Labels hit setback in Bertelsmann, Napster suit

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A federal appeals court said Wednesday that a major European media company does not have to disclose its lawyers' private communications in connection with a $50 million loan to Napster in 2001.

The ruling is part of an ongoing lawsuit by major record companies against German-based Bertelsmann AG.

Universal Music Group, EMI Group PLC and others allege Bertelsmann did more than just write checks to Napster in a bid to gain a financial interest in Napster and change it into a law-abiding service. The record companies' lawsuit claims Bertelsmann is liable for copyright infringement because it invested in a company that was openly allowing copyright infringement.

Napster allowed users to browse each other's MP3 music collections stored on their computers and pluck liberally from them, sharing and swapping 24 hours a day for free. The original Napster went off-line in 2001 after a series of court rulings.

The record companies then sued Bertelsmann, and among other things wanted to see the company lawyers' internal accounts about the loan, arguing that Bertelsmann took control of Napster and directed the infringing activities.

On Wednesday, the 9th U.S. Circuit Court of Appeals overturned a lower court judge who ordered the documents to be turned over as part of the ongoing lawsuit.

Attorney-client privilege can be punctured if attorneys aided in a crime or fraud, but the appeals court found that the evidence did not support a so-called "crime-fraud exception" to the privilege.

Santa Clara-based software maker Roxio now owns the Napster brand name and has relaunched it as a legitimate music-downloading service.
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