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Internet— MP3.com stock reels after ruling

Judge Intends to Send Message When

Final Damages Set

MP3.com, Inc.’s stock tumbled last week as it faced the prospect of paying out hundreds of millions of dollars in damages after a Manhattan federal judge ruled the Internet company “willfully” violated a record company’s copyrights.

The award , which published reports put in the range of $118 million to $250 million , may come into sharper focus in November when the San Diego-based Internet music provider and Universal Music Group return to court.

MP3.com officials vowed to appeal the ruling.

The company’s stock reached a 52-week low at the close of trading Thursday, the day after the court decision. It stood at 6 3/16 per share, down 21.43 percent for last Thursday. MP3.com, which trades on the Nasdaq under MPPP, had a 52-week high of 64.62. Trading was halted on the stock Wednesday and resumed Thursday.

U.S. District Judge Jed S. Rakoff ruled Sept. 6 that MP3.com “willfully” infringed Universal’s copyrights. He set damages at $25,000 per CD but not a total damage award; the number of CDs involved is the subject of the November court hearing. Rakoff said if MP3.com’s estimate of 4,700 CDs is correct, the award would be in the $118 million range, but said the number may fluctuate.

The award would be “one of the largest ever” for copyright infringement, said Jeff Riffer, an intellectual property attorney with the Los Angeles firm of Jeffer, Mangels, Butler & Marmaro LLP.

Good Conduct

The judge indicated he was holding back too, Riffer said, adding that one of his options was to penalize MP3.com by the song, not by the CD.

While complimenting the conduct of MP3.com in some instances, Rakoff said he nevertheless needed to send a message with his ruling.

” (T)here is no doubt in the court’s mind that the potential for huge profits in the rapidly 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 the statutory damages in the case,” he said.

“Some of the evidence in this case strongly suggests that some companies operating in the area of the Internet 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 continued. “They need to understand that the law’s domain knows no limits.”

The judge ruled in April that MP3.com infringed on copyrights held by a group of major music labels by creating a database of more than 80,000 albums. At the time he did not rule whether the infringement was willful.

Major Issue

The complaint focuses on MP3.com’s My.MP3.com service, which allows users to store their music digitally and then access it from anywhere via the Internet.

MP3.com voluntarily disabled the major label content from its My.MP3.com service in May while in negotiations to settle the lawsuit. The company settled with four labels that joined Universal in the suit. The latest settlement, with Sony, came in August.

MP3.com released a statement last week saying its My.MP3.com service was designed to let consumers listen to CDs they buy.

“We believe that everyone should have the right to listen to the music they purchase, even if it’s on the Internet,” said MP3.com chairman and CEO Michael Robertson.

The judge had been asked to set damages between $500 per CD and $150,000 per CD.

Factors influencing his decision, he said, included MP3.com’s “responsible” conduct since May.

“I also credit that portion of Mr. Robertson’s testimony in which he indicated that, even from the outset, he shunned the kind of lawless piracy seemingly characteristic of some others operating in this area,” the judge said.

Cary Sherman, senior executive vice president and general counsel of the Recording Industry Association of America, said his organization was “obviously pleased” with the ruling. “This should send a message that there are consequences when a business recklessly disregards the copyright law.” A Universal spokesman declined comment on the case.

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