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EMI Entertainment World, Inc. and its affiliated music publishing entities set forth in the
caption above (collectively, “EMI Music Publishing” or “Plaintiffs”), through their counsel,
Thelen Reid Brown Raysman & Steiner, LLP, allege, upon information and belief, for their
Complaint against defendants Premium Wireless Services, Inc. (“PWSI”), Premium Wireless
Services USA, Inc. d/b/a Moviso (“PW USA”), Premium Wireless Services, Inc. Canada (“PW
Canada”), Moviso LLC (“Moviso”), InfoSpace Mobile, Inc. (“InfoSpace Mobile”) and
InfoSpace, Inc.1, the following:
NATURE OF DISPUTE
1. Defendants have engaged in a deliberate effort to frustrate and obstruct the audit
rights held by Plaintiffs pursuant to license agreements between the parties, thereby concealing
and withholding millions of dollars in royalties which are due to Plaintiffs. In fact, Defendants
touted in public filings to the United States Securities and Exchange Commission and in the
press sales of tens of millions of ringtone downloads, while at the same time grossly underpaying
EMI Music Publishing.
2. Defendants have also willfully infringed on Plaintiffs’ copyrights by selling
Plaintiffs’ songs without Plaintiffs’ authorization and consent and/or in a manner inconsistent
with the license agreements, thereby unlawfully profiting from the unauthorized use of EMI
Music Publishing’s sole and most important assets: its songs. Indeed, Defendants have sold and
continue to profit from the sale of certain of EMI Music Publishing's most highly regarded and
expressly restricted musical compositions, including such important and well-known songs as
John Lennon's “Imagine.” Notably, this is not the first time that Defendants have infringed
1 PWSI, PW USA, PW Canada, Moviso, InfoSpace Mobile, Inc. and InfoSpace, Inc. are collectively referred to as “Defendants” or “InfoSpace.”
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Plaintiffs’ copyrights. EMI Music Publishing was forced to pursue an action in 2000 for similar
acts of infringement by Defendants' predecessors.
3. As a result of Defendants' obstructive conduct regarding EMI Music Publishing's
audit rights and their continued wholesale infringement of EMI Music Publishing's valuable
copyrights, Plaintiffs have been and continue to be harmed in an amount in excess of $100
million.
SUMMARY OF CLAIMS
4. EMI Music Publishing is the world’s largest music publisher, controlling over one
million musical compositions from leading songwriters of all generations and genres. InfoSpace
is a provider of musical content to mobile operators. InfoSpace, together with its mobile
operators, provides various types of downloadable content to consumers, including musical
“ringtones” for use on cellular phones. In this context, “a “ringtone” is a digital snippet of music
that a mobile phone user may select (by downloading from services such as Defendants’) to
signal an incoming call.
5. In accordance with certain license agreements between EMI Music Publishing, as
licensor, and InfoSpace’s and/or InfoSpace Mobile’s predecessors (PWSI, PW USA, PW Canada
and Moviso), as licensees, EMI Music Publishing provided lists of available compositions for
licensing and distribution as ringtones (the “EMI Ringtones”) through the licensees’ network of
providers. The licensees agreed to pay a royalty to EMI Music Publishing for every downloaded
ringtone. Throughout the term of the license agreements, customers downloaded tens of millions
of EMI Ringtones, generating substantial revenue for InfoSpace.
6. Upon information and belief, while InfoSpace and its predecessors were earning
millions in revenues from consumer downloading of the EMI Ringtones, InfoSpace and/or its
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predecessors were failing to keep accurate records of the downloading occurring through their
services and failed to account properly to EMI Music Publishing for the royalties owed. When
EMI Music Publishing exercised its contractual right to examine InfoSpace’s books and records,
InfoSpace refused to give EMI Music Publishing access to material information, interposed
frivolous objections to many of EMI Music Publishing’s requests, and provided incomplete and
inaccurate documentation. After four months of protracted and contentious negotiations over
confidentiality restrictions with respect to EMI Music Publishing’s audit, and a total lack of
responsiveness and candor by InfoSpace, EMI Music Publishing’s auditors concluded that:
(i) InfoSpace has failed to pay royalties, fees and interest due and owing to EMI Music
Publishing in an amount in excess of $10 million; and (ii) substantial additional amounts were
due and owing but could not be calculated due to InfoSpace’s repeated failure to provide key
documentation.
7. Moreover, throughout the term of the license agreements, InfoSpace blatantly and
willfully infringed upon numerous valuable copyrights by (i) making available for downloading
various well-known compositions owned by EMI Music Publishing that were expressly
restricted from the licenses, and (ii) permitting worldwide downloading of EMI Ringtones
despite the limited territories for which InfoSpace had been granted rights.
8. In light of InfoSpace’s materia l breaches of the license agreements, EMI Music
Publishing did not extend the term of the current license, which expired on May 31, 2006. Yet,
in willful disregard of EMI Music Publishing’s rights, InfoSpace is committing copyright
infringement of EMI Music Publishing’s compositions and copyrights by continuing to offer for
downloading thousands of EMI Ringtones (including restricted compositions expressly excluded
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from the expired license), thereby reaping an unlawful profit from the exploitation of EMI Music
Publishing’s compositions.
9. Forced to bring this action, Plaintiffs now seek monetary damages for breach of
the license agreements and for fraud in excess of $10 million, plus interest, attorneys’ fees and
costs. Plaintiffs further assert a claim for copyright infringement, in which they seek to enjoin
InfoSpace from continuing to make thousands of EMI Ringtones available for downloading, and
seek compensatory damages or, at Plaintiffs’ election, statutory damages in the maximum
amount of $150,000 for each composition willfully infringed by Defendants (in excess of $100
million), plus interest, attorneys fees and costs.
PARTIES
10. Plaintiffs EMI Music Entertainment, Inc., Carwin Music Inc., EMI Affiliated
Catalog Inc., EMI Feist Catalog Inc., EMI Gold Horizon Music Corp., EMI Golden Torch Music
Corp., EMI Hastings Catalog Inc., EMI Miller Catalog Inc., EMI Robbins Catalog Inc., EMI U
Catalog Inc., EMI Unart Catalog Inc., EMI Variety Catalog Inc., EMI Vine Music, Inc., EMI
Virgin Music, Inc. and EMI Virgin Songs, Inc. are New York corporations. Plaintiffs Barham
Boulevard Music, Inc., Beechwood Music Corp., EMI Brillig Music, Inc., EMI Grove Park
Music, Inc., EMI Intertrax Music Inc., EMI PST Holdings, Inc., EMI Slithy Songs, Inc., EMI
TSM Holdings, Inc., EMI Waterford Music, Inc., EMI Worldtrax Music Inc. and Glenwood
Music Corp. are California corporations. Plaintiffs EMI April Music Inc. and EMI Blackwood
Music Inc. are Connecticut corporations. Plaintiffs Avon Gate Music Inc., Burbank Plaza Music,
Inc., Colgems-EMI Music Inc., Combine Music Corp., EMI Al Gallico Music Corp., EMI Algee
Music Corp., EMI Belfast Music, Inc., EMI BMPC Corp., EMI Duce Music, Inc., EMI Easy
Listening Music Corp., EMI Jemaxal Music Inc., EMI Mills Music Inc., EMI Norbud Music,
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Inc., EMI NTM Holdings, Inc., EMI Sosaha Music Inc., New Tandem Music, Inc., Screen
Gems-EMI Music Inc. and Triple Star Music, Inc. are Delaware corporations. Plaintiffs Jobete
Music Co., Inc. and Stone Diamond Music Corporation are Michigan corporations. Plaintiff
EMI Mogull, Inc. is a Nevada corporation. Plaintiff Foray Music is a Tennessee corporation.
Plaintiffs EMI Full Keel Music, EMI Longitude Music and Fun Glenwood Music Corp. are duly
organized corporations. Each of the Plaintiffs maintains an address at 1290 Avenue of the
Americas, New York, New York.
11. Upon information and belief, Defendant PWSI is a corporation with a place of
business at 2749 14th Street, Santa Monica, California 90404. Upon information and belief,
PWSI is now wholly owned by Defendant InfoSpace, Inc.
12. Upon information and belief, Defendant PW USA is a corporation with a place of
business at 10940 Wilshire Boulevard, 9th Floor, Los Angeles, California 90024. Upon
information and belief, PW USA is now wholly owned by Defendant InfoSpace, Inc.
13. Upon information and belief, Defendant PW Canada is a corporation with a place
of business at 11 Wembley Road, Toronto, Ontario M6C 2E8. Upon information and belief, PW
Canada is now wholly owned by Defendant InfoSpace, Inc.
14. Upon information and belief, Defendant Moviso is a limited liability corporation
with a place of business at 2749 14th Street, Santa Monica, California 90404. Upon information
and belief, Moviso is now wholly owned by Defendant InfoSpace, Inc.
15. Upon information and belief, Defendant InfoSpace Mobile, Inc. is a California
corporation with places of business at 10940 Wilshire Boulevard, 9th Floor, Los Angeles,
California 90024 and 601 108th Avenue NE, Suite 1200, Bellevue, Washington 98004. Upon
information and belief, InfoSpace Mobile, Inc. is a successor to PW USA.
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16. Upon information and belief, Defendant InfoSpace, Inc. is a Delaware corporation
with a place of business at 601 108th Avenue NE, Suite 1200, Bellevue, Washington 98004.
Upon information and belief, InfoSpace, Inc. has acquired PWSI, PW USA, PW Canada and
Moviso and has assumed the contractual rights and obligations of each of these entities under
various license agreements.
JURISDICTION AND VENUE
17. This is a civil action seeking monetary and injunctive relief. This Court has
jurisdiction over the subject matter of this action pursuant to 28 U.S.C. §§ 1331 and 1338(a), as
this action asserts claims of copyright infringement pursuant to the copyright laws of the United
States, 17 U.S.C. § 101 et seq.
18. This Court has personal jurisdiction over each of the Defendants because each of
the Defendants does business and/or transacts business in this State and in this District.
Moreover, jurisdiction in this State and in this District is expressly consented to in the relevant
agreements at issue in this action.
19. Venue is proper in this judicial district pursuant to 28 U.S.C. § 1391(b) because
Defendants are subject to personal jurisdiction in this District. Moreover, venue in this District
is expressly consented to in the agreements at issue in this action.
FACTUAL ALLEGATIONS
Background
A. EMI Music Publishing
20. Music publishing is the business of acquiring rights – including the copyrights –
to musical compositions through agreements with songwriters, and exploiting those rights
through various licensing arrangements with third parties. These licensing arrangements
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generate publishing income, which is apportioned between the publishers and the songwriters in
accordance with the parties’ agreements.
21. EMI Music Publishing is the world’s largest music publisher, with a portfolio of
copyrights from generations of top songwriting talent. EMI Music Publishing enters into
agreements with songwriters whereby EMI Music Publishing is vested with ownership of
copyrights in music compositions, in return for which royalties are paid to the songwriters. EMI
Music Publishing enters into licenses for the musical compositions with third parties, and is
responsible for paying and collecting royalties due on the copyrights. The collection of musical
compositions owned or controlled by EMI Music Publishing (i.e., the “catalogue”) is vast,
containing some of the most popular and important songs ever written and spanning all genres.
22. Music publishers do not simply enter into licenses, collect revenues and pay the
songwriters their share. Many publishers, including EMI Music Publishing, routinely seek to
create opportunities for the exploitation of musical compositions by, among other things,
“pitching” songs to recording artists and record producers, advertising agencies, motion picture
companies and other entities that are interested in licensing musical compositions. With the
advent of new technologies (e.g., the Internet, digital music files, etc.), music publishers have
increasingly sought new outlets for licensing musical compositions. EMI Music Publishing is
proactive at marketing songs for the broadest range of uses globally, and plays a pioneering role
as new means of distribution emerge.
23. Plaintiffs are the owners of copyrights in and to the musical compositions at issue
and have complied in all respects with the Copyright Act and with all other applicable laws in
securing copyright registrations and protecting and maintaining their exclusive rights in and to
these musical compositions. Upon information and belief, InfoSpace has unlawfully made
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thousands of EMI Music Publishing’s compositions available for downloading. Certain of the
musical compositions for which Plaintiffs assert their claim of copyright infringement, together
with their respective copyright registration numbers, are set forth in Exhibit A, annexed hereto.
24. By virtue of EMI Music Publishing’s skill and diligence in maintaining its
catalogues, EMI Music Publishing has developed substantial good will and generated substantial
value in the musical compositions which comprise Plaintiffs’ catalogues.
B. InfoSpace
25. Upon information and belief, InfoSpace is a provider and publisher of mobile
content, products and services that assist customers with finding personalization tools and
entertainment for mobile phones. InfoSpace provides media products, content and related
services to mobile operators, such as T-Mobile and Verizon, that allow the mobile operators to
use their websites (the “Third-Party Websites”) to deliver content, including ringtones, to mobile
subscribers.
26. Upon information and belief, through its website located at www.moviso.com
(“moviso.com”), InfoSpace also provides media products and content, including ringtones,
directly to consumers.
27. Upon information and belief, InfoSpace acquires the content that it makes
available to its customers through licensing agreements with content owners.
28. Upon information and belief, in or about April 2002, InfoSpace and/or InfoSpace
Mobile, Inc. acquired PWSI, PW USA, Moviso and PW Canada. Upon information and belief,
all contracts and agreements to which PWSI, PW USA, Moviso and PW Canada were parties
were assigned to InfoSpace and/or InfoSpace Mobile, and/or InfoSpace and/or InfoSpace Mobile
assumed all outstanding rights, duties and liabilities. Upon information and belief, since April
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2002, PWSI, PW USA, Moviso and PW Canada have been operated by InfoSpace and/or
InfoSpace Mobile, Inc., which entities have undertaken to perform all contractual obligations of
PWSI, PW USA, Moviso and PW Canada, including all obligations under certain Ringtone
Licenses with EMI Music Publishing.
29. In or about August 2000, EMI Music Publishing and certain of its affiliated
entities commenced an action against Defendants’ predecessors, Global Music One LLC and
Yourmobile.com Inc., and their principal Ralph Simon, asserting claims of copyright
infringement. Those claims were based upon conduct remarkably similar to Defendants’ actions
here; namely, that the defendants in that action had copied certain of Plaintiffs’ musical
compositions and made them available for downloading as ringtones without EMI Music
Publishing’s permission.
The EMI Ringtone Licenses
A. The 2001 Ringtone License
30. On or about May 31, 2001, EMI Music Pub lishing and Defendant PWSI entered
into a one-year ringtone license (the “2001 Ringtone License”) covering the United States and
Canada. Pursuant to the 2001 Ringtone License, EMI Music Publishing granted a license to
PWSI whereby EMI Music Publishing agreed to license certain catalogues of music
compositions for which EMI Music Publishing owned and/or controlled the music publishing
rights. In accordance with the 2001 Ringtone License, EMI Music Publishing granted PWSI the
right to arrange and record certain approved compositions to create “EMI Ringtones” that PWSI
would transmit through its network of internet providers. Thousands of EMI Ringtones were
then made available to consumers for downloading onto wireless devices.
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31. This grant of rights did not include all compositions within the catalogues subject
to the 2001 Ringtone License. Rather, paragraph 2(b) of the 2001 Ringtone License expressly
excluded certain “restricted” compositions from the license. The songwriters of the restricted
compositions entrusted EMI Music Publishing with these songs, many of which require express
consent from the songwriter for any use whatsoever. These songs are some of the most
important and highly valued songs in EMI Music Publishing’s catalogues. Restricted
compositions such as these could be added to the license only with EMI Music Publishing’s
express consent. 2001 Ringtone License, ¶ 2(c).
32. In return for the grant of rights for the Approved Compositions, PWSI was to pay
to EMI Music Publishing (i) a recoupable advance of $10,000, and (ii) an agreed-upon royalty
rate for each EMI Ringtone downloaded by a consumer, including free or bonus downloads.
2001 Ringtone License, ¶ 5(c).
33. In order to ensure accurate record-keeping and payments by PWSI, the 2001
Ringtone License required PWSI to provide quarterly accountings to EMI Music Publishing.
2001 Ringtone License, ¶ 6(a). PWSI was required to “keep and maintain true and accurate
records and books of account in connection with the sale of downloads and all related
transactions.” 2001 Ringtone License, ¶ 6(c).
34. EMI Music Publishing further had the “right, upon reasonable written notice, and
during normal office hours, to examine the books and records of Licensee, at Licensee’s regular
place of business where the books and records are maintained, as the same pertain to the subject
matter of this Agreement and to make copies and extracts thereof.” Paragraph 6(c) of the 2001
Ringtone License provides further that:
Licensee shall cooperate with the Publisher’s representative to assist them in understanding all such material. If as a result of any
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audit, it is determined that Licensee has understated the royalties due Publisher, Licensee shall immediately pay to Publisher the amount of such underpayment. If, as a result of any audit, it is determined that Licensee has understated the royalties due to Publisher by ten (10%) percent or more, Licensee shall pay to EMI the amount by which royalties have been understated and shall reimburse EMI for the cost of the audit.
2001 Ringtone License, ¶ 6(c).
35. Paragraph 6(f) of the 2001 Ringtone License provided that PWSI shall reimburse
EMI Music Publishing “within five (5) days from receipt of its invoice, for EMI Music
Publishing’s reasonable attorney’s fees and costs arising out of the occurrence of any Default
Event … including, without limitation, any failure by Licensee timely to render statements and
account to Publisher with respect to royalties which accrue to Publisher in connection with
Licensee’s exploitation of its rights….” A Default Event includes “Licensee’s failure or inability
to fulfill any of its material obligations” under the agreement. 2001 Ringtone License, ¶ 11(a).
Similarly, paragraph 8(d) provides for PWSI to indemnify and hold EMI Music Publishing and
each publishing entity harmless from legal expenses, counsel fees and disbursements “resulting
from or in connection with any breach or threatened breach by Licensee of any of the terms,
covenants, representations and warranties contained [in the 2001 Ringtone License].”
B. The 2002 Ringtone License
36. On or about June 1, 2002, EMI Music Publishing entered into a Ringtone License
with PW USA and PW Canada (the “2002 Ringtone License”) covering the United States and
Canada. Pursuant to the 2002 Ringtone License, EMI Music Publishing granted a license to PW
USA and PW Canada whereby EMI Music Publishing agreed to license certain catalogues of
music compositions that EMI Music Publishing owned and/or for which EMI Music Publishing
controlled the music publishing rights. In accordance with the 2002 Ringtone License, EMI
Music Publishing granted PW USA and PW Canada the right to arrange and record certain
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approved compositions to create “EMI Ringtones” that PW USA and PW Canada would transmit
through their network of internet devices and that consumers would be able to download onto
wireless devices. The 2002 Ringtone License also provided that the EMI Ringtones could be
distributed by the licensees for downloading through certain agreed-upon Third-Party Websites,
including but not limited to www.voicestream.com, www.verizon.com, www.motown.com,
www.universalmusic.com, and http://wireless.sonymusic.com.
37. This grant of rights did not include all compositions within the catalogues subject
to the 2002 Ringtone License. Rather, paragraph 2(a) provided for a list of “Approved
Compositions” that could be expanded by EMI Music Publishing throughout the license term.
The 2002 Ringtone License required agreement by EMI Music Publishing in a fully executed
addendum for the addition of any songs to the list of Approved Compositions. 2002 Ringtone
License, ¶ 2(b).
38. Paragraph 2(c) of the 2002 Ringtone License further expressly excluded as “not
available” compositions written in whole or in part by certain specified artists.
39. In return for the grant of rights for Approved Compositions, PW USA and PW
Canada were each to pay to EMI Music Publishing (i) a recoupable advance of $10,000, and (ii)
an agreed-upon royalty rate for each EMI Ringtone downloaded by a consumer, including free or
bonus downloads. 2002 Ringtone License, ¶¶ 6(b) and 6(c).
40. In order to ensure accurate record-keeping and payments by PW USA and PW
Canada, the 2002 Ringtone License required PW USA and PW Canada to provide quarterly
accountings to EMI Music Publishing. 2002 Ringtone License, ¶ 7(a). PW USA and PW
Canada were required to keep and maintain true and accurate records and books of account in
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connection with the sale of downloads and all transactions related thereto. 2002 Ringtone
License, ¶ 7(c).
41. EMI Music Publishing further had the “right, upon reasonable written notice, and
during normal office hours, to examine the books and records of Licensee, at Licensee’s regular
place of business where the books and records are maintained, as the same pertain to the subject
matter of this Agreement and to make copies and extracts thereof.” Paragraph 7(c) of the 2002
Ringtone License provides further that:
Licensee shall cooperate with the Publisher’s representative to assist them in understanding all such material. If as a result of any audit, it is determined that Licensee has understated the royalties due Publisher, Licensee shall immediately pay to Publisher the amount of such underpayment. If, as a result of any audit, it is determined that Licensee has understated the royalties due to Publisher by ten (10%) percent or more, Licensee shall pay to Publisher the amount by which royalties have been understated and shall reimburse Publisher for the cost of the audit.
2002 Ringtone License, ¶ 7(c).
42. Paragraph 7(f) provided that PW USA and PW Canada shall reimburse EMI
Music Publishing “within five (5) days from receipt of its invoice, for Publisher’s reasonable
attorney’s fees and costs arising out of the occurrence of any Default Event … including, without
limitation, any failure by Licensee timely to render statements and account to Publisher with
respect to royalties which accrue to Publisher in connection with Licensee’s exploitation of its
rights….” A Default Event includes “Licensee’s failure or inability to fulfill any of its material
obligations hereunder.” 2002 Ringtone License, ¶ 14(a). Similarly, paragraph 10(d) provides for
PW USA and PW Canada to indemnify and hold EMI Music Publishing harmless from legal
expenses, counsel fees and disbursements “resulting from or in connection with any breach or
threatened breach by Licensee of any of the terms, covenants, representations and warranties
contained [in the 2002 Ringtone License].”
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43. On or about December 5, 2002, the 2002 Ringtone License was amended to add
certain Third-Party Websites to the agreement.
44. On or about December 19, 2002, the 2002 Ringtone License was amended to
extend the term for a period of two (2) years, through May 30, 2004.
45. On or about July 1, 2003, the 2002 Ringtone License was amended to expand the
territory to include the countries of Brazil, Chile, Venezuela and Mexico.
46. On or about March 9, 2004, the 2002 Ringtone License was amended, effective
October 1, 2003, to grant certain limited rights of public performance with respect to the
Approved Compositions.
47. On or about August 10, 2004, the 2002 Ringtone License was amended to extend
the term for an additional two (2) years, through May 30, 2006.
48. Pursuant to an undated addendum, the 2002 Ringtone License was amended to
include three additional Third-Party Websites.
EMI Music Publishing’s Audit of InfoSpace’s Books and Records
A. InfoSpace’s Willful Refusal To Permit EMI Music Publishing To Review Books And Records
49. At all times during the five years that the 2001 Ringtone License and the 2002
Ringtone License (together, the “Ringtone Licenses”) were in effect, InfoSpace used thousands
of EMI Music Publishing’s compositions, generating significant revenue for InfoSpace. To wit,
a 2001 Vivendi Annual Report that was filed with the United States Securities and Exchange
Commission (“S.E.C.”) demonstrates the enormous number of downloads that took place every
day on InfoSpace’s systems:
“In late 2001, VUNet USA announced the acquisition of Premium Wireless Services, Inc. (PWS)… As the parent company of YourMobile, PWS has delivered more than 90
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million ringtones to more than 12 million users in 85 countries since its inception. YourMobile/PWS’ content library is licensed for international wireless data distribution from major music publishers, more than 1,400 independent music publishers, rights societies and content studios.” (Emphasis added.)
The January 14, 2002 issue of Wireless Week similarly demonstrates the massive number of
downloads that have taken place every day:
“In May, YourMobile [now InfoSpace] boasted more than 10 million users in 85 countries and reported that it averaged 250,000 downloads per day worldwide.” (Emphasis added.)
50. Based upon these and other sources of information, it is evident that during the
five years that the Ringtone Licenses were in effect, InfoSpace distributed tens of millions of
ringtones annually. Despite the large volume of business that was publicly reported by
Defendants, EMI Music Publishing was receiving far less than the royalties that would be due on
such a large volume of ringtones. Thus, over time, it became apparent to EMI Music Publishing
that InfoSpace was not (and had not been) properly accounting for all royalties due under the
Ringtone Licenses. Indeed, it became apparent that InfoSpace was deliberately concealing
information from EMI Music Publishing in an effort to avoid paying amounts rightfully due to
EMI Music Publishing and to mislead EMI Music Publishing into foregoing any claim for such
amounts.
51. In accordance with paragraph 6(c) of the 2001 Ringtone License and paragraph
7(c) of the 2002 Ringtone License, by letter dated August 12, 2005, EMI Music Publishing
provided notice to PW USA of EMI Music Publishing’s intention to audit InfoSpace’s books and
records, and to verify the accuracy of all account statements through the period ending June 30,
2005.
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52. By letter dated September 1, 2005, EMI Music Publishing’s representative,
auditors Gelfand, Rennert & Feldman, LLP (“GRF”), provided to InfoSpace a preliminary
request for documents to be reviewed during GRF’s audit of InfoSpace’s books and records. The
items requested by GRF included standard items typically reviewed during a royalty audit, such
as ringtone retail price listings for InfoSpace and all sub- licensees, catalogue(s) of titles offered
by InfoSpace and its sub- licensees, InfoSpace’s income statements, InfoSpace’s balance sheet
and chart of accounts, general ledgers, master ringtone agreements with record companies,
performance licenses, source documents or statements received from any entity regarding any
ringtone promotion, and audit reports prepared as a result of any InfoSpace audit of sub-
licensees’ files.
53. Rather than comply with its obligation to make such documents available for
inspection, InfoSpace embarked on a course of diversion, obstruction, misdirection and
misinformation. Specifically, InfoSpace refused to provide requested documentation on the
ground that such documents are confidential, and demanded that the parties negotiate a non-
disclosure agreement to govern the audit.
54. Non-disclosure agreements are commonly used in royalty audits involving
licenses of music compositions. But, while EMI Music Publishing negotiated the terms of the
non-disclosure agreement in good faith, InfoSpace made unreasonable and inappropriate
demands that resulted in a four-month delay to finalize the agreement.
55. Then, once the non-disclosure agreement was signed, InfoSpace simply refused to
provide necessary documentation by unilaterally imposing severe limitations on the scope of the
audit. These limitations were contrary to standard practices for such an audit and made it
impossible for EMI Music Publishing to conduct a meaningful review. Specifically, when EMI
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Music Publishing requested records for 2001 and 2002, InfoSpace claimed that books and
records for the years prior to November 2003 were not onsite. Later, InfoSpace simply refused
to provide any documents from before 2003, claiming that no records prior to 2003 could be
located. As such, InfoSpace effectively thwarted EMI Music Publishing’s ability to review or
challenge any data or transactions that relate to two of the five years that the Ringtone Licenses
were in effect. For those years, EMI Music Publishing’s auditors were left with no choice but to
rely upon public statements (such as those quoted above) to determine the volume of downloads
for which royalties should have been paid.
56. Significantly, InfoSpace also did not provide any source documentation that
would verify the information contained in the quarterly royalty reports. Instead, InfoSpace
provided Excel spreadsheets that contained information manually inputted for the purpose of
creating royalty reports. Of course, these spreadsheets comported perfectly with the royalty
reports, as they were nothing more than a regurgitation of the data inputted by InfoSpace to
create those very reports. Accordingly, the information could not be verified.
B. The Results of the Audit
57. Based upon GRF’s review of the select documents that were made available,
numerous deficiencies (in addition to those noted above) in the royalty amounts paid by
InfoSpace were discovered, including but not limited to the following:
• InfoSpace miscalculated royalties due to downloads of EMI Ringtones through Third-Party Websites operated by Verizon, 7-Eleven, T-Mobile, US Cellular, Yamaha, and Midwest Wireless;
• InfoSpace failed to report royalties for eight approved sub-licensees/carriers and at least eight unapproved carriers that nonetheless distributed EMI Ringtones; and
• InfoSpace failed to pay royalties for compositions that appeared on InfoSpace’s “Ringtone Distribution Catalog” as downloaded compositions.
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58. Upon information and belief, each of the entities that now comprise InfoSpace
engaged in a deliberate pattern of obstructive conduct intended to delay and stifle EMI Music
Publishing’s review of InfoSpace’s books and records so that InfoSpace could use the delay to
ensure that the books and records ultimately produced were inaccurate, misleading and
incomplete. InfoSpace’s intent was to engage in a fraud that would conceal the true extent of
InfoSpace’s revenues, cause EMI Music Publishing to agree to maintain depressed royalty rates
in future extensions of the licenses, thwart any attempt to audit its books and records, and avoid
payment of millions of dollars in royalties due.
59. Although GRF repeatedly advised InfoSpace, both orally and in writing, of the
gross deficiencies in InfoSpace’s books and records, InfoSpace refused to cure the deficiencies
and continued to stall the audit and withhold critical and necessary information.
60. GRF compiled the limited information provided to them, made certain reasonable
assumptions designed to fill in the gaps created by InfoSpace, and calculated the royalty amounts
that should have been paid. For the years in which no data was made available, GRF was forced
to look to the volume of downloads evidenced in public filings with the S.E.C. and public
statements (as quoted above) and make a reasonable estimate, based upon EMI Music
Publishing’s share of the ringtone market, that 32.41% of those millions of downloads were EMI
Ringtones. Although an estimated 144,250,000 downloads occurred from December 6, 2000
through December 31, 2002 (of which 32.41% were likely EMI Ringtones), EMI Music
Publishing received only $142,872 in royalty payments attributable to that period. According to
GRF’s estimates, more than $6 million was due for EMI Ringtones for that period.
61. In a report dated July 6, 2006, GRF determined that InfoSpace had failed to pay
more than $10 million dollars in royalties, fees and interest due and that significant additional
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amounts were due under the Ringtone Licenses. GRF further determined that those additional
amounts could not be calculated, due to the unwarranted, severe restrictions imposed by
InfoSpace.
62. By letter dated July 20, 2006, EMI Music Publishing provided written notice to
InfoSpace that the audit conducted by GRF had resulted in findings of incorrect accounting by
InfoSpace. Included with the letter was a copy of GRF’s audit report (the “Audit Report”). The
Audit Report sets out in detail the improper conduct by InfoSpace during the audit, the
improprieties in InfoSpace’s records and the amounts that GRF calculated as due pursuant to the
Ringtone Licenses. In the July 20, 2006 letter, EMI Music Publishing also provided written
notice of its objections to all statements rendered by InfoSpace during the time period subject to
the audit.
Expiration Of The 2002 Ringtone License
63. On May 31, 2006, the 2002 Ringtone License expired, and InfoSpace no longer
had any right to exploit any of the compositions that were the subject of the 2002 Ringtone
License.
64. Upon information and belief, notwithstanding that the license has been expired for
nearly six months, InfoSpace knowingly continues to make thousands of EMI Ringtones
available for downloading from its website and from the Third-Party Websites without EMI
Music Publishing’s consent.
65. The compositions available for downloading include restricted compositions that
were expressly excluded from the 2002 License Agreement. Upon information and belief, these
unauthorized compositions were made available by InfoSpace throughout the term of the 2002
Ringtone License and at all times after the expiration of the license.
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66. Accordingly, by letter dated November 17, 2006, EMI Music Publishing provided
written notice to InfoSpace (i) that the 2002 License Agreement had expired by its terms on May
31, 2006, (ii) that, despite the expiration, InfoSpace is continuing to sell EMI Music Publishing’s
compositions without a license in violation of United States copyright law, and (iii) that EMI
Music Publishing would pursue all claims and remedies if the issues raised in the GRF audit
report were not resolved by December 1, 2006.
67. By letter dated November 29, 2006, InfoSpace responded to the GRF audit report
with an unacceptably low settlement offer that was made with no rational basis and in bad faith.
In the same letter, InfoSpace stated that, once EMI Music Publishing rejected this offer, it would
deem such rejection to be notice to remove all EMI Ringtones.
68. In light of the extreme differential between the results of the GRF audit (showing
more than $10,000,000 due and owing) and the amount offered by InfoSpace to resolve the
dispute, EMI Music Publishing did not respond to the November 29, 2006 letter but, rather,
deemed the letter and offer to be in bad faith and requiring no response.
69. Fully aware that its offer was unacceptable and had been rejected by EMI Music
Publishing, InfoSpace intentionally continued to make the EMI Ringtones available for
downloading on its website and through Third-Party Websites, without EMI Music Publishing’s
permission. Thus, InfoSpace, fully cognizant that the 2002 Ringtone License expired on May
31, 2006, elected to negotiate with EMI Music Publishing in bad faith and unilaterally
determined that such negotiations provided a basis for continuing to exploit the compositions
owned by EMI Music Publishing. During this period of unauthorized use, InfoSpace purported
to issue payment for royalties arising from downloads occurring after the expiration of the
license. In light of EMI Music Publishing’s obligation to account to the songwriters, EMI Music
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Publishing accepted this payment without prejudice to any claims arising from InfoSpace’s
unauthorized use of the compositions.
70. Upon information and belief, to date, InfoSpace has not removed any of the EMI
Ringtones from any of the relevant websites, and InfoSpace is continuing to permit (and profit
from) downloading of thousands of EMI Ringtones, including but not limited to such restricted
compositions that were expressly excluded from the Ringtone Licenses.
FIRST CLAIM FOR RELIEF (Breach of the 2001 Ringtone License Agreement )
71. Plaintiffs repeat and reallege the allegations set forth in paragraphs 1 through 70
as if fully set forth herein.
72. During the term of the 2001 Ringtone License, EMI Music Publishing performed
all of its contractual obligations.
73. Defendants breached this agreement by, among other things: (i) failing to remit
royalty amounts due and owing in excess of $6 million, plus interest; (ii) refusing to permit
Plaintiffs’ representatives access to all books and records, as required by paragraph 6 of the 2001
Ringtone License; and (iii) permitting downloading of EMI Ringtones in several territories
outside of the United States and Canada.
74. As a result of Defendants’ breaches of the 2001 Ringtone License, Plaintiffs have
been and continue to be harmed and are entitled to monetary damages in an amount to be
determined at trial, but not less than $7 million, plus interest, attorneys fees and costs.
SECOND CLAIM FOR RELIEF (Breach of the 2002 Ringtone License Agreement )
75. Plaintiffs repeat and reallege the allegations set forth in paragraphs 1 through 74
as if fully set forth herein.
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76. During the term of the 2002 Ringtone License, EMI Music Publishing performed
all of its contractual obligations.
77. Defendants breached this agreement by, among other things: (i) failing to remit
royalty amounts due and owing in excess of $2 million; (ii) refusing to permit EMI Music
Publishing’s representatives access to all books and records, as required by paragraph 7 of the
2002 Ringtone License; and (iii) permitting downloading of EMI Ringtones in several territories
outside of the United States and Canada.
78. As a result of Defendants’ breaches of the 2002 Ringtone License, Plaintiffs have
been and continue to be harmed and are entitled to monetary damages in an amount to be
determined at trial, but not less than $3 million, plus interest, attorneys fees and costs.
THIRD CLAIM FOR RELIEF (Fraud)
79. Plaintiffs repeat and reallege the allegations set forth in paragraphs 1 through 78
as if fully set forth herein.
80. Upon information and belief, throughout the term of the Ringtone Licenses,
InfoSpace knowingly and intentionally provided royalty statements to EMI Music Publishing in
which the reported number of downloads of EMI Ringtones were significantly less than the true
number of downloads.
81. Upon information and belief, throughout the term of the Ringtone Licenses,
InfoSpace knowingly and intentionally provided royalty statements to EMI Music Publishing
that failed to account for downloads occurring in several territories outside of the United States
and Canada.
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82. InfoSpace therefore falsely reported to EMI Music Publishing the number of
downloaded EMI Ringtones within the licensed territories and worldwide, as well as the amount
of the royalties payable to EMI Music Publishing.
83. Upon information and belief, InfoSpace provided these false reports in order to
induce EMI Music Publishing (i) to enter into extensions of the term of the 2002 Ringtone
License (which was a one-year term) and to continue licensing the EMI Ringtones at lower
royalty rates than would have applied had EMI Music Publishing been aware of the true,
significant number of downloads that were occurring, and (ii) to expand the territories and Third-
Party Websites covered by the 2002 Ringtone License at royalty rates that were far less than the
rates that would have applied had EMI Music Publishing been apprised of the sheer volume of
downloads occurring outside the licensed territories.
84. As a result of the materially false statements made by InfoSpace in each and every
quarterly royalty statement: (i) on or about December 19, 2002, EMI Music Publishing agreed to
amend the 2002 Ringtone License to extend the term for a period of two years at the same
royalty rate applicable to the original 2002 Ringtone License; (ii) on or about July 1, 2003, EMI
Music Publishing agreed to amend the 2002 Ringtone License to expand the territory of the
agreement to include the countries of Brazil, Chile, Venezuela and Mexico at the royalty rate
applicable to the original 2002 Ringtone License; (iii) on or about August 10, 2004, EMI Music
Publishing agreed to amend the 2002 Ringtone License to extend the term for an additional two
(2) years at the royalty rate applicable to the original 2002 Ringtone License; and (iv) on two
occasions, EMI Music Publishing agreed to amend the 2002 Ringtone License to include three
additional Third-Party Websites at the royalty rate applicable to the original 2002 Ringtone
License.
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85. As a result of the false statements by InfoSpace, EMI Music Publishing was
deprived of the benefit of the higher royalty rates that it would have negotiated in return for the
amendments set forth above.
86. As a result of this fraudulent conduct, Plaintiffs have been damaged in an amount
to be determined at trial, plus punitive damages, interest, attorneys fees and costs.
FOURTH CLAIM FOR RELIEF (Copyright Infringement)
87. Plaintiffs repeat and reallege the allegations set forth in paragraphs 1 through 86
as if fully set forth herein.
88. Plaintiffs are the owners of all right, title and interest in and to their music
catalogues and the compositions and copyright registrations therein, some of which are identified
on Exhibit A, annexed hereto.
89. During the term of the Ringtone Licenses, InfoSpace willfully and with full
knowledge of Plaintiffs’ copyrights copied certain compositions that were expressly excluded
from the Ringtone Licenses and made these compositions available for downloading on the
moviso.com website, on Third-Party Websites and outside of the contracted territories. This
unauthorized reproduction, distribution and/or sale of thousands of EMI Music Publishing’s
compositions, including some or all of the compositions on Exhibit A, constitutes infringement
of Plaintiffs’ exclusive rights to reproduce and distribute those compositions under Sections 106
and 115 of the Copyright Act.
90. At all times subsequent to the expiration of the 2002 Ringtone License, InfoSpace
willfully and with full knowledge of Plaintiffs’ copyrights copied certain compositions that were
expressly excluded from the Ringtone Licenses and made these compositions available for
downloading on the moviso.com website, on Third-Party Websites and outside the contracted
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territories. This unauthorized reproduction, distribution and/or sale of thousands of EMI Music
Publishing’s compositions, including some or all of the compositions on Exhibit A, constitutes
infringement of Plaintiffs’ exclusive rights to reproduce and distribute those compositions under
Sections 106 and 115 of the Copyright Act.
91. At all times subsequent to the expiration of the 2002 Ringtone License,
InfoSpace willfully and with full knowledge of Plaintiffs’ copyrights made the decision to
continue to make the EMI Ringtones available for downloading on the moviso.com website, on
Third-Party Websites, and outside the contracted territories. This unauthorized reproduction,
distribution and/or sale of thousands of EMI Music Publishing’s compositions, including some
or all of the compositions on Exhibit A hereto, constitutes infringement of Plaintiffs’ exclusive
rights to reproduce and distribute those compositions under Sections 106 and 115 of the
Copyright Act.
92. Annexed hereto as Exhibit B are “screenshots” taken on January 5, 2007 which
show EMI Ringtones available for downloading on InfoSpace’s website. The screenshots
include ringtones of songs that were expressly excluded from the Ringtone Licenses and,
therefore, were never subject to the Ringtone License.
93. As a result of InfoSpace’s unauthorized use of Plaintiffs’ compositions, Plaintiffs
have been and continue to be irreparably harmed and Plaintiffs are entitled to an order
preliminarily and permanently enjoining InfoSpace’s continued use of Plaintiffs’ copyrights.
94. In light of InfoSpace’s knowing and willful infringement of Plaintiffs’ copyrights,
Plaintiffs are entitled, at Plaintiffs’ election, to actual damages in an amount to be determined at
trial or statutory damages in an amount to be determined at trial, but not less than $150,000 per
composition (aggregating in excess of $100 million), plus interest and attorneys fees.
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WHEREFORE, Pla intiffs respectfully request the Court enter an order:
A. On the First Claim for Relief, awarding an amount to be determined at trial, but not less than $7 million, plus interest, attorneys fees and costs;
B. On the Second Claim for Relief, awarding an amount to be determined at trial, but not
less than $3 million, plus interest, attorneys fees and costs;
C. On the Third Claim for Relief, awarding an amount to be determined at trial, plus punitive damages, interest, attorneys fees and costs;
D. On the Fourth Claim for Relief, awarding, at Plaintiffs’ election (i) actual damages and the profits derived from Defendants as a result of their infringing activities, or (ii) statutory damages in the maximum amount of $150,000 with respect to each composition infringed by Defendants (in excess of $100 million);
E. Awarding Plaintiffs a preliminary and permanent injunction enjoining and restraining
Defendants and each of their respective officers, agents, servants, employees, attorneys, representatives, parent and subsidiary corporations or other entities in active concert or participation with them from reproducing Plaintiffs’ compositions and/or distributing ringtones embodying such compositions on the moviso.com website or any third-party website;
F. Awarding Plaintiffs their attorneys’ fees and costs arising in connection with this
action; and
G. Awarding any such other and further relief as the Court deems just and proper.
