Bertlesmann's Napster Settlement Could Make Things Difficult For Investors

from the bye-bye-precedent dept

Thu, Sep 7th 2006 9:03pm — Mike Masnick

Back in 2003, we were surprised to see Universal Music decide to sue rival Bertelsmann over its investment in Napster. Bertelsmann had been the only major label to buck the RIAA-backed trend of declaring the original Napster as evil, and had actually invested in the company, hoping to make it a platform for legitimate music distribution. While the RIAA took down Napster itself, the lawsuit against Bertelsmann should have made many venture capitalists and other investors pay attention. Essentially, Universal was trying to put liability for what a company did on the shoulders of the investors in that company. If that kind of precedent was set, it would add so much liability to an investment that it would slow down the flow of capital. A year and a half ago, the two companies settled part of the lawsuit, but part of it remained. Yesterday, Universal announced that it was likely buying Bertelsmann's BMG music division -- and, apparently recognizing how awkward it would be to have a lawsuit going on against itself, settled the remaining portion of the lawsuit. Bertelsmann isn't admitting any liability, but is paying Universal $60 million to end the lawsuit. While it doesn't set any kind of legal precedent, it could get more people thinking about targeting lawsuits at investors in a company that has legal issues, using the same argument that it was the investors money that "enabled" the wrongdoing. While it's no surprise that Bertelsmann settled the suit (the executives who made the Napster deal are now long gone), it's worrisome in what such a settlement represents, and how it may encourage other, similar suits.

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8 Comments

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GnomeLAN, 7 Sep 2006 @ 11:03pm

This is just a ploy to reduce the overall cost of the buy-out. It's like when k-mart bought ames. K-mart sold ames like 50 buildings for some ridiculous cost and reduced the overall cost of kmart buying ames. IT's just a corporate scam.
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Congrats!, 7 Sep 2006 @ 11:22pm

Firstly, I'd like to say Congrats to TD for not having some moron say "first" in the first post! Thank you for some moderation! (or is the moron just sleeping?).

To the point,
I think that this is a horrible precedent and if "noticed" by the investment community will have a terrible effect on the $$ available to most startups regardless of their "risk profile".

(These ARE pretty much the same guys that drive up the price of oil every time there is ANY news from the middle east, good OR bad.)
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Anonymous Coward, 8 Sep 2006 @ 3:14am

Er.....
Its a good thing for investors to become liable for the actions of the entities they invest in. Assume this isn't the highly contentious area of MP3s that is old news, but instead some company polluting like crazy - shouldn't there be accountability beyond the nominal ceo stooge?

Legal risks are already factoring into costs, so i don't get why it would reduce the pool of investment available to new enterprise. Also the link to crude oil futures seems dubious.

Agree on the whole lack of first post thing tho.
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- Rabid Wolverine, 8 Sep 2006 @ 4:31am
  
  Re: Er.....
  Hey, maybee you should be accountable for some drunk driving the same brand SUV (and I'm sure you drive one...) into a bunch of kids at a bus stop.
  
  Hey, you are an investor in the company that makes the SUV, you did buy one from them did'nt you?
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Sean, 8 Sep 2006 @ 6:01am

"Hey, you are an investor in the company that makes the SUV, you did buy one from them did'nt you?"

No you would be a customer. An investor would be some one who owns part of the company through investments into the company via being a stockholder or stakeholder.
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- ebrke, 8 Sep 2006 @ 7:47am
  
  Re:
  I think this could make investing very difficult for the average individual, someone investing in mutual funds for instance. And unless every single business decision a corporation made was voted on by every shareholder, how could you hold the shareholders liable?
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Anonymous Coward, 8 Sep 2006 @ 8:53am

Post
First!
Sorry, I fell asleep.
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Lay Person, 8 Sep 2006 @ 9:39am

Damn it!
Damn it all!

That's it people...this country is going to hell in a handbasket and yes we are the ones making the sandwiches!
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