Bronfman Tells Jury Lime Wire Infringement ’Devastating’ to Warner Music

Warner Music Group Corp. (WMG) Chief Executive Officer Edgar Bronfman told a federal jury weighing damages caused by Lime Wire LLC’s copyright infringement that the effect on Warner’s business was “devastating.”

Bronfman, 54, testified that the drop in revenue caused by peer-to-peer music sharing services such as Lime Wire forced Warner to fire employees and release fewer recordings. He said he had hoped the services would shut down voluntarily after the Supreme Court ruled in 2005 that Grokster, another music-sharing program, could be held liable for infringement

“When Lime Wire kept operating it frustrated me greatly,” Bronfman told jurors today in a Manhattan courtroom. “It was devastating, frankly.”

Music labels owned by Warner Music, Sony Corp. (6758), Vivendi SA (VIV) and Citigroup Inc. (C) are seeking hundreds of millions of dollars from Lime Wire and its founder, Mark Gorton, after U.S. District Judge Kimba Wood ruled last May that Lime Wire induced the infringement of copyrights on thousands of songs through its peer-to-peer file-sharing software on the Internet. The court ordered New York-based Lime Wire to shut its music service last year.

Glenn Pomerantz, a lawyer representing 13 labels, told a jury of eight women and one man in his opening statement on May 3 that the harm caused by Lime Wire was “truly staggering.” Gorton used other people’s property to make money for himself, he said, claiming the record industry’s revenue fell 52 percent from 2000, the year Lime Wire was founded, to 2010.

Other Factors

Gorton’s lawyers are trying to convince the jury that other factors were responsible for the decline in 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.

Baio cited the record companies’ own past comments about 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.

Statutory Damages

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

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

The companies have also accused Gorton of making a fraudulent transfer of assets into family limited partnerships to shield the funds from liability. Pomerantz told the jurors Gorton transferred the money three days after the Supreme Court’s Grokster ruling.

Besides the assets in the family partnerships, Gorton has $100 million in Individual Retirement Accounts, Pomerantz told the jurors.

Estate Planning

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

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

Warner has agreed to sell itself to Len Blavatnik’s Access Industries Holdings LLC for about $1.3 billion in cash, or $8.25 a share, plus the assumption of about $2 billion in debt.

Warner Music fell 3 cents to $8.17 at 1:57 p.m. in New York Stock Exchange composite trading.

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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