To Quit File-Swapping

High-profile Internet entertainment company said Tuesday that it will shut down its controversial multimedia file-sharing and searching network within 48 hours in an effort to resolve pending litigation and smooth the progress of its assets sale in U.S. Bankruptcy Court in Los Angeles.

“We believe our unilateral decision to take down the exchange will facilitate a resolution of the copyright infringement litigation pending against Scour,” Scour president Dan Rodrigues said. “In addition, we expect the shutdown to facilitate a sale of Scour’s assets, which will maximize creditor recovery.”

In a related development, software developer CenterSpan Communications said Tuesday that it plans to submit a bid with the court to buy out Scour’s assets.

Swapping Service Triggers Lawsuit

Los Angeles-based, which was backed by Hollywood heavyweight Michael Ovitz, filed for Chapter 11 bankruptcy protection from its creditors last month in part to ensure its continued operation in the face of costly legal challenges. has been fighting to stave off a copyright infringement lawsuit brought in July by the Motion Picture Association of America (MPAA), the Recording Industry Association of America (RIAA) and the National Publishers Association (NMPA).

At the heart of the legal battle was the company’s peer-to-peer digital file-sharing service Scour Exchange, which is used by millions of registered members.

The bankruptcy filing allowed not only to keep all of its services up and running during the proceedings but also to stay the pending litigation.

Bidding War Erupts

CenterSpan did not provide any details about its bid for Scour. Last month, CenterSpan announced plans to create its own file-sharing network that would incorporate digital rights management (DRM), which allows a content provider to set restrictions on the usage of its material.

The Hillsboro, Oregon-based company said if it placed the winning bid, it would shut down Scour Exchange and relaunch it in 2001 as a secure and legal distribution channel that utilizes the DRM technology platform and compensates copyright holders.

CenterSpan’s announcement was issued prior to the statement from Scour that it would close Scour Exchange.

“While our bid will be structured as an asset acquisition to avoid contingent liabilities, we view Scour as very strategic and want the Scour founders and employees to join our team,” CenterSpan chief executive officer Frank G. Hausmann said.

Sales Timetable

CenterSpan will have to edge out some competition to take over Scour. Earlier this month, online music product and services site offered to buy Scour for US$5 million and over 525,000 shares of its stock.

A published report said Wednesday that the attorneys for Scour, Perkins Coie LLP, angered U.S. Bankruptcy Court Judge Kathleen P. March when it was revealed in court that the firm owns $270,000 worth of shares in — a conflict of interest, March said.

“In 10 years on the bench, I’ve never seen this sort of professional irresponsibility,” March reportedly said.

Bidding Still Open

According to the court, any interested party must deposit US$500,000 with Scour counsel no later than December 5th to quality as a bidder.

The successful bidder will be determined at a final sales proceeding scheduled for December 12th.

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