EMI files $100 mil ringtone suit against InfoSpace
EmptyNEW YORK -- Music publishing giant EMI has filed a $100 million lawsuit against InfoSpace, one of the world's biggest ringtone providers.
In a complaint filed Jan. 12 in U.S. District Court in New York, EMI alleges that InfoSpace and its subsidiaries Moviso and Premium Wireless Services have been underpaying royalties and selling ringtones for songs to which they hold no licensing rights.
The complaint 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."
InfoSpace and its affiliates have licensed compositions from EMI publishing outfits since 2000. As the market for ringtones has grown, so too has the fortunes of InfoSpace. According to the company's last filing with the SEC, for the third quarter of 2006, revenue grew 16%, reflecting an increase of $13.1 million over the third quarter of 2005.
According to the complaint, EMI requested an audit of InfoSpace's books but was met with "diversion, obstruction, misdirection and misinformation." Specifically, EMI alleges that InfoSpace claimed it did not have access to many of its records, and then refused to turn them over.
EMI claims it turned over information it acquired to its auditors at Gelfand Rennert & Feldman, who concluded that InfoSpace was miscalculating royalties due to downloads through third-party Web sites operated by cell phone carriers Verizon and US Cellular; failing to report royalties for eight approved sub-licensees; and failing to pay royalties for compositions that appeared on its catalogue of offerings.
EMI, represented by Thelen Reid Brown Raysman & Steiner partner Michael Elkin in New York, also alleges that 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.
Bruce Easter, senior vp and general counsel of InfoSpace, declined to comment on the dispute.
Some lawyers who have counseled other ringtone providers said they were surprised by the news of a lawsuit.
"InfoSpace is such a big company," said Andrew McCormick, a partner at Masur & Associates in New York. "They should have gotten all the rights they needed, and I'm surprised it has gotten to this point."
McCormick said he wonders whether InfoSpace is trying to take advantage of the U.S. Copyright Office's October decision in favor of a proposal to make ringtones subject to a compulsory licensing scheme.
"Nobody has challenged that yet," said McCormick. "Usually, these things are privately resolved, so there may be something deeper in this relationship that has caused this to come to litigation."
The case is EMI Entertainment World vs. Premium Wireless Services, 07-CV232.
Eriq Gardner is senior staff writer at The Hollywood Reporter, ESQ.