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Case against Napster backers gets green light

Record labels' suit against Bertelsmann and venture capital group Hummer Winblad closely watched by Silicon Valley.

A federal court has allowed record labels to continue a lawsuit against Bertelsmann and Hummer Winblad Venture Partners, both onetime backers of the defunct Napster file-swapping network.

The two companies are being sued for copyright infringement by UMG Recordings and Capital Records, which allege that the Napster backers had substantive control of the file-swapping network during its peak.

Judge Marilyn Hall Patel ruled Wednesday that the case should proceed, because the record labels have made claims that are sweeping enough to need a full trial to rule on.

"Rather than alleging that (Bertelsmann and Hummer Winblad) merely supplied Napster with necessary funding...the plaintiffs have specifically accused the defendants of assuming control over Napster's operations," Patel wrote.

The ongoing trial, which relates to actions now years past, marks an unusual and potentially precedent-setting attempt to hold financial backers liable in a roundabout sense for the legal transgressions of companies they fund.

The idea had been anathema to Silicon Valley forces, which view venture capital as the seed for many risky ventures.

Most copyright cases deal either with the direct infringers, the person who makes an illegal copy, or "contributory" or "vicarious" infringers--people who encouraged or directed the original copy maker.

In a different setting, Patel herself has dismissed the idea of "tertiary" copyright infringement, meaning assisting those who are helping the copiers. Lawyers for Bertelsmann--which owns BMG Music--and Hummer Winblad have said they fall into this category, one step too far removed from the original illegal copying to be liable under law.

However, UMG and Capitol, along with co-plaintiffs for music publishers, argue that both companies gave so much money to Napster that they assumed control of the company and could have shut down the copyright-infringing service at any time.

Patel declined to rule on whether that was actually a valid argument, but she said it is worth discussing in a full trial. She rejected Bertelsmann and Hummer Winblad's request to dismiss the case.

Damages in the case could amount to tens of millions of dollars, depending on the standard used and the number of individual copyright infringements used as a measure.