Lime Wire’s Gorton Tells Jury He Hadn’t ‘Fully Appreciated’ Lawsuit Risk

Lime Wire LLC founder Mark Gorton told a jury he hadn’t “fully appreciated” the damages he might have to pay for copyright infringement in case of litigation over the free downloading of songs through the company’s website.

Gorton testified today in a trial in U.S. District Court in New York on the amount of money he will be assessed because of a ruling that Lime Wire induced the infringement of thousands of songs through its peer-to-peer file-sharing software on the Internet.

“You went into Lime Wire with your eyes wide open about the risks,” Glenn Pomerantz, a lawyer for music companies such as Warner Music Group Corp. (WMG), told Gorton. He cited a memo to potential Lime Wire investors in 2001 raising the possibility of “substantial” damages from copyright litigation.

“I don’t believe I fully appreciated them,” Gorton replied.

Warner’s chief executive officer, Edgar Bronfman, is to testify May 11.

Music labels owned by Warner, Sony Corp. (6758), Vivendi SA (VIV) and Citigroup Inc. (C) are seeking hundreds of millions of dollars from Gorton. The trial judge, U.S. District Judge Kimba Wood, also ordered Lime Wire to shut down its music service last year.

Pomerantz told the jury of eight women and one man in opening statements May 3 that the record industry’s revenue fell 52 percent from 2000, the year Lime Wire was founded, to 2010.

Testimony to Continue

Gorton, 44, was called by the record labels. His testimony will resume tomorrow.

In 2005, the Recording Industry Association of America, the labels’ trade group, sent Gorton a letter demanding that he shut down his site.

“At the time I didn’t think we were intentionally inducing copyright infringement, but I understand the court has found otherwise,” Gorton said.

He testified that if he had shut down Lime Wire when the music companies wanted him to, its users “would have just gone to another file-sharing program.”

Pomerantz told Wood with the jury out of the room that the defense shouldn’t be allowed to argue that other file-sharing services would have replaced Lime Wire because that was inconsistent with her ruling last year.

Wood agreed and told the panel when it returned that Gorton’s testimony on that point will be stricken from the record.

Revenue Drop’s Causes

Gorton’s lawyers are trying to convince the jurors that events unrelated to file sharing caused the drop in music industry revenue.

Counterfeiting and copying of CDs, the recession, bankruptcies of music wholesalers and retailers, the maturing of the CD market, competition from other forms of entertainment and the industry’s inability to exploit the new technologies all played a part, Joseph Baio, a lawyer representing Lime Wire and Gorton, told jurors May 3.

“The record companies know and have known that their problems started well before Lime Wire,” Baio said.

The record labels are seeking statutory damages under federal copyright law for 9,561 recordings released since 1972, according to court papers. The maximum of $150,000 for each recording would total $1.4 billion. Other damages on pre-1972 recordings will also be sought, the companies said in court filings.

Lime Wire Income

Baio said Gorton made only about $6 million from the songs the record companies have listed as taken unlawfully. Lime Wire, which provided free software for file sharing, made money by selling a faster, premium version of the program.

The record companies accused Gorton of making a fraudulent transfer of assets into family limited partnerships to shield the funds from liability. Pomerantz told the jurors in his opening that Gorton transferred the money three days after the U.S. Supreme Court ruled in 2005 that file-sharing service Grokster could be held liable for copyright infringement.

Gorton’s lawyers have said the asset transfer resulted from estate planning and that the closing date was set before the Supreme Court’s decision.

Bronfman will be the first chief executive of a recording company to testify. On May 6, New York-based Warner said it agreed to sell itself to a former director, Len Blavatnik, for about $1.3 billion in cash, or $8.25 a share.

Warner Music Group rose 1 cent to $8.19 at 3:59 p.m. in New York Stock Exchange composite trading.

Zach Horowitz, the chief operating officer of Vivendi’s Universal Music Group, testified last week.

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

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