MUSIC COPYRIGHTS VIOLATED
Sept 7, 2000
- MP3.COM Faces Heavy Court Fines
- Larry Neumeister-Associated Press
New York – A judge ruled wednesday that MP3.COM willfully violated copyrights of music companies and awarded Universal Music Group $25,000.00 per CD, a penalty that could reach as much as $250 million. U.S. District Judge Jed Rakoff said it was necessary to send a message to the Internet community to deter copyright infringement. Rakoff 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’s lawyer, Michael Rhodes, told the judge a day earlier that a penalty of any more than $500. per CD was a”virtual death sentence” for the company. Outside court, Rhodes did not reject his earlier prognosis. “Just do the math,” he said. MP3.com Chief Executive Officer Michael Robertson promised to appeal.
Rakoff said he could have given an award of as much as $150,000.00 per CD but chose a number considerably lower because Universal had not specified how it lost money because of MP3.com’s infringements, even though it could have done so. He also said MP3.com had acted more responsibly than other Internet start-ups. “The potential for huge profits in therapidly 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 statutory damages in this case,” ” 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. “If we assume the higher sum of money here, it would put MP3.com out of business. It’s very unlikely that they would recieve financing to pay these damages,” Hargil said. “In the more likely event that they could work out a payment scheme, they could survive another day, but it does still leave them with some very serious problems.” Leonard Rubin, a Chicago attorney who speacializes in copyright, trademark and entertainment law, said the decision was not a surprise given the judge’s previous rulings. “But I would not have expected the severity of the award. It’s very heavy,” he said. “The courts are not going to tolerate this kind of wholesale copying of protected works.” The ruling was closely watched by companies looking for new commercial uses for the Internet, a factor that was noted a day earlier when Universal, the world’s largest record company, urged a stiff penalty. “Music is a media, and the next infringement may be very different,” said Hadrian Katz, Universal’s lawyer. “It may be video or it may be film or it may be books or it may be something very different.” Katz had urged Rakoff to award Universal up to $450 million, saying MP3.com had copied between 5000 and 10,000 of the company’s CDs. MP3.com put the number at 4700, which would put the damage award at $118 million.
Another phase of the trial in November will determine the number of CDs involved and the total damages. Katz has said the case could end up costing MP3 as much as 3.6 billion – or roughly one tenth the industry’s annual worldwide sales – once it is forced to pay all the other companies whose copyrights it had violated when it created a catalog of 80,000 CDs. Katz declined to comment on Wednesday’s decision.
Shares of MP3.com were halted at $7.88 on the NASDAQ before the decision. When trading resumed 2 1/2 hours later, the shares plummeted 27% to 5.77 in after hours trading. Universal’s record companies were the lone plaintiffs at the trial. The nation’s four other major record companies settled with MP3 after Rakoff had found earlier this year that they had violated copyrights.