Grooveshark is an acquisition target

Avi Faliks, an executive with investment firm Spring Mountain Capital, has approached the often-sued music service Grooveshark about an acquisition, numerous sources familiar with the discussions told CNET.

Faliks spoke with leaders from Grooveshark and parent company Escape Media about a plan to take the service more mainstream -- that is, make it less of a magnet for copyright lawsuits. Grooveshark, which enables users to share music with one another, has at one time or another been sued for copyright infringement by multiple music publishers as well as three of the four major record companies.

According to sources, Faliks planned to hire Gary Stiffelman, the influential entertainment attorney who has represented Lady Gaga, Trent Reznor, and Justin Timberlake, to act as a go-between with the labels. The idea was to learn whether execs from the record companies would accept his plan for a revamped Grooveshark, one that wouldn't enable people to share unlicensed songs. If the labels signed off, Faliks would try to get them to drop their lawsuits.

He doesn't appear to have gotten very far, however. Grooveshark and Escape Media haven't shown much interest to this point, the sources said. According to one source, Grooveshark is waiting to hear from another unnamed suitor. Stiffelman and Faliks never responded to an interview request. A representative from Grooveshark declined to comment.

Believe it or not, the circling of Grooveshark may mean that interest in Web music services is heating up, though it's hard to understand why. Earlier this month, Beats Electronics acquired MOG, an also-ran player among subscription music services for a paltry $14 million. Spotify, one of the leaders in subscription music, is reportedly trying to raise $220 million investment on a jaw-dropping $4 billion valuation.

But here's the rub: few, if any, of these services are believed to be profitable.

Meanwhile, Grooveshark is taking steps to dispose of some of the litigation hanging over its head. The music service has recently paid at least some of the money it owed the recorded-music division of EMI, home to such acts as the Beatles and Coldplay, and the one major label that had licensed music to Grooveshark.

In April, EMI sued Grooveshark claiming that the music service failed to pay down the $450,000 it agreed to pay as part of its licensing agreement with the label. That action has now been settled. A representative from EMI Music declined to comment.

Grooveshark also settled a copyright complaint filed in January by music publisher Yesh Music, records show.

Based in Gainesville, Fla., Grooveshark enables users to upload songs to the site for others to stream. Executives say they remove pirated songs as soon as they're notified by copyright owners. The company said because it is an Internet service provider, the Digital Millennium Copyright Act's safe harbor provision protects it from liability for copyright violations committed by users.

The company won an important court decision in one of two copyright cases filed against it by Universal Music Group, the largest of the top record companies. UMG sued Grooveshark in New York state court and argued that songs recorded before 1972 were not protected by federal copyright law, which might have meant no DMCA protection for Grooveshark for those songs.

But the judge said there was nothing to indicate that Congress meant to strip pre-1972 recordings from federal protection.

These are interesting turns of event for the company because the word about Grooveshark in recent months is that it was running short of cash. Grooveshark is juggling at least three different court cases and litigation of this kind is expensive. Earlier this year, we saw MP3tunes.com collapse under the weight of its legal costs. The cloud music service fought a long-running copyright battle with EMI before filing for bankruptcy protection in May.