MPAA’s suit sours Scour

Internet company only left with 12 employees, the Web-based service that allows users to access multimedia music and video files from throughout the Internet, laid off most of its staff just before the Labor Day weekend as the Los Angeles-based company struggles under the weight of pending litigation.

Execs at the Internet company blamed fallout from a copyright-infringement lawsuit by the Motion Picture Assn. of America, the Recording Industry Assn. of America and the National Music Publishers Assn. for the 52 pinkslips distributed Friday morning.

Only 12 employees, including CEO Dan Rodrigues and four other founders of the company, remain, a spokesman said.

As of Monday, the Beverly Hills-based site was still up and running, even though the next round of financing that the company was seeking has been canceled.

Investors balk

“Investors with whom (Scour) was working to provide the company’s next round of financing had decided not to move forward at this time, due to concerns about the cost and management distraction that would result from the company’s pending litigation,” the company said.

A company spokesman declined to identify potential financiers with whom Scour had been negotiating.

“We remain hopeful that our dispute will come out the same way that the original David and Goliath battle did,” Scour prexy and CEO Dan Rodrigues said in a statement.

Spokesman Peter DeMarco said the layoffs were made after financing talks that had been ongoing all week failed to produce an agreement for continued funding of full operations. Remaining employees are mostly engineers who will keep the Web site running as usual, he said. started out as one of the wunderkinds of the Internet age. Developed in 1997 by a group of friends out of a dorm room at UCLA, the site allowed Netizens to search for a variety of multimedia files, including MP3s and other audio and video content.

Majors moaning

But much like Napster, this search-and-share function soon drew the ire of the major movie studios and the record labels. On July 20, the MPAA, RIAA and the NMPA filed suit against the company.

During the conference call announcing the lawsuit, MPAA prexy Jack Valenti said that, with a simple search, recently released films like “X-Men” and “The Perfect Storm” could be downloaded with the assistance of Scour.

Since then, some of the backers of the company have sought to distance themselves from the service. CEO Richard Wolpert resigned from the dot-com’s board of directors in January, and reiterated that decision by issuing a statement when the lawsuit was filed.

In addition to its Scour Exchange online community for multimedia file-sharing, also offers an online radio service, Scour Caster. Those laid off were in sales, marketing and engineering slots in content development and production, DeMarco said.

Giant enemies made

Industry analyst Arthur Rockwell of Rockwell Capital Management in Los Angeles said the developments signaled the clout of the litigants Scour finds itself facing down, particularly the MPAA.

“The MPAA is very forceful in defending intellectual property rights of the film and TV business,” Rockwell said. “Unless they can get a settlement, it appears to me that they’re dead in the water, as their entire business has been called into question. Without a settlement, I don’t see how they can survive.”

Since the lawsuit was filed, Scour has become a high-profile advocate when it comes to their interpretation of copyright issues. A summation of its defense is presented for all Netizens to view on the Web site.

“The current MPAA/RIAA/NMPA case against Scour threatens the rights of consumers as it challenges the freedom of all search engines to continue to operate on the Internet,” Rodrigues says on the site. “Scour’s services have always been, and will continue to be, completely legal, and have conformed from day one with all applicable laws and guidelines, including the Digital Millennium Copyright Act of 1998.”

No hearing date has been set in the pending lawsuit, but DeMarco said Scour’s attorneys soon will file a response to the plaintiffs’ complaint.

The plaintiffs liken the workings of Scour and its Scour Exchange file-sharing program to the much-maligned Napster music service and allege that whole movies can be accessed illegally on Scour.

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