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. identicon
    Nobody, 6 Feb 2009 @ 8:29am

    Re: think about this for a minute...

    The problem here is that investors won't know that a company is not (or no longer) squeeky clean until it is too late.

    If I invest in a company that is doing the right thing now, is it fair to come after me a couple years down the road when the company decides do start some shady practices and gets caught?

    What about if the company has done nothing different, but the laws change to make what they are doing wrong?

    And where do you draw the line? Only other companies/firms that invested? Individuals that invested directly? How about the stock market and people who buy into funds that include the company as part of a portfolio?

    What about someone that had invested in the company, but sold there stocks last month, before the news hit this month that the company was doing wrong? Now, what about if the wrong doing started before, during, or after the individual bought or sold their stocks?

    If the idea that investors can be sued for a company's misdeeds is upheld, then say goodbye to investors everywhere, and most likely to many companies as well.

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