Bertelsmann AG and Universal Music Group have settled litigation over the German media company's $85 million investment in the original peer-to-peer service Napster. Bertelsmann will pay UMG $60 milli

Bertelsmann AG and Universal Music Group have settled litigation over the German media company's $85 million investment in the original peer-to-peer service Napster. Bertelsmann will pay UMG $60 million to resolve claims by UMG's recorded music and music publishing divisions.

The settlement, announced today (Sept. 6), was reached as Vivendi's UMG became the successful bidder for Bertelsmann's BMG Music Publishing. The settlement also covers any potential claims against Bertelsmann, which did not admit any liability, by BMG Music Publishing.

EMI is now the sole record label spearheading the six-year lawsuit, initially filed by a class of about 27,000 music publishers and songwriters, against Napster investors Bertelsmann and private equity partnership Hummer Winblad.

In May, federal District Court judge Marilyn Patel in San Francisco held that the activities of Bertelsmann and Hummer Winblad with Napster, which filed bankruptcy in 2001 and sold its name, would be scrutinized under the U.S. Supreme Court's inducement theory carved out of the Grokster case last year.

This type of secondary liability for copyright infringement has a broader net, which may capture more parties connected to unauthorized P2P music trading.
During a press conference today in Germany, Bertelsmann's CFO Thomas Rabe said the settlement was a fraction of the claims and reimburses UMG for its legal fees. It demonstrates that the claims of the plaintiffs are "hugely exaggerated," he said.

While the case by publishers, songwriters and EMI against Bertelsmann is still proceeding -- as well as cross-claims by Hummer Winblad -- Rabe said he expects the UMG deal to be a benchmark for settlement discussions between Bertelsmann and other parties.

The settlement also comes one week before arguments were scheduled to be made before the Ninth Circuit Court of Appeal over an earlier decision by Patel in the case. In April, Patel granted a motion by Napster investor Hummer Winblad. The judge ordered UMG and EMI to turn over documents -- which they claim are privileged -- that may have misled the Department of Justice in a two-year antitrust probe over their online music services. The investigation was dropped in 2003. The UMG-Bertelsmann settlement is not expected to affect this order.

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