I though we wre trying to FOSTER tech investment:
- Venture capitalists didn’t need another reason to avoid high-tech investments – but two major record labels have given them one anyway.
Still seeking retribution for Napster’s online file-swapping system, industry giants Universal Music and EMI are trying to break new legal ground by suing the venture capital firm that helped finance the revolutionary Internet service.
Napster failed last year, but the discord about the service and the free music that it distributed is far from over.
The music industry’s latest legal assault would push the boundaries of blame by holding investors liable for the actions of a company and its management.
It’s a showdown venture capitalists have long dreaded.
If the music labels prevail, “it could destroy the whole venture capital industry,” said J. William Gurley, a general partner at Benchmark Capital in Menlo Park.
The music labels say they are just looking for justice.
“Businesses, as well as those individuals or entities who control them, premised on massive copyright infringement … should face the legal consequences,” the record companies said in a statement.
The record labels’ suit, filed in Los Angeles last week, alleges Hummer Winblad Venture Partners’ $13 million investment in Napster enabled tens of millions of Napster users to infringe on music copyrights. San Francisco-based Hummer Winblad made the investment in April 2000 – long before federal courts declared Napster illegal.
If venture capitalists can be held responsible for the actions of the companies in their investment portfolios, Gurley wonders if the same principle could be applied to individual investors who own stock in companies with legal headaches.
“Should someone be able to come after you because you invested in Philip Morris when you should have known that cigarettes are bad for people?” asked Gurley, a former Hummer Winblad partner who left the firm before its Napster investment.
The National Venture Capital Association has even broader concerns.
Mark Heeson, the trade group’s president, was so concerned about the entertainment industry’s aggressive litigation that he sent a letter to Sen. John Kerry, D-Mass., last year.
“The ability of entrenched industries to deter investment in next-generation technologies has profoundly anticompetitive and anti-innovative implications throughout American industry,” Heeson wrote.
….Still, there’s little doubt that the latest Napster suit is designed to scare venture capitalists, according to several attorneys who specialize in investment law.
“It’s pure thuggery,” said Philadelphia lawyer Howard Scher.
The suit against Hummer Winblad and two of its partners, Hank Barry and John Hummer, seeks $150,000 per copyright violation, plus punitive damages. It’s the kind of money that the labels couldn’t get out of Napster after the company went bankrupt last summer.
“This suit is all about finding a deep pocket,” said Houston securities lawyer Joe Cohen. [AP]