Napster Investors Sued By Record Labels

by Glen Shapiro, LawAndTax-News.com, New York

25 April 2003

Leading record labels, Universal Music and EMI on Monday filed a suit against Hummer Winblad Venture Partners over the firm's $13 million investment in the now bankrupt file-sharing service, Napster.

Although Napster was phenomenally popular at its peak, legal pressure from the recording industry over the issue of copyright infringement forced the service to file for bankruptcy protection last summer.

The case, which was brought against Hummer partners, Hank Barry and John Hummer in federal court in Los Angeles earlier this week, is thought by many to represent a warning to other venture capitalists interested in investing in the other file-swapping services which have risen from Napster's ashes.

According to reports, the two recording labels are seeking $150,000 per copyright violation, as well as significant punitive damages.

'Businesses, as well as those individuals or entities who control them, premised on massive copyright infringement of works created by artists should face the legal consequences of their actions,' Universal and EMI announced in a joint statement.

However, the US National Venture Capital Association has warned about the potential effect of the lawsuit on innovation and investment in untested technology and services:

'The concern is that investors would be cautioned about investing in innovative technologies, which is very important for economic growth,' Jeanne Metzger, vice president of the NVCA explained to Reuters, adding that: 'The concern is that investors are being sued for investing in high-risk companies.'

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