MP3.com to Pay $118M in Copyright Case

ByLarry Neumeister

N E W  Y O R K, Sept. 5, 2000 -- A federal judge ruled today that theInternet music-sharing service MP3.com willfully violated thecopyrights of record companies, and ordered it to pay UniversalMusic Group roughly $118 million, or $25,000 per CD.

U.S. District Judge Jed S. Rakoff said it was necessary to senda message to the Internet community to deter copyrightinfringement.

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

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

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

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

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 othercompanies whose copyrights it had violated when it created anonline catalog of 80,000 CDs.

Shares Halted Prior to Decision

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

Universal’s record companies were the lone plaintiffs at thetrial. The nation’s four other major record companies settled withMP3.com after Rakoff found earlier this year that MP3.com hadviolated copyrights. The amount of the settlements were notdisclosed but the company set aside $150 million recently to coverits legal costs, including the deals.

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

He said Universal did not deserve what he described as awindfall.

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

MP3.com chief executive Michael Robertson testified that thecompany went to great lengths to develop software that wouldrequire customers to prove they already own CDs before they werepermitted to hear their favorite tunes over the Internet.

More Lawsuits May be Pending

MP3.com caused a stir in early January when it began theMyMP3.com listening service, which allows customers to hear CDsfrom anywhere once they prove they own them by inserting them intoa computer CD slot.

MP3.com, Rhodes said, voluntarily suspended the illegal aspectsof the service as soon as the judge ruled and sought to negotiatebusiness deals with the record companies.

Despite the settlements, as many as half of the CDs in MP3.com’scollection may not be covered by the deals, meaning that a largeruling for Universal could prompt a wave of fresh lawsuits againstMP3.com, he said.

He noted that music publishers also had not reached deals withMP3.com.

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

But Katz said a $2.4 million award against MP3.com would sendthe wrong message to other entrepreneurs who might want to testcopyright laws.

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

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