Record company drops suit, forms alliance with Napster

Once enemies, Bertelsmann AG BMG and Napster will now form an alliance to develop a peer-to-peer file sharing service, the German company announced Tuesday.

Bertelsmann AG's newly formed eCommerce Group, BeCG, and Napster have developed a membership-based service that will provide file-sharing capabilities that "preserves the Napster experience while at the same time providing payments to the rightsholders," the company said in a statement. Napster and Bertelsmann will seek support from others in the music industry to accept Napster as a membership-based service, the companies said.

Once Napster implements the service, BMG will withdraw its lawsuit against Napster and make its music catalog available. Bertelsmann will provide Napster a loan to develop the new service. Bertelsmann spokeswoman Christiane Hach in Gütersloh, Germany said details of the loan were not being disclosed.

Details on how the actual membership-based file sharing arrangement would work also were thin.

"The details of how this will [work] haven't been disclosed," Hach said. "To really go into details on the business model ... it would be too early."

In a statement, Napster CEO Hank Barry said the alliance is the "right step" for Napster and the Napster community would benefit from the alliance with Bertelsmann.

The Recording Industry Association of America (RIAA) filed suit against Napster on behalf of the five major record labels, including BMG, earlier this year alleging copyright infringement and asked for damages and an immediate stoppage of the peer-to-peer file sharing service.

This alliance and the possibility that BMG could drop out of the RIAA lawsuit will not deter the other music labels from going forward with their legal action against Napster, said Leonard Rubin, head of intellectual property at the Chicago law firm Gordon and Glickson LLC. Rubin, who has represented record companies, musicians and composers, said BMG's move was telling.

"One of the plaintiffs has begun to recognize that Napster has something to sell with over 30 million [users]," Rubin said.

The next logical question is whether the other four recording labels will also seek to make friends with Napster. The RIAA did not returned repeated calls Tuesday.

Bertelsmann, in Gütersloh, Germany, can be reached at 49-5241-80-0, or at www.bertelsmann.de/. Napster, in San Mateo, Calif., can be reached at 650-373-3800 or at www.napster.com/.