Universal Music Group Slapped Down (Again) In Case Against Veoh

from the can't-sue-the-investors dept

Fri, Feb 6th 2009 5:01am — Mike Masnick

The ongoing lawsuit between Universal Music Group and online video site Veoh is seen by many as a precursor to the various lawsuits against YouTube (or, more specifically, the "big" lawsuit from Viacom). So far, it's not going well for the content companies. In another lawsuit, filed by an adult video company, Veoh won easily. In the UMG case, the judge has already shot down Universal Music's arguments for why Veoh shouldn't get DMCA safe harbor protection.

The latest news is that the judge has also dismissed Universal Music's attempt to include Veoh's investors as a part of the lawsuit. Universal's attempt to do this matched Universal's decision to sue Bertelsmann, a competitor who was also an investor in Napster. This made little sense to us at the time. Making an investor liable for actions of a company they invest in seems to open up a pandora's box of problems. Think of all the "shareholder lawsuits" you now see against management for corporate misdeeds... and turn that around, whereby anyone hurt by a company's actions could sue all of the investors. If investors are liable for a company's misdeeds, then suddenly it becomes a huge liability to invest in anything.

Eventually, Universal Music bought Bertelsmann... and rather than continue suing itself, Bertelsmann "settled." Bertelsmann (now UMG) later settled similar lawsuits brought by other labels, so the full issue of investor liability wasn't really addressed. In this case, the judge found that the only way Universal could make a credible claim that the investors were also liable was to show that they were actively encouraging increased copyright infringement after it was established that Veoh was infringing. That hasn't been established yet, at all, and it appears that the investors were actively pushing Veoh to block infringing content. So, Universal's claim against the investors has absolutely no merit whatsoever.

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Filed Under: investors, liability, venture capital
Companies: universal music, veoh

11 Comments

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Anonymous Coward, 6 Feb 2009 @ 6:03am

fuck Universal Music Group , Let them die in a fire of their own BS.

Not 1 cent!
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Mark Rosedale (profile), 6 Feb 2009 @ 7:40am

Go after the investors to put pressure on the company
It is likely Universal is just trying to put pressure on the investors to make the company crack and give in. Also if they sue the investors (even though it didn't go through) it has a ripple effect discouraging any other investors. So as absurd as it is my guess is Universal knows that it is absurd, but is just trying to send a message. Not that any of this isn't obvious, I just felt the need to state.
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mike42 (profile), 6 Feb 2009 @ 7:45am

think about this for a minute...
What else is in that Pandora's box? 'Cause if you think about it, in today's total accountability vacuum, the fear of being sued for a companies misdeeds may be just what the doctor ordered. If you make peanut butter, and you willfully ignore positive tests for salmonella, your company AND your investors can be sued. So, no one is going to willfully invest in a company that is anything but squeeky clean. Those who choose to dabble in questionable practices will quickly loose their investors. Bonds and savings accounts suddenly become more attractive, and Corporations would lose their bottomless pockets and actually have to pay attention to their spending. No more immortal political entities who can lobby for whatever best suits their conceptual business model. Smaller government? I think it goes along with smaller business.

This is all just an initial thought, I haven't really considered any additional upsides or downsides. Comments please.
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Chronno S. Trigger, 6 Feb 2009 @ 8:06am

Re: think about this for a minute...
"So, no one is going to willfully invest in a company that is anything but squeeky clean"

I'd agree with that, but what qualifies as squeaky clean? Between companies that sue for every possible reason (and a few not so possible) and the complete lack of personal responsibility in far too many individuals, "squeaky clean" is a relative term. There is a good chance that people will see that and just not invest at all.

I wouldn't want to pay the legal fees to go threw a lawsuit just because the RIAA is suing Google (and, hypothetically, investors) over a song playing in the background of a home video not even posted by Google of a two year old dancing.
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jqdoe, 6 Feb 2009 @ 8:16am

LLC
The whole point of a limited liability corporation is that the shareholders themselves are not liable for any misdeeds, just the company its self. Without this sort of protection, who would ever take any risk at all? Why bother making a product if a one-off issue causes harm and the CEO and every employee gets bankrupted?

These protections are in-place for a reason.
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Nobody, 6 Feb 2009 @ 8:29am

Re: think about this for a minute...
The problem here is that investors won't know that a company is not (or no longer) squeeky clean until it is too late.

If I invest in a company that is doing the right thing now, is it fair to come after me a couple years down the road when the company decides do start some shady practices and gets caught?

What about if the company has done nothing different, but the laws change to make what they are doing wrong?

And where do you draw the line? Only other companies/firms that invested? Individuals that invested directly? How about the stock market and people who buy into funds that include the company as part of a portfolio?

What about someone that had invested in the company, but sold there stocks last month, before the news hit this month that the company was doing wrong? Now, what about if the wrong doing started before, during, or after the individual bought or sold their stocks?

If the idea that investors can be sued for a company's misdeeds is upheld, then say goodbye to investors everywhere, and most likely to many companies as well.
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Anonymous Coward, 6 Feb 2009 @ 9:08am

yeah, LLC can be crappy and evil people do hide behind it. It could definitely use some tweaking.

Corporations have all the rights as a person does, they should be treated the exact same way. Right now it's like the corporation is Voltron and it can simply escape all harm by separating back into the Lions.

Things need to change. People and companies need to be held accountable for what they do and what they invest in. For instance, if you invest in Walmart then YOU support child/slave labor. Plain and simple.
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Jesse, 6 Feb 2009 @ 9:16am

"If investors are liable for a company's misdeeds, then suddenly it becomes a huge liability to invest in anything."

On the other hand, it might also give investors the incentive to consider something other than just the bottom line.
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Mike (profile), 6 Feb 2009 @ 11:37am

Re:

Things need to change. People and companies need to be held accountable for what they do and what they invest in. For instance, if you invest in Walmart then YOU support child/slave labor. Plain and simple.

Do you realize how ridiculous that sounds? Do you realize how that would effectively kill off pretty much all investment?
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Kevin, 8 Feb 2009 @ 8:46am

Universal Music Group did not buy Bertelsmann. Universal bought BMG Music Publishing, which was a subsidiary of Bertelsmann.
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Anonymous Coward, 28 Feb 2010 @ 12:18pm

Enzyte So, Universal's claim against the investors has absolutely no merit whatsoever.
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