Score One for the Record Industry

Baldwin Louie — Mon, 08 May 2000 18:00:00 -0400

MP3.com (MPPP) lost its first court battle on Friday with the five major record labels. New York district Judge Jed Rakoff granted partial summary judgment in favor of the Recording Industry Association of America in its suit against MP3.com for copyright infringement. The RIAA objected to MP3.com's My.MP3.com service, which lets consumers get encoded MP3 copies of CDs they already own from MP3.com's database, without the hassle of encoding them themselves.

My.MP3.com allows consumers to log in to their account and access their MP3 music collection from any computer. But the most interesting and controversial feature of the service is called Beam It: Using a free piece of software, consumers can pop in a physical CD, and in a matter of seconds, an MP3 version of that CD will appear in their My.MP3.com account. The feature saves users time in encoding the CD using encoding software called a Ripper. Since its launch Jan. 12, the service has attracted 400,000 subscribers.

But the major labels have not shared consumers' enthusiasm. Ten days after My.MP3.com's release, the RIAA filed suit against MP3.com, claiming that the San Diego-based Web company violated copyright law. MP3.com countered that because the consumer already owns the CD, My.MP3.com service is perfectly legal. The judge disagreed.

Rakoff's ruling sent MP3.com's stock plummeting 40 percent. An explanation of the judge's decision will come during the next two weeks. An injunction from the labels ordering MP3.com to discontinue service for copyrighted music is expected this week.

MP3.com CEO Michael Robertson held firm. "When new responsible technologies for delivering music like My.MP3.com are attacked and shut down," he says, "it leaves a vacuum for technologies that are not responsible, like Napster and Gnutella, to come in."

Damages from the suit could be devastating. The RIAA is seeking $150,000 for each major label-owned musical track in MP3.com's database. Given that the database contains 80,000 CDs, MP3.com could owe the majors up to $120 billion.

Robertson says MP3.com was "absolutely not" considering filing for bankruptcy to pay the damages. He also alluded to possible settlements. Whether the majors will settle with a company that has been a thorn in their side from its inception is another matter.

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Score One for the Record Industry