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executives had written that they should keep the old service open so that they had the biggest potential audience when the system converted to a legitimate structure.

“Bertelsmann knew the money was being used to continue to run the infringing service until the legal service could be developed,” music publishers’ lawyer Andrew Rosenberg argued at a showdown hearing that began before the Labor Day weekend and concluded on the very day of Bertelsmann’s deadline. Speaking for some of the record labels, attorney David Stratton went even further: Bertelsmann had such control of Napster, he said, that the labels were considering suing Bertelsmann itself. “This is not just about the bankruptcy. Bertelsmann has some real exposure here,” said a third attorney familiar with the labels’ thinking. Record executives confided that they were indeed weighing a suit, and lawyers in the case said it was more likely than not. The case would be similar to the never-completed claim against Napster, that it knew about the infringement and had contributed to it. The prospect made Bertelsmann’s new leadership nervous: a now-wasted $85 million was bad; a potential billion-dollar liability was a whole new ball game. The other labels’ three-year quest to find someone to pay for the Napster piracy might end with one of their own kind.

Judge Walsh assumed that if he ruled against the asset sale, Napster would be liquidated, with less money going to the creditors than they would have gotten from Bertelsmann. But the facts were so egregious that he had no choice. There were a number of sufficient grounds to rule as he did, Walsh said, but he cited just one—that Napster hadn’t met its burden of showing that its negotiations with Bertelsmann had been at arm’s length and in good faith. “It seems abundantly clear that Mr. Hilbers had one foot in the Napster camp and one foot in the Bertelsmann camp, and was so fundamentally conflicted that I believe that the transaction was tainted,” Walsh said from the bench. “His contacts with Bertelsmann, I think, are just so significant.”

Hours after Walsh ruled against the Bertelsmann purchase, with no more interim financing available for the skeleton crew’s salaries, Napster said it planned to liquidate. “Without the engineers who created it, Napster would have no value,” Hilbers said. He fired everyone but Jensen and

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