Warner Music Director Brings Interesting Conflict To Board Room
A member of the Warner Music Group board of directors is about to become embroiled in a copyright infringement lawsuit against CNET and its owners CBS Interactive that could be extremely embarrassing for the music company and bring unwanted attention to the pending sale of WMG to investor Len Blavatnik.
Plaintiffs in the copyright infringement lawsuit Alki David v. CSB Interactive have pointed out that Shelby W. Bonnie held seats simultaneously on the boards of both CNET and Warner Music for two years. During this time Warner CEO Junior Bronfman was suing Limewire for copyright infringement and very publicly complaining about the huge monetary damage it had inflicted upon his company while at the same time having a sitting board member who was also serving as a director of the biggest distributor of Limewire software, more than 220 million copies in fact.
Bonnie, CEO of Whiskey Media, LLC, is also the founder, former CEO (March 2000 to October 2006) and Chairman of the Board of CNET. Bonnie resigned as CEO in 2006 under a cloud of suspicion involving the backdating of stock options, though he continued to serve as a director of CNET Networks until March 2007. Oddly, just last week the New York Post ran a story detailing how the Warner Music board lowered the vesting price for 1.6 million of Junior’s restricted shares the day before the announcement was made that WMG was up for sale, thus sending the stock price up 27% resulting in an additional $13.6 million for the prodigal Seagram son. Great timing.
During his tenure with CNET, Download.com, a CNET site, was the primary distributor of peer-to-peer software and profited greatly from file sharing’s popularity. On June 27, 2005, while Bonnie was still CEO of CNET, the US Supreme Court issued its decision in the MGM v. Grokster case, which laid out very strict guidelines for the marketing and distribution of p2p software with intent to infringe upon copyrighted material.
In November of 2005, just 4 months after the Grokster decision, Bonnie accepted an invitation to sit on the board of directors of the Warner Music Group, a position he still holds that carries an annual compensation of $160,000 per year, and is considered to be a reliable ally of Junior Bronfman. So for at least 2 years Shelby Bonnie was a director of both CNET and Warner Music Group, one company distributing over 95% of Limewire’s software (and over 98% of Kazaa’s software), enabling the theft of millions of dollars worth of the other company’s copyrights. Warner Music, of course, was a plaintiff in both the Limewire and Grokster cases. WMG CEO Junior Bronfman recently testified in the Limewire trial as to the extent of his company’s damages saying that LimeWire had a “devastating impact” on the industry.
Warner Music was also a plaintiff and financial beneficiary in the thousands of lawsuits filed by the RIAA against private individuals for illegally downloading their music using Limewire (and other) software obtained directly from CNET.
The lawsuit, brought in May by billionaire entrepreneur Alki David, claims that artistic works of his and his co-plaintiffs were infringed upon because CNET distributed Limewire file-sharing software (among others) and was willfully encouraging and profiting from the distribution of p2p software that was used for illegal purposes. Not to mention the distribution of DRM-stripping software, which is a direct violation of the DMCA. The suit is clearly an attempt to widen the Grokster decision.
Alki David has accused CBS of hypocrisy. His theory is that because CBS owns CNET—which was the main distributor of the Limewire file-sharing software—CBS has made a major contribution to online piracy. (Limewire’s software has now been banned and the service was shut down by a court injunction). “The CBS Defendants’ business model has been so dependent upon P2P and file-sharing that entire pages of Download.com are designed to specifically list and categorize these software offerings,” says the complaint. “In fact, the CBS Defendants’ were well aware that these software applications were used overwhelmingly to infringe when they first partnered with LimeWire and other P2P providers, but ignored it in exchange for a steady stream of income.”
While David originally floated the idea of a class-action lawsuit against CBS, his current suit has several named plaintiffs but is not seeking class-action status. That is about to change.
According to David, he is about to add thousands more copyrights to his lawsuit, having found many ebook publishers
willing to sign on. He is actively seeking more plaintiffs and then attempt to have the suit classified as a class action. To that end, he has set up a web site where copyright owners who feel that their property has been infringed upon can register to join the lawsuit. The site also features a long video staring Alki David himself explaining the ins and outs of the action and offering solid evidence against CNET, including Cnet broadcasts featuring some of their reviewers and editors explaining how to use certain p2p software to download copyrighted recordings and films. David went on to tell me that he hopes to soon have over 10,000 copyrights added to the complaint.
In the meantime Shelby Bonnie finds himself in a somewhat awkward position and may have, in the words of Ricky Ricardo, “a lot of splainin to do”. At the very least it gives the appearance of shadiness, and let’s face it, Junior Bronfman is no stranger to corporate shenanigans, having been convicted by a French court earlier this year for insider trading of Vivendi stock. Bonnie is sort of like the spoiled son who gives a burglar the keys to rob his rich Dad’s mansion and then splits the haul with the thief. If you close your eyes real tight you can almost hear Claude Rains inhabiting Shelby Bonnie’s body saying “I’m shocked, shocked to find that gambling is going on in here.” No wonder Junior keeps getting all of those terrific performance bonuses.
David’s attorneys will surely depose Bonnie during the discovery process and several lawyers I spoke with said they had always wondered why the recording industry never went after Cnet in the aftermath of the Grokster ruling. Many legal experts I spoke with feel that the suit will be a tough sell, but who knows how many lawsuits could be born from this if Alki David prevails in his claims against CNET. As one attorney told me, “This is a great country. Anybody can sue anybody for anything.”
However CNET, which was acquired by CBS for $1.8 billion in cash in March of 2008, continues to distribute file-sharing software like “son of Limewire”, Frostwire, which was created by a small band of former Limewire software engineers.
Sources say that the Warner Music people have been very nervous that someone would publicly connect the dots of the Shelby Bonnie situation and bring them a great deal of agita.
Break out the Rolaids kids.