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93
Corporation filed a lawsuit alleging copyright infringement against LAUNCH in the United States District
Court for the Southern District of New York. The plaintiffs allege, among other things, that the
consumer-influenced portion of LAUNCH’s LAUNCHcast service is “interactive” within the meaning of
Section 114 of the Copyright Act and therefore does not qualify for the compulsory license provided for by
the Copyright Act. The Complaint seeks declaratory and injunctive relief and damages for the alleged
infringement. After the lawsuit was commenced, the Company entered into an agreement to acquire
LAUNCH. In June 2001, LAUNCH settled the LAUNCH litigation as to UMG Recordings, Inc. The
Company’s acquisition of LAUNCH closed in August 2001, and since that time LAUNCH has been a
wholly owned subsidiary of the Company. The Company and LAUNCH do not believe that LAUNCH has
infringed any rights of plaintiffs and intend to vigorously contest the lawsuit. In January 2003, LAUNCH
settled the LAUNCH litigation as to Sony Music Entertainment, Inc. In October 2003, LAUNCH settled
the litigation as to Capitol Records, Inc. and Virgin Records America, Inc. Accordingly, BMG Music
d/b/a/ The RCA Records Label is the sole remaining plaintiff in this proceeding. On March 16, 2004 the
plaintiff filed motions for partial summary judgment on the issues of willful infringement and whether the
consumer-influenced portion of LAUNCH’s LAUNCHcast service is “interactive” within the meaning of
Section 114 of the Copyright Act and therefore does not qualify for the compulsory license provided for by
the Copyright Act. LAUNCH filed its opposition to the motions for partial summary judgment on
April 30, 2004, and a hearing on the motions was held on June 18, 2004. On November 4, 2005, the Court
issued an order denying the plaintiff’s summary judgment motions as to infringement and willful
infringement. A trial date is currently set for June 2006. The Company does not believe it is feasible to
predict or determine the outcome or resolution of the remaining LAUNCH litigation at this time. The
range of possible resolutions of such LAUNCH litigation could include judgments against LAUNCH or
settlements that could require substantial payments by LAUNCH.
On July 12, 2001, the first of several purported securities class action lawsuits was filed in the United States
District Court for the Southern District of New York against certain underwriters involved in Overture’s
initial public offering, Overture, and certain of Overture’s current and former officers and directors. The
Court consolidated the cases against Overture. Plaintiffs allege, among other things, violations of the
Securities Act of 1933 and the Securities Exchange Act of 1934 involving undisclosed compensation to the
underwriters, and improper practices by the underwriters, and seek unspecified damages. Similar
complaints were filed in the same court against numerous public companies that conducted initial public
offerings of their common stock since the mid-1990s. All of these lawsuits were consolidated for pretrial
purposes before Judge Shira Scheindlin. On April 19, 2002, plaintiffs filed an amended complaint, alleging
Rule 10b-5 claims of fraud. On July 15, 2002, the issuers filed a motion to dismiss for failure to comply
with applicable pleading standards. On October 8, 2002, the Court entered an Order of Dismissal as to all
of the individual defendants in the Overture IPO litigation, without prejudice. On February 19, 2003, the
Court denied the motion to dismiss the Rule 10b-5 claims against certain defendants, including Overture.
On August 31, 2005, the Court entered an order confirming its preliminary approval of a settlement
proposal made by plaintiffs, which includes settlement of, and release of claims against, the issuer
defendants, including Overture. A hearing on the fairness of the settlement to the shareholder class is
currently set for April 24, 2006. If the settlement does not occur, and litigation against Overture continues,
the Company and Overture believe that Overture has meritorious defenses to liability and damages and
will continue to defend the case vigorously.
The Company does not believe, based on current knowledge, that any of the foregoing legal proceedings or
claims are likely to have a material adverse effect on its financial position, results of operations or cash
flows. However, the Company may incur substantial expenses in defending against third party claims. In
the event of a determination adverse to the Company or its subsidiaries, the Company may incur
substantial monetary liability, and be required to change its business practices. Either of these could have
a material adverse effect on the Company’s financial position, results of operations or cash flows.