LimeWire Plaintiffs Go For Kill With Asset-Freezing Motion
Fresh from defending against a motion to halt its operations, LimeWire found itself facing a new crisis Monday as the RIAA filed a new action seeking to freeze all assets of the company. “The evidence in the record overwhelmingly demonstrates Gorton’s clear intent to abscond with funds to frustrate Plaintiff’s efforts to collect a legal judgment in this case, and is more than sufficient to warrant a preliminary injunction freezing [LimeWire] assets,” RIAA alleged in court documents filed with U.S. District Court Judge Kimba Wood, New York.
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LimeWire lost a court case spanning nearly four years, with a May 11 decision in the U.S. District Court for the Southern District of New York finding the P2P software maker liable and former CEO Mark Gorton personally liable for inducement (WID May 13 p1). LimeWire “intentially encouraged direct infringement” by its users, ruled Wood. The “overwhelming majority” of them searched for copyrighted material and downloaded it, she said. In addition, Gorton “directed and benefited from many of the activities” that make LimeWire liable, ruled Wood. Damages in the suit could total billions of dollars, RIAA alleges.
Gorton transferred assets of LimeWire between 2005 and 2007 to companies beyond the legal reach of the court, RIAA alleged in court documents. LimeWire’s ownership structure consisted of several companies that it said Gorton described as “complicated” and “convoluted”. LimeWire was wholly owned by Lime Group, which described itself as an umbrella organization operating LimeWire, said RIAA. Gorton was the 100% owner of Lime Group, it alleged. Lime Group received assets from LimeWire, it added, in an amount blacked out from court documents. Gorton transfered Lime Group’s interested on June 30, 2005, to Lime Wire Family Limited Partnership, it said, three days after the U.S. Supreme Court ruled against its competitor Grokster in a copyright infringement case. RIAA quotes Gorton from a deposition as saying he did so because he was “highly concerned about being sued” and wanted to “protect the assets in the event of a legal judgment against me personally.” The beneficiaries of Lime Wire FLP were Gorton, his wife and his two children, alleges RIAA.
It’s irrelevant that the transfers occurred in the past, argued RIAA, citing several legal cases where courts have frozen assets several years after a transfer was made. Gorton’s conduct is proof of his “unmistakable fraudulent intent” to disperse assets necessary for a judgment, it said. RIAA redacted information specifying the size of those assets but said Gorton left LimeWire with “only a pittance of funds to cover any final judgement in the case.” LimeWire’s annual revenue grew from $6 million in 2004 to $20 million in 2006. By 2007, it was worth $118.5 million, RIAA said in documents filed with the court.
LimeWire declined to comment on specific allegations in RIAA’s court documents. It also declined to state the size of its current assets. “It’s important that our partners and other members of the music industry understand what an ‘asset freeze’ means for LimeWire and its future plans for a new music service,” the company said Tuesday. “Our company will continue to operate, and our goals will remain the same. We will continue to stay focused on the development of our new music service and ensure that the company continues business as usual."
"The company is prepared for all scenarios,” it added. “We're remaining dedicated and focused on the development of a music service that benefits artists, music consumers and the industry."
LimeWire has “extremely limited options,” said Eric Goldman, associate professor and director of the High Tech Law Institute at Santa Clara University. “It lost the substance of the case, and there is no reason to believe the judge will be merciful when it comes to remedies,” he said. “The exact terms of any injunction could make a big difference, but in all likelihood the injunction -- even if not as overreaching as the copyright owners might ask for -- will require LimeWire to shut down. Even if they buy time on the injunction front, I anticipate a sizable damage award that will effectively bankrupt the company. As a result, I'm not aware of any good options for LimeWire that will avoid a shutdown, if that’s what the plaintiffs want.”