The company said in a statement that it has laid off 52 of its 70 employees because investors with which it had been negotiating for additional funding “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 was sued by the Motion Picture Association of America (MPAA), the Recording Industry Association of America (RIAA) and the National Music Publishers Association (NMPA) in July for copyright infringement by connecting internet users who swap music and video files through its Scour.com service.
The case is similar to that of Napster, the MP3 file swapping service. Like Napster, Scour Exchange uses so-called peer-to-peer technology that lets people access files directly from one another's hard drives through a central server.
The company’s 24 year-old president and CEO Dan Rodrigues has tried to distinguished the legality of his company from Napster. He said:
“We're obliged to provide a process for copyright holders to notify us of infringing links, then we take down those links. We also track repeat copyright infringers. We have a three strikes policy and we kick users off in the event that they're repeat infringers.”
The company is now reduced to a number of executives and engineers who will keep the web site operational and continue the defence against the lawsuit. Dan Rodrigues said: “We remain hopeful that our dispute will come out the same way that the original David and Goliath did.”