Ruling Another Blow for Web Music

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U.S. District Judge Jed S. Rakoff's ruling last week against's music-storing service was viewed as a bellwether decision by many watching the legal controversies in the Internet music market.

Rakoff ordered MP3 to pay $25,000 per compact disc to Seagram Co.'s Universal Music Group because the music site's violates copyright law.

MP3 is expected to appeal. If the ruling stands, the music-sharing site would have to pay cash estimated as high as $250 million. The number of CDs involved and total damages will be decided in November in court.

MP3 had said before the ruling that a verdict of $500 per CD might put the Web company out of business.

The high-dollar ruling sends a strong message to Internet music services like MP3 and, said Jim Kendrick, entertainment lawyer at Brown Raysman Millstein Felder & Steiner LLP, New York.

"It definitely puts down a marker. There's no question about it," he said. "It shows a (court) sensitivity to the realities of established businesses that sell these products."

Cary Sherman, senior vice president and general counsel of the Recording Industry Association of America, lauded the ruling.

"This should send a message that there are consequences when a business recklessly disregards the copyright law," she said.

Kendrick said the ruling leaves questions for music-sharing sites and major labels alike insofar as the legal boundaries of free distribution of copyrighted music or video content.

"Resolving the issue of fair use got absolutely nowhere," he said., a site that offers free songs from independent artists, doesn't offer major label artists mainly because of the potential of the expensive legal trials and settlements that have riddled MP3, said Mark Ebedes, director of business development at Music4Free, Ontario.

However, Ebedes said, Universal was only trying to make up for its market and technological shortsightedness with the court battle.

"They are just trying to salvage whatever they can," he said. "We are obviously disappointed in the ruling. We would like to see win out because they promote digital music, which helps what we do."

Rakoff ruled in April that MP3 violated copyright law by creating a database of more than 80,000 albums that, when combined with its software, allows users to store music digitally. Since then, Time Warner's Warner Music group, Sony's Sony Music Entertainment, Bertelsmann's BMG and EMI have reached licensing agreements with MP3 that allow their music to be made available at the site.

Financial terms of the agreements haven't been announced. However, MP3 users now must verify first that they own compact discs of the music before adding digital titles to their storage. There was no such requirement before the deals.

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