Universal Music Group Slapped Down (Again) In Case Against Veoh

from the can't-sue-the-investors dept

The ongoing lawsuit between Universal Music Group and online video site Veoh is seen by many as a precursor to the various lawsuits against YouTube (or, more specifically, the "big" lawsuit from Viacom). So far, it's not going well for the content companies. In another lawsuit, filed by an adult video company, Veoh won easily. In the UMG case, the judge has already shot down Universal Music's arguments for why Veoh shouldn't get DMCA safe harbor protection.

The latest news is that the judge has also dismissed Universal Music's attempt to include Veoh's investors as a part of the lawsuit. Universal's attempt to do this matched Universal's decision to sue Bertelsmann, a competitor who was also an investor in Napster. This made little sense to us at the time. Making an investor liable for actions of a company they invest in seems to open up a pandora's box of problems. Think of all the "shareholder lawsuits" you now see against management for corporate misdeeds... and turn that around, whereby anyone hurt by a company's actions could sue all of the investors. If investors are liable for a company's misdeeds, then suddenly it becomes a huge liability to invest in anything.

Eventually, Universal Music bought Bertelsmann... and rather than continue suing itself, Bertelsmann "settled." Bertelsmann (now UMG) later settled similar lawsuits brought by other labels, so the full issue of investor liability wasn't really addressed. In this case, the judge found that the only way Universal could make a credible claim that the investors were also liable was to show that they were actively encouraging increased copyright infringement after it was established that Veoh was infringing. That hasn't been established yet, at all, and it appears that the investors were actively pushing Veoh to block infringing content. So, Universal's claim against the investors has absolutely no merit whatsoever.
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Filed Under: investors, liability, venture capital
Companies: universal music, veoh

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  1. icon
    mike42 (profile), 6 Feb 2009 @ 7:45am

    think about this for a minute...

    What else is in that Pandora's box? 'Cause if you think about it, in today's total accountability vacuum, the fear of being sued for a companies misdeeds may be just what the doctor ordered. If you make peanut butter, and you willfully ignore positive tests for salmonella, your company AND your investors can be sued. So, no one is going to willfully invest in a company that is anything but squeeky clean. Those who choose to dabble in questionable practices will quickly loose their investors. Bonds and savings accounts suddenly become more attractive, and Corporations would lose their bottomless pockets and actually have to pay attention to their spending. No more immortal political entities who can lobby for whatever best suits their conceptual business model. Smaller government? I think it goes along with smaller business.

    This is all just an initial thought, I haven't really considered any additional upsides or downsides. Comments please.

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