RIAA defeats MP3.com in Court

4/29/00

New York (MP3 Newswire) - On Friday, US District Court Judge Jed Rakoff ruled in favor of the Recording Industry Association of America (RIAA) and declared MP3.com "liable for copyright infringement." The ruling was a severe setback for MP3.com who now must face the prospect of significant monetary damages from the ruling.


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The case is against MP3.com's service my.mp3.com.Using a tool called Beam-It, users take their CD's that they have already paid for and upload them to a private account on My.MP3.com. The account becomes a personal storage bin that allows users to play their music from anywhere they have web access in a form of personal web radio. Since the CD's were already purchased, MP3.com viewed their service as a form of time-shifting, a legal and fair use under US law.

Friday, Judge Rakoff ruled they were wrong.

"We are pleased with the court's decision today," Hilary Rosen, president and CEO of RIAA, said in a brief statement.

The RIAA, which includes most of the nation's record companies, successfully argued that MP3.com was not authorized to use the music because it does not own it and was required to obtain permission from recording companies.

"This is not a victory for the record labels--it's a loss," MP3.com Chairman/CEO Michael Robertson said defiantly in a response posted on their website. "New technologies for delivering music are here to stay, and the technology trend is moving in only one direction: forward.

"This is round one." said Michael Carlinsky hinting at a likely appeal on the decision. Carlinsky, who represents MP3.com added "There's a lot of fight left in this case."

Despite MP3.com's bravado in the face of defeat, the ruling was damaging to the company in several ways, most notably on the stock market.

Shares of MP3.com plummeted 40% on news of the negative ruling. For an Internet start-up, the effect on capital is the most severe consequence of court actions, even when the start-up wins. Most Net companies like MP3.com run in the red and anytime precious dollar flow is diverted to lawyers and court fees, investors cringe. Losing a case like this can effectively shut down the flow of capital, an effect the RIAA has incorporated into its strategy on all its high profile legal cases against MP3 companies.

What Now?

The Judges final written opinion on the case will be available within the next few weeks. Hearings to determine damages will be scheduled at that time and with demands by the RIAA of $100,000 per song, the final amount could reach $67 billion, a number that only becomes surreal in the wake of a service that earns no income.

The ruling is also expected to shut down the service during the appeals process. Until the penalties of the ruling are accessed, MP3.com will continue to run the service.

Of course, even if my.mp3.com is shut down, the idea is too good to die. It will probably live on as a pay service offered by the very music conglomerates that sued. As owners of the copyrights, they can legally run such a site themselves, creating a second profit stream from music they already sold to consumers. What really may have happened Friday is that they got rid of the competitor who thought of it and will now claim-jump the idea.

MP3.com is not dead yet. They have plenty of appeals left (though only so much money to commit to pay for it). They also own a patent on the service, which could become valuable in the negotiation process, should the legal action press on. It probably will.

But the biggest win of all for the RIAA may be how the judges details on this case will serve as a precedent that will apply to other lawsuits the organization has slapped on Net music companies. In that light, the reverberations here will linger for many years to come.

Read MP3.com's reply on the judgement: Judgement Day for MP3.com

Copyright 2000 MP3 Newswire. All rights reserved.

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