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Summary:

Updated below: If this lawsuit drags on, the drain on Infospace could be lethal, reeling as it is from all kinds of troubles: The publishing…

Updated below: If this lawsuit drags on, the drain on Infospace could be lethal, reeling as it is from all kinds of troubles: The publishing arm of music label EMI has filed a $100 million lawsuit against Infospace, alleging that the company and its subsidiaries Moviso and Premium Wireless Services have been underpaying royalties and selling ringtones for songs to which they hold no licensing rights, reports THR Esq. In a complaint filed Jan. 12 in U.S. District Court in New York, the suit also states that the InfoSpace defendants “have engaged in a deliberate effort to frustrate and obstruct the audit rights held by plaintiffs pursuant to license agreements.”
EMI publishing also says InfoSpace is selling expressly restricted songs, such as John Lennon’s “Imagine,” and selling ringtones in worldwide markets where it has not been granted license. The label requested an audit of InfoSpace’s books but was met with “diversion, obstruction, misdirection and misinformation.”
Updated: Infospace has filed an 8-K on this: “EMI claims in excess of $10 million in damages for the alleged breaches of contract, unspecified compensatory and punitive damages for the alleged fraud, and in excess of $100 million in statutory damages for alleged copyright infringement. The lawsuit is at its initial stages and the Company has just begun its factual investigation. Based on its knowledge to date, the Company believes that EMI

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  1. I was an exec in the Games Group for Infospace for some time, which is entirely different than Moviso or the rest of the company. But my impression was that Infospace was an honest company. I never saw anyone there intentionally deceive anyone. In fact, the management was pretty by-the-book on everything. I have no idea if there's merit to this lawsuit, but if there is, it's probably a result of a mistake or a deficient royalty tracking system.

    That's my best guess.

  2. According to the 8-K filed today by INSP…

    The lawsuit is at its initial stages and the Company has just begun its factual investigation. Based on its knowledge to date, the Company believes that EMI’s claims are without merit and that it has meritorious defenses to them and intends to vigorously defend the suit.

  3. I work directly with ringtones for the mobile division in Los Angeles, and we too are by the book. All of the employees here up hold high work ethics in Licensing, Content, Development, and Management. There is definitely a miscommunication somewhere along the path that can be verified by documentation giving reason to this whole scenario. I have never heard of any inside news indicating that Infospace was doing bad dealings, again, they uphold a very high work ethic here in the mobile office.

    Everything will turn fine, my hope is that Infospace; once all is resolved; doesn't counter sue for slander.

  4. Jerry Mandering Saturday, January 20, 2007

    The ringtone biz has a grey area when it comes to sublicensees. While I believe Infospace is very upfront in their dealings and would never intentionally do anything wrong it is hard for them to control the business practices of everyone they do business with. This goes for any company that has a similar model in regard to sublicensees such as 9Squared and the rest.

    It sounds as if this suit will also say a lot about compulsory licensing depending on the outcome and arguments. I'm sure EMI has taken that into consideration.

  5. And I was wondering what was that Cingular-canceling-ringones-deal business all about :-)

    While I wouldn't have enough info to make a solid guess from which direction exactly the wind blows, I can't get rid of the feeling that these two things are connected. However, knowing that EMI is among the companies happy to sue your kid, grandma and dog for fun and little power, ahem, feeling? :-) I wouldn't be surprised at all to eventually learn that this was a "work" of some of their litigation-hungry lawyers eyeing a promotion regardless of how the actual suit fares. Would bet more on the plain intimidation tactics hoping to ensure that no even slightly independent ringtone source can remain viable – call it the "long term view" of the EMI if you like :-).

    The reason for that line of thinking is that the allegations stated in the the Esq. article look like distinctively "obey us" charges and not charges for some real crime that EMI can actually prove in a reasonably clean way. Would be a bit laughable if it wasn't scary that one company can (or thinks it can) do things like that. Let's see:

    "EMI requested an audit of InfoSpace's books" — did EMI become IRS or something? :-)

    "also alleges that InfoSpace is selling expressly restricted songs" – if they had actual proof someone would already be in jail — happened to your teen nephew on Napster, remember? :-)

    "and selling ringtones in worldwide markets where it has not been granted license" — this is the one that sooo smells like intimidation tactics by and large.

    Now watch the exact words: "restricted songs" (not forbidden) plus "in worldwide markets" plus "downloads through third-party Web sites operated by cell phone carriers". Say you are in Canada, and you happen to be able to download a ringtone from Verizon's site (and you definitely won't unless you paid up front :-). All fine – paid for, delivered etc. Right? But that "song" happens to be "restricted" to say the territory of US — oops :-)

    So a litigation-greedy, ahem , person :-) can say that EMI didn't give the licence for that particular ringtone to be "sold in Canada". Mind you, the purchaser can be a perfectly normal Verizon customer, in good standing, living in L.A. Not saying that that's the exact construction EMI is going to use – just showing how easy it is to make such a construction and how patently misleading it is, and once you know the general trickery idea you can some up with a few dozen variants. To that extent EMI can send someone to say cross a Mexican border, with a pre-paid phone, and purchase a ringtone.

    Might sound like a monstrosity to you, but you need to remind yourself that you are talking about the company that considers it completely legitimate that you can't buy a DVD in New York, take it on a trip to Tokyo and watch it there in a hotel room on a rented player. Might sue you if you do :-) EMI can equally easily declare that one ringtone is "restricted song" to the state of CA, or to people who are not using WiFi at a Starbucks shop (say EMI CEO didn't like his latte :-), or was "denied" stock, or "direct relationship" agreement …). Provides the infinite power of abuse.

    Should EMI ever win something like that, it would at the very least equal a permit to demand detailed tracking of every cell phone and mandatory checks of the location (otherwise very illegal – as in real crime). Plus the unrestricted access to all user databases and purchase histories, and we are talking data mining material easily worth millions just for looking.

  6. Jerry Mandering Saturday, January 20, 2007

    I totally agree ZX. Nice layman explanation as well.

    I think this case will backfire for music publishers across the board. Fortunately, it's things like this that set a precedent which in turn makes commerce easier.

    The US is the laughing stock of the world when it comes to licensing for digital/mobile uses because of companies like EMI Publishing and it's nonsensical rules and restrictions and overall greed. The copyright board is in the process of helping to straighten things out right now in regard to compulsory licensing for ringtones. This case will show that it is on the right track.

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