In re Napster, Inc. Copyright Litigation

Citations: In re Napster, Inc. Copyright Litigation, 377 F.Supp.2d 796, 77 U.S.P.Q.2d 1833 (BNA) (N.D. Cal. 2005); and In re Napster, Inc. Copyright Litigation, 354 F.Supp.2d 1113 (N.D. Cal. 2005).

Factual Background
In the late 1990s, Napster created a peer-to-peer Internet file-sharing network that allowed users to upload and download music files without permission from record labels, composers, and music publishers. It was estimated that Napster users downloaded 15 billion files between September 2000 and May 2001. During that time Hummer Winblad Venture Partners and Bertelsmann AG made heavy investments in Napster.

Angered by Napster users’ blatant infringement, the record companies brought claims of ontributory and vicarious copyright infringement against Napster. However, shortly after an appellate court ordered an injunction against Napster, the company filed for bankruptcy. As a result, the record companies sued Hummer and Bertelsmann by virtue of their investments in Napster.

Court Proceedings
Hummer and Bertelsmann filed a motion for summary judgment. In addition, Hummer filed a counterclaim alleging that the record companies conspired to exclude Napster and other independent music distributors from the online music distribution market.

Federal District Judge Marilyn Patel granted part of Hummer and Bertelsmann’s motion. She held that Napster did not commit copyright infringement when it created an indexing system because it was not transferred to anyone. Judge Patel explained that the record companies’ claims were doomed because there was no proof of the actual dissemination of the copyrighted works and no proof of an offer to distribute the works. The infringing works never resided on Napster’s system.

However, Judge Patel denied Hummer’s motion for summary judgment regarding the record companies’ claims for secondary copyright infringement as a result of the uploading and downloading of music files via the Napster network. Thus, Hummer and Bertelsmann must go to trial on these claims.

In response to Hummer and Bertelsmann’s counterclaims, the record companies filed a motion to dismiss. Judge Patel held that the counterclaims could go to trial because as a heavy investor in Napster, Hummer had antitrust standing. Judge Patel explained that a unity of ownership existed between Hummer and Napster such that any injury to Napster was an injury to Hummer.