings and that any new documents they turned over could be used against them in other suits and government proceedings.

The settlement with Hummer Winblad is contingent on Patel vacating her April ruling, according to a filing by the three parties last week. Hummer Winblad's attorney declined to comment on the deal. Defendants John Hummer and Hank Barry, who are partners in the firm and served as Napster directors, didn't return phone messages.

In a related fight before Patel, EMI and other music publishers are continuing to sue Bertelsmann, the German media company that invested in Napster later in 2000. In September, Bertelsmann agreed to pay Universal $60 million to settle that company's claims against it.

The labels initially sued Napster itself, forcing its 2001 shutdown, but the company was liquidated in bankruptcy court. The Napster name was bought by a software company that now uses the brand for an authorized music distribution service.

"We're happy that we've settled conditionally," said EMI spokeswoman Jeanne Meyer. "We remain confident that we have a strong case against Bertelsmann."

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joseph.menn@latimes.com

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