MP3.com to Pay $118M in Copyright Case

A federal judge ruled today that the Internet music-sharing service MP3.com willfully violated the copyrights of record companies, and ordered it to pay Universal Music Group roughly $118 million, or $25,000 per CD.

U.S. District Judge Jed S. Rakoff said it was necessary to send a message to the Internet community to deter copyright infringement.

Rakoff said he could have awarded as much as $150,000 per CD but chose a considerably smaller amount, in part because MP3.com had acted more responsibly than other Internet startups.

Universal Music Group, the world’s largest record company, had urged a stiff penalty in the closely watched case.

“Music is a media and the next infringement may be very different,” said Universal lawyer Hadrian Katz. “It may be video or it may be film or it may be books or it may be something very different.”

Katz had urged the judge to award the record company up to $450 million because MP3.com had copied 5,000 to 10,000 of the company’s CDs.

The lawyer said such a penalty would cost MP3.com as much as $3.6 billion once the company was forced to pay all the other companies whose copyrights it had violated when it created an online catalog of 80,000 CDs.

Shares Halted Prior to Decision

Shares of MP3.com were halted before the decision; the most recent trade was at $7.88 per share, down 68.8 cents on the Nasdaq Stock Market.

Universal’s record companies were the lone plaintiffs at the trial. The nation’s four other major record companies settled with MP3.com after Rakoff found earlier this year that MP3.com had violated copyrights. The amount of the settlements were not disclosed but the company set aside $150 million recently to cover its legal costs, including the deals.

Michael Rhodes, MP3.com’s lawyer, pleaded with the judge not to impose a penalty “in the Draconian range of $400 million, an award that could never be satisfied and would end up being the largest paper award in history.”

He said Universal did not deserve what he described as a windfall.

“There’s not one iota of evidence that they even lost a penny,” he said.

MP3.com chief executive Michael Robertson testified that the company went to great lengths to develop software that would require customers to prove they already own CDs before they were permitted to hear their favorite tunes over the Internet.

More Lawsuits May be Pending

MP3.com caused a stir in early January when it began the MyMP3.com listening service, which allows customers to hear CDs from anywhere once they prove they own them by inserting them into a computer CD slot.

MP3.com, Rhodes said, voluntarily suspended the illegal aspects of the service as soon as the judge ruled and sought to negotiate business deals with the record companies.

Despite the settlements, as many as half of the CDs in MP3.com’s collection may not be covered by the deals, meaning that a large ruling for Universal could prompt a wave of fresh lawsuits against MP3.com, he said.

He noted that music publishers also had not reached deals with MP3.com.

Rhodes suggested the company not be penalized any more than $500 for each of what MP3.com estimates is 4,700 CDs in the Universal collection that would be subject to a court order.

But Katz said a $2.4 million award against MP3.com would send the wrong message to other entrepreneurs who might want to test copyright laws.

“Massive copyright infringement is the kind of innovation that needs to be deterred,” he said.

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