Online music battle intensifies

September 20, 2000

S ome of the biggest players in the online music industry were dealt a crushing blow this week by a U.S. District Judge. The costly decision leaves the future of MP3.com, Napster and other Internet music companies in peril.

Wednesday's ruling by Judge Jed Rakoff slammed online music distributor MP3.com with a staggering fine of $25,000 per violation of Universal Music's copyrights.

At issue are thousands of Universal music CDs stored on MP3.com's site as part of their My.MP3.com "music locker" service. Users could access these CD's by simply inserting a copy of a disc in their computer once, thereby "confirming" that they own that album. They then could listen to that particular CD from the MP3.com site to their computer over the Internet.

"There is no escape from the finding that the defendant willfully infringed on the plaintiff's [Universal Music] copyrights," Rakoff said in his ruling.

Rakoff also harshly criticized other companies engaged in providing copyrighted music online. "Some of the evidence in this case strongly suggests that some companies operating in the area of the Internet may have a misconception," he wrote, "that because their technology is somewhat novel, they are somehow immune from the ordinary applications of laws of the United States, including copyright law."

MP3.com estimates there were 4,700 compact discs in their CD database covered under Universal copyrights. That would put their liabilities at around $115 million. This figure is well within the $150 million MP3.com had purportedly earmarked for legal fees, according to recent securities filings by the company.

But, Universal music claims there are over 10,000 titles in the My.MP3.com database, which would put MP3.com's damages at a whopping $250 million. This amount could easily put the company into a precarious financial situation, possibly leading to bankruptcy.

In a surprise move, MP3.com announced yesterday that they will be reactivating the My.MP3.com service despite the ongoing court battle. The company plans to turn the controversial service back on in a couple of weeks.

MP3.com had reached out of court settlements with four of the five major record labels, and still believes that some kind of settlement with Universal Music is possible.

"We were disappointed," MP3.com CEO Michael Robertson told the Associated Press. "We not only settled with the other four plaintiffs but we got a license going forward." He remarked that it seemed puzzling that Universal adamantly pursued the court action after the other labels had settled.

"It's possible [to reach a settlement with Universal] but challenging," Robertson said, adding that he's optimistic for his company's appeal chances.

This decision comes at a time when Internet music companies like Napster are weathering their own legal and financial troubles. Napster, who provides software that allows users to share music over the Internet, barely escaped being shutdown by a court order in July.

Napster still faces a copyright infringement court date early in October.

Other file-sharing services aren't fairly well at the moment either. Scour, which allows users to directly share files and music instead of through a network like the Napster service, recently laid off dozens of employees, citing financial problems as the cause.

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