Lime Wire, Founder Harmed Music Business, Industry Lawyer Says

Lime Wire LLC and founder Mark Gorton should pay the highest range of damages for harming the recording industry by allowing people to download songs for free, a lawyer for the music labels told jurors in a trial.

“The harm that Lime Wire has caused is truly staggering,” Glenn Pomerantz, a lawyer representing 13 labels, told a jury of eight women and one man in federal court in Manhattan yesterday in opening remarks. “Mark Gorton used other people’s property to make money for himself.”

Music labels owned by Warner Music Group Corp. (WMG) and Sony Corp. (6758) are seeking hundreds of millions of dollars from Gorton for copyright infringement. U.S. District Judge Kimba Wood ruled last May that Lime Wire induced the infringement of recordings by allowing its users to download and share thousands of songs on the Internet through its peer-to-peer file-sharing software. The court ordered Lime Wire to shut its music service last year.

Pomerantz told the jury the record industry’s revenue declined 52 percent from 2000, the year Lime Wire was founded, to 2010.

Gorton’s lawyers will try to show that many other factors were responsible for the drop in music industry revenue besides peer-to-peer, or P2P, file-sharing.

“The record companies know and have known that their problems started well before Lime Wire,” Joseph Baio, a lawyer representing Lime Wire and Gorton, said in his opening statement to the jury.’

Past Comments

Baio cited the record companies’ own past comments to show that other factors were more to blame for the decrease in revenue than file-sharing. These included counterfeit and copied CDs, the economic recession, bankruptcies of music wholesalers and retailers, the maturation of the CD market, competition from other forms of entertainment such as video games, and the industry’s own inability to exploit the new technologies.

The record labels haven’t publicly indicated how much they are seeking from Gorton. They will try to get statutory damages under federal copyright law for 9,561 recordings released since 1972. If they ask the jury for maximum statutory damages of $150,000 for each recording, that would result in an award of $1.4 billion. Other damages on pre-1972 recordings will also be sought.

“We will ask you to consider whether Mark Gorton’s state of mind justifies the high end of the range,” Pomerantz said to the jurors.

Baio said the labels deserved far less. Gorton made only about $6 million from the songs the record companies have listed as infringed, the lawyer said.

Fraudulent Transfer

The record companies have also accused Gorton of a fraudulent transfer of assets into family limited partnerships where they would be shielded from liability. Pomerantz told the jurors Gorton made the transfer three days after the U.S. Supreme Court ruled in 2005 that file-sharing service Grokster could be held liable for copyright infringement.

Besides the assets in the limited family partnerships, Gorton has $100 million in IRA accounts, Pomerantz told the jurors.

Gorton’s lawyers have said that his transfer of assets was part of estate planning and that the closing date was set before the Supreme Court’s decision.

Gorton, 44, who has degrees in engineering from Yale University and Stanford University and a business degree from Harvard University, will testify, lawyers said. Present in court yesterday, he declined to comment.

The 13 labels are owned by the world’s four largest recording companies -- Warner Music, Sony Music Entertainment, Vivendi SA (VIV)’s Universal Music Group and Citicorp’s EMI Group.

Zach Horowitz, the president of Universal Music, was called by the record companies as the first witness yesterday. He will continue testifying today.

The case is Arista Records LLC v. Lime Wire LLC, 06-05936, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Don Jeffrey in New York at djeffrey1@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.