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IP INSIDEr
03 2010
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A video-sharing start-up takes on Big Media—and wins one for the little guys.
TIPPING THE SCALES IN THE COPYRIGHT WARS
] By JoE MullIN [
THE NATION’S MAJOR RECORD LABELS HAVE
never been shy about enforcing their
copyrights in court. And over the last
decade, music industry lawsuits targeting individual consumers accused of illegal file-sharing have stirred controversy
and criticism in certain quarters. At the
same time, efforts by these copyright
holders to wring hefty settlements out
of Silicon Valley tech start-ups via litigation—or, in some cases, to snuff them out
altogether—has gotten less attention.
Universal Music Group Inc., for
example, has filed copyright suits
against, and won settlements from
such Internet-based companies as
iMeem, Inc., Multiply, Inc., Grouper Network, Inc. (now Cackle,
Inc.), Bolt, Inc., mp3.com, Inc., and
Myspace Inc. Facing statutory damages
awards of up to $150,000 per infringed
work, virtually all the defendants named
in these suits chose to pay large settlements rather than take their chances in
court. (MySpace reportedly agreed to a
settlement of nearly $100 million to end
a UMG suit in 2007.)
In most instances, the settlement
money came from venture capital
originally meant to build up the businesses. For some companies, the short-lived Bolt.com, for one, settlement was
a financial disaster that helped pave the
way for bankruptcy. Ten years after the
Napster case, it’s hard to think of a suit
JONATHAN T WINGLEY
in which an Internet company beat a
big copyright holder. In fact, most such
companies won’t even fight.
Then there’s Veoh Networks Inc.
Launched in 2004 just three months after
You Tube.com debuted, the San Diego–
based online video company hosts both
user-generated material (like You Tube)
and high-resolution, professionally produced content (think Hulu.com). When
it was sued, without warning, for copyright infringement by UMG in 2007,
Veoh fought back. The result: a slam-dunk ruling in its favor last September
that, if upheld on appeal, could have a
big impact on the way major labels negotiate with emerging media and technology companies.
The basis of UMG’s claim against
Veoh was the same one it’s made against
other tech companies: Veoh was guilty
of wide-scale infringement because it let
users post videos that included unapproved UMG–owned music.
Veoh argued that it was immune
to such a copyright claim because it
fully complied with the Digital Millennium Copyright Act. The company
maintained that it promptly responded
to any DMCA take-down notices it
received from copyright holders, and
terminated the accounts of users who
repeatedly broke copyright rules.
Veoh CEO Dmitry Shapiro says that
even though he believed the company
was on solid legal ground, the suit, combined with the recession, was nearly
fatal. As the case proceeded, Veoh cut its
workforce from more than 100 employees to about two dozen “hard-core”
staffers. Meanwhile, Shapiro says, several companies that had shown interest
in acquiring Veoh backed off.
It wasn’t just the direct cost of litigation that hurt. UMG’s legal tactics
wreaked havoc on Veoh’s day-to-day
operations, Shapiro says: “They came
after us with a ‘shock and awe’ cam-
