- The Washington Times - Thursday, September 7, 2000

NEW YORK (AP) A judge ruled yesterday that MP3.com willfully violated copyrights of music companies and awarded Universal Music Group $25,000 per CD, a penalty that could reach as much as $250 million.

U.S. District Judge Jed S. Rakoff said it was necessary to send a message to the Internet community to deter copyright infringement.

Judge 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 attorney, 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, Mr. Rhodes did not reject his earlier prognosis.

"Just do the math," he said.

MP3.com Chief Executive Officer Michael Robertson promised to appeal.

Judge Rakoff said he could have given an award of as much as $150,000 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.

But experts were surprised at the severity of the ruling.

"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 receive financing to pay these damages," Mr. 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 specializes 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 judge is really trying to say, 'Listen all you MP3 types out there on the Internet, you better make your hay, because the sun is setting. 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 attorney. "It may be video or it may be film or it may be books or it may be something very different."

Mr. Katz had urged Judge Rakoff to award Universal up to $450 million, saying MP3.com had copied between 5,000 and 10,000 of the company's CDs. MP3.com put the number at 4,700, 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.

Mr. Katz has said the case could end up costing MP3.com 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 an on-line catalog of 80,000 CDs.

Mr. Katz declined to comment on yesterday's decision and referred calls to the Recording Industry Association of America.

Shares of MP3.com were halted before the decision. The most recent trade was at $7.88 per share, down 68.8 cents on the Nasdaq Stock Market.

MP3.com upset the record companies in January when it 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.

Universal's record companies were the lone plaintiffs at the trial. The nation's four other major record companies settled with MP3 after Judge Rakoff found earlier this year that MP3 had violated copyrights. The amount of the settlements were not disclosed, but the company set aside $150 million recently to cover its legal costs, including the deals.

Mr. Robertson testified during the one-week trial that the company went to great lengths to develop the software that would require customers to prove they already owned the CDs before they were permitted to hear them over the Internet.

Mr. Rhodes, MP3.com's attorney, pleaded with the judge not to impose a penalty "in the Draconian range of $400 million, an award that could never be satisfied and would end up being the largest paper award in history."

He said 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.

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