By Alan Gahtan - September 25, 2000
In one of the first trials to test the legal boundaries of Internet music distribution, a federal judge in New York found that MP3.com willfully infringed the copyrights of Universal Music Group. After thanking counsel for guiding him through “the brave new world of rip and burn and beam and stream" Judge Jed Rakoff cautioned other online companies that, even though their technology may be “somewhat novel,” they are not immune from copyright law, concluding that Internet companies “need to understand that the law's domain knows no such limits." His ruling is sure to send that message to online copyright violators.
Settlements had previously been reached with the four other recording companies named in this lawsuit: Warner Brothers Music Group, Sony Music entertainment, EMI Group Plc and BMG Entertainment. The settlements permit MP3.com to use the music owned by those record companies in its My.MP3.com database for an undisclosed sum. In response to the settlements, MP3.com raised the defense that Universal Music Group was unwilling to settle out of court because Universal had its own economic online strategy. The MP3.com attorneys raised this issue of anticompetitive behavior, stating that Universal was a strong competitor with the agenda of trying to put MP3.com “out of business or publicly vilify” it. But Judge Rakoff said Universal’s motives were irrelevant. “No one is obliged to settled a lawsuit,” he declared.
MP3.com’s attorneys had also argued that they should be held liable for only $500 per violation, because the service did not harm Universal, but rather, encouraged CD sales. But in his precedent-setting opinion, Rakoff stated that “there is no doubt in the Court’s mind that the potential for huge profits in the rapidly expanding world of the Internet is the lure that tempted an otherwise generally responsible company like MP3.com to break the law and that will also tempt others to do so if too low a level is set for the statutory damages in this case.” He concluded that an appropriate measure of damages would be US$25,000 per CD that was used without permission.
The judge declined to determine the inclusive number of qualifying CDs, leaving the total damage amount to be assessed at the final phase of the trial in November. But based on MP3.com’s admission at trial that it copied 4,700 CDs, the award would amount to at least US$118 million, and would total as much as US$250 million, depending on the evidence proven at the hearing. But what is clear is that Judge Rakoff’s ruling was aimed not only at MP3.com, but also, as he stated in his ruling in an ostensible reference to the Napster case, to “the kind of lawless piracy seemingly characteristic of some others operating in the area.”
RIAA’s general counsel, Cary Sherman, stated in a press release following the decision, “This should send a message that there are consequences when a business recklessly disregards the copyright law. We trust this will encourage those who want to build a business using other people’s copyrighted works to seek permission to do so in advance.”
MP3.com intends to appeal the ruling. In a press release issued by MP3.com, the company’s chairman and CEO stated, “We believe that everyone should have the right to listen to the music they purchase, even if it’s on the Internet.”
The battle over intellectual property rights rages on, but the irony here is that MP3.com, unlike Napster, tried to ensure that people pay for copies of the music they want to listen to. The MP3.com service at issue in this trial involved the My.MP3.com service, which copied tens of thousands of CDs into its database, and then allowed subscribers to access to music in this library, after verifying that they owned the CD. At issue was whether the service amounted to “illegal copying” because the online music was generated from MP3.com’s CD collection, rather than the subscribers’ collection. In contrast, Napster provided the technology for music file-sharing -- users would search for music files on the Internet and copy the files themselves.
Napster narrowly escaped an injunction, and is still operating. On July 26, District Judge Marilyn Patel had issued a preliminary injunction enjoining Napster “from causing or assisting or enabling or facilitating or contributing to the copying, duplicating or otherwise [infringing] all copyrighted songs, musical compositions or material in which plaintiffs hold a copyright.” The ruling would have effectively pulled the plug on Napster, but on July 28 the Ninth Circuit Court of Appeals granted an emergency stay of Judge Patel’s preliminary injunction, finding that Napster had “raised substantial questions of first impression going to both the merits and the form of the injunction.” Notably, Napster’s appellate brief’s cites the 1992 Audio Home Recording Act, which was found by the same appeals court “to protect all noncommercial copying by consumers of digital and analog music recordings.” Oral arguments for and against the injunction are scheduled to be heard in early October.
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