EMI Music and the Universal Music Group announced yesterday that they have reached a conditional settlement with investment firm Hummer Winblad over its investment in the late nineties in the original Napster.
As previously reported, the finance firm invested over $13 million in the then P2P company ahead of its ultimate bankruptcy. The major labels claimed that the investment enabled the P2P network to stay alive longer, and therefore enabled an extra period of copyright infringement which the financiers should be liable for. Hummer Winblad disputed that they had any liability for the copyright infringement, pointing out they were funding work by Napster to develop a legitimate digital music business model, and countersued, claiming that the majors at the time acted anti-competitively to stop such a model being established because in the late nineties they had stakes in rival digital music companies MusicNet and Pressplay.
The latter allegations aren't new, and were investigated by the US Department Of Justice several years ago - an investigation which cleared the record companies of any wrongdoing. However, Hummer Winblad alleged certain documents covered by the client attorney privilege in that investigation, and therefore not shared with investigators, backed their allegations. As part of the litigation between the majors and the finance firm, US Judge Marilyn Patel ordered those documents be handed over, using a 'crime-fraud exception' rule to sidestep client attorney confidentiality. The majors are still in the process of appealing that ruling, so no documents have as yet changed hands.
The new settlement between the majors and Hummer Winblad, the financial details of which are undisclosed, are conditional on Judge Patel withdrawing that order, and a filing by both parties this week says that EMI and Universal have asked the Appeal Court, currently considering their appeal of the ruling, to send the issue back to Patel and request she 'vacate' the ruling herself now that the legal dispute has been resolved.
It has to be said, I don't think you have to be too cynical to wonder why exactly the majors are so keen to keep the previously confidential documents confidential - such secrecy doesn't mean they are guilty of anything of course, but it does mean they have something to hide. That said, it can't be assumed that this week's agreement means the majors have gone as far as to just drop their action against Hummer Winblad in order to maintain the secret. You might have thought that, given the majors' obvious unease about what is contained in these secret documents, the finance firm would have had a very strong hand at the negotiating table. But they too were probably keen to stop the case going to court after another judge ruled in May that the dispute could be viewed in light of the Supreme Court ruling in the much reported MGM v Grokster case, even though Hummer Winblad's investment came some time before it. That ruling expanded the liability of third parties in online copyright infringement, and would have damaged the investment company's defence somewhat.
Anyway, this isn't necessarily the end of all this. Judge Patel is not obligated to revoke the order, so the deal between the parties will remain conditional until she makes a decision, which isn't expected until early next year.