EMI, Bertelsmann settle Napster suit

EMI on Monday agreed to settle a lawsuit against Bertelsmann related to the German media group’s support for Napster, the online file-sharing service that spurred a piracy epidemic that is still straining the music industry.

Eric Nicoli, EMI’s chief executive, said he was “pleased” by the settlement but declined to disclose its terms. Bertelsmann did not admit liability, and declined to comment further.

The agreement follows a settlement that Universal Music, the largest record company, struck with Bertelsmann for $60m in September. That settlement coincided with Universal’s acquisition of Bertelsmann’s music publishing arm for $2.1bn.

In December, Universal and EMI reached a tentative settlement with Hummer Winblad, a San Francisco venture capital firm that invested $13m in Napster in 2000.

Beterlsmann is still facing possible litigation from Warner Music, which has reserved the right to sue, as well as a group of music publishers.

The legal fight centered on two loans – for $50m and $10m – that Bertelsmann extended to Napster. Universal, EMI and others contended that the loans were an investment in a company whose business was built on the wholesale violation of their copyrighted material.

However, Bertelsmann argued that the loans were part of an effort to help Napster become legitimate, and that they would only convert to equity if the company managed to switch to a paid subscriber model and also won the support of the majority of the industry.

Napster subsequently went out of business in 2001, and Bertelsmann claims to have lost those loans, as well as $25m in additional financing it extended to the company.

Nonetheless, the suit has taken on a new resonance as record companies confront a new generation of internet sites, such as YouTube and MySpace, that have drawn big audiences of young fans but also routinely feature copyrighted material that has been posted without permission.

Last year, Universal sued MySpace, which is owned by News Corp, for copyright infringement. However, Universal and Warner both agreed to licencing deals with YouTube. As part of those agreements, they received equity stakes in the company just before it was acquired by Google for $1.65bn.