Bidding war for Scour heats up

Late Thursday, online music company Liquid Audio said it would enter the auction for Scour's assets, pitting itself against Listen.com and smaller company CenterSpan Communications.

Like those companies, Liquid Audio wants to create a legal music file-swapping service with the permission of the big record labels. Chief technical officer Philip Wiser said his company discussed the prospect with the record and film industry associations--each of which are suing Scour for contributing to copyright infringement--before making the bid.

"Given our history and the fact that we've been the guys with the white hats for so long, they were pleased about the idea of us being the ones to take over the assets," Wiser said.

Liquid Audio, which has long created technology designed for legal digital downloads, isn't the only "white hat" in the ring, however. Listen.com, which provides a directory service for legal MP3s online, has undisclosed investments from each of the big record labels.

The newcomer's bid may have come too late. The court deadline for entering the auction closed Tuesday, with only Listen.com and CenterSpan in the ring. A judge in the U.S. Bankruptcy Court for the Central District of California in Los Angeles, where Scour filed for bankruptcy protection, must approve Liquid Audio's bid.

Wiser said his company was not able to complete its "due diligence" review of Scour's resources before the court-imposed deadline.

Napster in the rough
Scour's assets have the potential to provide solid file-swapping technology--at a bargain price--for any company that wants to create an alternative to the new Bertelsmann-sponsored Napster subscription service.

Scour's Exchange file-swapping program was for a few months one of the Net's most popular services, offering computer users the ability to trade videos and images as well as audio files. It didn't acquire the popularity of Napster but was hard on that company's heels when the legal hammer fell this summer.

Unlike Napster, Scour's management--prompted largely by Hollywood power broker Michael Ovitz, a Scour investor--worked hard from the beginning to stay on the right side of copyright law. They had some of the nation's top copyright attorneys scrutinize the service and make tweaks to the model as they went along.

That wasn't enough to keep a coalition of copyright holders including the major movie studios and record labels from suing the company in July, charging that the Exchange service was contributing to massive copyright infringement as people traded songs and movies without permission.

That lawsuit was the beginning of the end for Scour. Funding dried up, and the company laid off a majority of its staff in September. In mid-October, it filed for bankruptcy protection.

An attorney for Scour's creditors said Thursday that the company says it has about $4 million in outstanding debt, not including any possible judgment resulting from the copyright lawsuit.

Listen.com was the first to emerge as a genuine bidder for the assets, offering $5 million and 527,918 shares of stock for the rights to Scour's technology and engineering team. Liquid Audio did not say how much it intends to bid but says its bid exceeds Listen.com's offer.

"We hope (the judge) stands by her order and doesn't change the rules in the middle of the game," said Sean Garrett, a spokesman for Listen.com.

The court's auction of the assets is scheduled to conclude Dec. 12.