Artists Go After MP3.com

By R Menta - 5/9/01

Maybe it wasn't such a good idea for MP3.com to settle its court case with the major labels. It made good business sense at the time, rather than spend a hundred million dollars on a legal trek to the highest court in the land, they used it to pacify the grievances of the copyright holders and moved on. Sure they still think they are right, but MP3.com's primary goal was to get on with their business and right or wrong the litigation was too costly for business.


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The problem is the group MP3.com settled with, the major labels, may not turn out to be the true copyright holders. Worse yet, their settlement has now set a precedent that is drawing suits from those who claim to be the real owners of the digital copyrights, the artists.

This week recording artists Randy Newman, Tom Waits and members of the rock band Heart have filed a $40.5 million federal copyright infringement suit in Los Angeles against MP3.com. The suit seeks the maximum statutory damages available under the Copyright Act of $150,000 per infringement alleging that they, the artists, own the digital rights to music made available on the My.MP3.com service.

If this suit turns out to have wings it can open the floodgates for thousands of other artists to lay claim against the company for damages. But they just paid $130 million to the record companies to settle these copyright disputes, how did MP3.com get in this fix?

A little background

MP3.com created a service called My.MP3.com where users take their CD's that they have already paid for - the key here is paid for - and upload them to a private account on My.MP3.com. The account becomes a personal storage bin that allows you to stream your music over the Internet to anywhere you have web access, for example your job. Think of it as a giant CD caddie you DON"T have to carry around with you.

It is in essence a Web radio feed where you stream only your own personal music collection to yourself. This provided a great convenience for music fans who wanted to listen to their tunes at work but didn't want to drag their CD collection back and forth. Because only music paid for could be played on the service it was not expected to draw the ire of the record industry. Another company doing exactly the same thing called MyPlay.com was called legal by the record industry and left alone. There was only one difference between MyPlay.com and My.MP3.com, a difference that would set the latter up to lose on a technicality.

On MyPlay.com, the user had to upload the contents of each CD over the Net to the storage locker, a long and tedious process. It also created a collection of thousands of duplicated song tracks on MyPlay.com's servers.

To save that aggravation MP3.com bought - the key here is bought - thousands of CDs and pre-stored the music on their site. Using a software called Beam-it the user would insert each CD into the caddie where the program would read it, confirm the user indeed owned a copy, and alerted the My.mp3.com service to grant the user stream access to the single copy of the song already stored on their service. Practical, efficient and a definite improvement over the MyPlay.com service.

The major labels sued MP3.com. They won easily.

How? They won because the judge found the collecting and pre-storing of those CD's, even though paid for, was in itself an act of copyright infringement once those files were made available to the public. The ruling in federal court in New York led MP3.com to settle with four of the five major labels for $20 million each in order to end the litigation. The fifth label, Universal, waited until the court announced an award figure and maneuvered a $50 million settlement from the company.

Needless to say, MP3.com disagrees with this decision. One could argue that the company should have cleared up the rights issues with the record industry first before proceeding with the service, but who says they needed additional rights in the first place? MyPlay.com certainly didn't need them. It was the pre-storage of the files on MP3.com service that ran them afoul of the judge during their trial in the federal court system, not the delivery of them.

The harsh truth is while reversals on appeal happen frequently the cost of continuing the fight, both financial and otherwise, could easily exceed the cost of settling even if MP3.com won in the end. That's what the company concluded at least and why they settled. Now it looks like it may have only made thing worse.

First, lawsuits from the independent labels whose works were also made available on the service have cropped up. These smaller labels want to be part of that settlement as it would bring in a significant cash windfall to them. MP3.com's distaste for a drawn out legal fight only told the smaller labels that the company will eventually settle with them too. Even fellow Net music site EMusic got in on the act, claiming they already purchased the digital rights to some of the music streamed on My.MP3.com. Their suit is for $10 million.

The lawsuit from above mentioned artists open up a new front, expanding the case into a legal maelstrom for MP3.com.

Who owns the digital rights?

Who really owns the digital rights to music compositions? The truth is we really don't know yet. The record labels were the first to claim them and for a while everyone assumed they did, but that claim is now being contested by others including the artists themselves. Prior to the rise of Internet file trading you won't find mention of digital rights in any record contract because they didn't exist (such rights are included now). Because these rights were not prearranged in older contracts there is an argument that they were therefore never awarded and remain with the artist.

This is a huge issue. Since there is debate over who truly owns the digital rights to music many are laying claim to it in hopes of getting all or a piece of it eventually awarded to them. Even artists from the 50's who signed away all their rights under egregious terms now see a chance to again receive income for their work, even despite a recent court setback (see Court Rules Musicians Do Not Own the Digital Rights to Their Songs).

In the case of the Newman, Waits, and Heart they actually retained the copyrights to their music even in the anaolg space. They are also not seeking damages for the copyrights of the master recordings (original perfomances) as the record labels did, but are seeking damages on the copyrights to the songs themselves. This parsing of the rights illuminates yet another front for the newly created world of digital rights as one song could be split in several pieces, each with a different owner.

No one realizes this more than the record industry itself. As the record companies begin to innagurate their own Napster and My.MP3.com services, they too are faced with claims by artists and the Harry Fox agency. Recently several artists and publishers sued Universal (see Citing Napster case, tunesmiths accuse labels of double standard) saying it violated copyright laws by making songs available on one of its Web site, Farmclub.com, without obtaining the permission of the songs’ publishers.

The courts are going to play referee on these cases for the coming years, evaluating claims and coming to conclusions based on copyright laws that were simply not designed to handle questions regarding the efficiencies of Net music distribution. It will be a long drawn out process with numerous and expensive appeals. Congress can act to clarify present copyright law, but they seem reluctant to do that, encouraging the open market to settle it among themselves.

Whatever the outcome the point is clear. Whoever is claiming rights; companies, individuals or agencies, will sue MP3.com for damages. That is why the company needs to appeal and reverse the previous decision against them.

Like any small company, MP3.com does not want to waste limited resources to the courts. What they want to do is develop new business opportunities by offering consumers unique services. That's called innovation and is crucial to any commercial industry. On the outset, giving consumers easier access to music they already purchased sounds like a great application of the Internet's efficient distribution. Instead it has turned into a legal nightmare.

It doesn't matter if MP3.com can prove their point in the end, the path through the court system looks to be a pyrrhic solution, one where even victory could do too much damage to the company. That is why they chose to pay. Ironically, writing those checks did not take them out of the court system it only opened up the line to additional litigants. They are going to be forced to fight anyway.

 


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