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Thursday, September 7, 2000

$250 million judgment in MP3.com lawsuit
Music-sharing company says paying such a penalty will be a 'death sentence'
By Larry Neumeister
Associated Press
NEW YORK - A federal judge Wednesday ordered MP3.com to pay as much as $250 million to Universal Music Group for violating the record company's copyrights by making thousands of CDs available for listening over the Internet.
   U.S. District Judge Jed S. Rakoff punished the online music-sharing service at $25,000 per CD, saying it was necessary to send a message to Internet companies. The exact number of CDs involved and total damages will be determined at a November hearing.
   Universal Music Group, the world's largest record company, had urged a stiff penalty in a case closely watched by Napster and other businesses that share music or other copyrighted material over the Internet.
   The judge said some Internet companies "may have a misconception that, because their technology is somewhat novel, they are somehow immune from the ordinary applications of laws of the United States, including copyright law."
   He added: "They need to understand that the law's domain knows no such limits."
   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.
   MP3.com said it will appeal. The company had argued that a penalty of any more than $500 per CD would be a virtual "death sentence."
   Shares of MP3.com were halted at $7.88 on the Nasdaq Stock Market before the decision.
   When trading resumed 2 ½ hours later, shares plummeted 27 percent to $5.77.
   "The ruling was much harsher than I anticipated, as it puts the company literally on the brink," said Nitsan Hargil, an analyst at Kaufman Brothers in New York.
   Leonard Rubin, a Chicago attorney who specializes in copyright, trademark and entertainment law, said it was clear courts are not going to tolerate "wholesale copying of protected works."
   Universal was the only plaintiff. 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 was not disclosed, but MP3.com set aside $150 million recently to cover its legal costs.
   Universal lawyer Hadrian Katz had asked the judge to award the record company up to $450 million.
   "Music is a media and the next infringement may be very different," Katz said. "It may be video or it may be film or it may be books or it may be something very different."
   According to Universal, MP3.com copied 5,000 to 10,000 of its CDs, which means damages could reach $250 million. MP3.com has put the number of CDs at 4,700, which would put the damage award at nearly $118 million.
   Katz declined to comment on Wednesday's decision and referred calls to the Recording Industry Association of America.
   Cary Sherman, a lawyer for RIAA, said, "We're obviously pleased with today's ruling. This should send a message that there are consequences when a business recklessly disregards the copyright law."
   MP3.com lawyer Michael Rhodes argued that 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.
   In January, the company 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, suspended the illegal aspects of the service when the judge ruled earlier this year that MP3.com was violating copyrights. The company then sought to negotiate deals with the record companies.
   Earlier this year, a federal judge issued an order that would have virtually shut down Napster's music-sharing service. The injunction, which is on hold pending an appeal, was sought by the RIAA, which sued Napster for copyright infringement.
   Unlike Napster, which allows individuals to swap music in the popular MP3 format, MP3.com allows people to listen to songs but not download them to their computers. MP3.com has an online catalog of 80,000 CDs.

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