Napster signs deal with BMG’s parent

SV News Service
Silicon Valley

With its future still in legal doubt, Napster continues to act more like a real company, making business deals. This week, Napster said it had reached an agreement with Bertelsmann whose BMG entertainment unit, is the world’s third largest music company.

The two companies have agreed to form a music-sharing service that charges fees and pays royalty to the artists, whose work will be transferred from one computer user to another by way of Napster. The Bertelsmann deal could pave the way for widespread legal distribution of music over the Internet. In return for a stake in the subscription music-sharing service, Bertelsmann agreed to drop a lawsuit against Napster. Analysts think that other record labels may follow suit.

Silicon Valley-based Napster is used by ten million people to share music they’ve stored on their computers. The recording industry has sued Napster, claiming that the company’s service amounts to copyright infringement. A federal Judge had ordered Napster to shut its website down earlier this summer. An Appeals Court, however, set the verdict aside in order to review whether Napster has a legal right to engage in the type of service it offers.

David Boies, the lawyer who defeated Microsoft in the government’s antitrust lawsuit, is heading Napster’s defense as well. “What Napster has said for a long time is, that it wants to be able to do a deal to enter into an arrangement that is supported by the industry. Today’s announcement of the Bertelsmann alliance is consistent with that goal.” He continued that the company’s legal position is stronger than how many choose to see it. “Our position from the beginning is that there is no infringement. Nevertheless, the company has said that it wants to form these alliances. There are many reasons, from a business standpoint, why Napster would want these alliances.” 

But if the company loses? “If the site is forced to shut down, we would obey the court order. Hopefully, it might be possible to come up with something under the alliance that could satisfy the court.”

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