FILE PHOTO: Former drug company executive Martin Shkreli exits U.S. District Court after being convicted of securities fraud in the Brooklyn borough of New York City, U.S., August 4, 2017. REUTERS/Carlo Allegri/File Photo

By Jonathan Stempel

NEW YORK (Reuters) -Martin Shkreli must face a lawsuit by a digital art collective that owns a one-of-a-kind album by the hip-hop group Wu-Tang Clan, and accused the convicted former pharmaceutical executive of copying the album and playing it online without permission.

In a 32-page decision on Thursday, U.S. District Judge Pamela Chen said Shkreli must face claims he misappropriated "Once Upon a Time in Shaolin" from the PleasrDAO collective, which paid about $4 million for the album in 2021.

PleasrDAO is a decentralized group that buys what its members view as culturally significant materials.

The Brooklyn judge dismissed some other claims, including two she said were preempted by federal copyright law.

Shkreli paid $2 million for "Shaolin" in 2015, but gave it up to partially satisfy a $7.4 million forfeiture order stemming from his 2017 conviction for defrauding hedge fund investors and scheming to defraud investors in a drugmaker.

In a statement on Friday, Shkreli's lawyer Edward Paltzik called the dismissal of some claims "a significant step forward in our effort to vindicate Mr. Shkreli, who we unequivocally believe engaged in absolutely zero wrongdoing."

PleasrDAO is seeking unspecified damages and profits, and for Shkreli to return "Shaolin" copies he may still have.

It sued Shkreli in June 2024, after he allegedly admitted in livestreams to copying "Shaolin" and playing it for his followers, and responded "LOL i have the mp3s you moron" when a PleasrDAO member posted a photo of the album on X.

Steven Cooper, a lawyer for PleasrDAO, said Chen's decision lets the collective "fully and aggressively" pursue its case.

DIFFERENT FROM PRINCE, JANET JACKSON SONGS

Chen said PleasrDAO plausibly alleged it employed reasonable steps to preserve the album's secrecy, including armed security guards and constant video surveillance.

She also found "no serious debate" that the album's value was based mainly on its secret and exclusive nature.

Chen distinguished the album from unreleased songs by Prince and Janet Jackson that other judges found were not protectible trade secrets.

"The independent economic value of the album comes from plaintiff's ability to exploit its exclusivity to create an 'experience' that its competitors cannot, rather than from a public commercial release or from traditional forms of music distribution" for Prince's and Jackson's songs, Chen wrote.

She said PleasrDAO "has sufficiently alleged that the album is cloaked with a 'substantial element of secrecy'" to survive Shkreli's dismissal motion.

Shkreli, 42, gained the nickname "Pharma Bro" when, as chief executive of Turing Pharmaceuticals in 2015, he raised the price of the life-saving antiparasitic drug Daraprim overnight to $750 per tablet from $17.50.

He was released early from his seven-year prison sentence, and banned from the pharmaceutical industry in 2022.

The case is PleasrDAO v. Shkreli, U.S. District Court, Eastern District of New York, No. 24-04126.

(Reporting by Jonathan Stempel in New York; Editing by Richard Chang)