In a recent step in its $1 billion lawsuit against YouTube, Viacom subpoenaed documentation from venture capitalists Sequoia Capital, Artis Capital Management and TriplePoint Capital. The three vc firms invested in YouTube in its start-up days and subsequently sold the company to Google.
In its lawsuit, Viacom claims that YouTube’s business model entails generating traffic and advertising revenue through copyrighted programming posted by YouTube visitors. That copyrighted programming posted on YouTube includes many Viacom television shows such as The Colbert Report and South Park Viacom wants to review the venture capital documents to learn what motivated the vc firms to invest in YouTube and to review exactly how the fledgling YouTube described its business model to potential investors.
When Investors Become the Targets for Infringing Business Models
It appears that Viacom is currently targeting the venture capitalist firms as a source of information and not as potential litigants to add to the lawsuit. However, it would not be the first time that an investor found itself on the receiving end of a lawsuit after investing in a start-up with a questionable business model.
For example, Bertelsmann was sued by its fellow music publishing companies after Bertelsmann invested $100 Million in Napster. At the time of Bertelsmann’s investment, Napster’s primary use was the unauthorized file-swapping of copyrighted materials and several music industry companies had pending copyright infringement lawsuits against the Napster. The music publishers claimed that Bertelsmann's funding allowed Napster to extend its life which led to greater numbers of copyrighted works being shared illegally.
Bertelsmann ultimately settled with the music publishers but it took tens of millions of dollars. The settlement to Universal alone was $60 Million.
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