Judge Gives Green Light to Grooveshark's Countersuit Against Universal Music

Grooveshark, the popular music streaming service that is facing claims that it has infringed hundreds of thousands of songs, is battling back by saying UMG has illegally interfered with its business.

It's not a secret that Universal Music isn't much of a fan of Grooveshark, the music discovery service that streams over a billion songs every month. The record giant has been pursuing several court actions against the company, including a federal lawsuit launched last year that accused Grooveshark's employees including its chief executive of illicitly uploading 100,000 songs in a case that could be worth billions of dollars.

Grooveshark is playing defense by going on offense.

In an ongoing copyright case in New York state court, Grooveshark's parent company Escape Media has brought counterclaims that allege UMG had interfered with its contracts and illegally exploited its significant market power by convincing third parties not to business with Grooveshark. Among the claims is that UMG helped induce Apple into pulling its app from the iTunes store, caused Hewlett Packard to back off of an advertising deal, and made INgrooves repudiate a licensing agreement for songs.

On Tuesday, the New York judge denied Grooveshark the chance to go forward with counterclaims on the antitrust front but has decided to allow the digital company to pursue UMG for tortious interference.

The dispute in New York largely centers on songs created before 1972, when Congress updated copyright laws to afford federal protection on sound recordings. Until then, songs were covered by state common law copyrights.

UMG contends that Grooveshark, which has more than 35 million users around the world, has providing "free access to UMG's pre-1972 recordings," including "some of the most popular and successful recording artists of the 20th Century," including Buddy Holly, Chuck Berry, Marvin Gaye, The Temptations, Cat Stevens, the Jackson Five and The Who.

In response to the claims, Grooveshark has asserted several defenses, including that it has safe harbor from liability under the DMCA. In the case, UMG challenged this defense, pointing out that the DMCA is a federal law and only state common law copyrights are at issue. On Monday, however, New York judge Barbara Karnick ruled that under the DMCA, it's the copyright holders' job to assert ownership and inform service providers of infringements, and the service provider's task to remove infringements expeditiously. "There is no textual, or other reason, to think that Congress intended to limit that distribution of responsibilities to only post-1972 recordings," she writes.

Just as interestingly is the aspect of whether a copyright holder can be too aggressive when making moves against a purported copyright antagonist.

In counterclaims, Grooveshark said that it had a $325,000 deal to host an online advertising campaign for HP Beats, the line of audio headphones which is a joint venture between Hewlett-Packard and UMG affiliate Interscope Records.

After HP through its ad buyer Omnicom signed the Grooveship ad deal, UMG allegedly threatened to terminate its relationship with HP, which then is said to have caused HP and Omnicom to pull the HP Beats advertisement from Grooveshark.

Similarly, Grooveshark says that UMG got INgrooves, a digital music distribution company that represents a large portion of UMG's catalogue of recorded music, including pre-1972 recordings, to back away from a 2009 licensing agreement.

INgrooves blamed the cancellation of the agreement because an online news site had published the statement, "Grooveshark has secured licenses from INgrooves," without its consent. But Grooveshark says that this was merely a pretextual excuse, and that INgrooves was bowing to pressure from UMG.

On Tuesday, Judge Karnick decided that Grooveshark hadn't offered enough factual support that the injuries constituted injury to competition, thus dismissing one of Grooveshark's counterclaim.

However, UMG wasn't so lucky on its motion to dismiss the tortious interference counterclaim. UMG argued it was only alerting a third party to Grooveshark's copyright infringing behavior and that it had a legal and economic interest to advance its own pre-existing business relationship with HP and INgrooves,

But the judge is not buying it.

"Those relationships would offer UMG a defense only if it had acted to protect its interest in those relationships, not if, as the counterclaims allege, it used those relationships to coerce HP and INgrooves to breach their contracts with Escape, merely to damage Escape's business and achieve a direct benefit to itself."

The decision marks another setback for UMG, which is on a bit of a losing streak at the moment with judges. Two weeks ago, a California judge allowed the production team behind many Eminem hit recordings to pursue allegations that the record giant was shielding money oversees.

E-mail: eriq.gardner@thr.com

Twitter: @eriqgardner